The Benefits of Invoice Factoring for Your Telecom Vendor Business
A small business depending on a large telecom company to pay their bills on time can quickly find themselves in a financial rut. Invoice factoring for telecom suppliers will not only keep your service up and running; it can put you ahead of your competitors.
How Does Invoice Factoring for Telecom Businesses Work?
Factoring receivables is an alternative funding solution for businesses. It does not require you to hand over a part of your business to a third party, nor will it put you into debt. Instead, you are advanced the money that your telecom clients owe you. What this means is that rather than having to wait for 30, 60 or even 90 days for their customer’s accounts payable department to send you a check, you can have up to 90% of your funding within 24 hours of generating an invoice for your customers.
Is Collateral Required With Invoice Factoring?
The “collateral” a telecom company is providing for a factoring cash advance is the invoice, which is the guarantee that the money will be paid back. No machinery, stakes in the business or another type of collateral is required by the factor who is advancing you the funds.
How Much Does Invoice Factoring Cost a Telecom Vendor?
Since accounts receivable financing is not a loan, there are no accruing interest charges just factoring fees paid in arrears after your customers pay the factor. Factoring companies “buy” the invoice from you at its value, minus the 20% reserve of the total bill. Once the notification factoring company has received full payment from your client, you are given the balance minus their fee. That small fee (1.5-3%) is easily recoupable when you generate new business from a steady flow of working capital cash.
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Why Would a Supplier to a Telecom Company Need AR Factoring?
Large telecom companies are working with dozens of smaller contractors. These can be small sales personnel providers, cable installers, and disconnect companies. They are also working with large contractors to install underground and cable lines. When your business sends them an invoice for the telecom service you provided, it is lumped together along with everyone else’s. You then have to wait for their accounts payable department to resolve your invoice and send it to your receivables.
In the meantime, you need to pay your sales people, buy more cable or add a van to your fleet, which can be difficult for small businesses and startups, who are operating “hand to mouth.” The funding solution lies in having those invoices purchased in advance by a third party, giving you the cash flow you need almost immediately after the invoice is created for the job.
Who Collects Payment after an Invoice is Sold?
One of the added benefits to receivables invoicing is that you do not have to bother with collecting from your clients. The non-recourse factoring company is paid by them directly, and the risk of delinquency and lack of payment is reduced because you have credit insurance with each factoring arrangement. They can also be used to provide credit histories for new customers before you begin doing work for them.
Does AR Factoring Impact a Business’ Credit Standing?
AR factoring is not done through a bank loan or traditional lenders, but rather with the help of alternative business finance companies who look at factors other than credit ratings. Not only is the business’ credit rating unaffected by factoring their invoices, but no credit check of your business is required to be able to take advantage of the service. This is ideal for start-up telecom services providers who may not yet have developed a credit history, but desperately need a steady flow of working capital to grow.
If your telecommunication company does have accrued debt, factoring invoices can help you get out of it fast and improve your credit rating. By having quick access to cash when you need it, you can take full advantage of debt consolidations and early pay discounts to save money and eliminate debt.
With Accounts Receivable Factoring You Decide How Much is Financed?
Factoring gives a small telecommunications business the flexibility in deciding how much of their receivables they need to sell. You may be having a good month now, and only need to factor one account. When next month rolls around, and it is time to invest in rolls of cable, you have the option of accounts receivables factoring as many of your open accounts that you need to cover that cost.
Typical lending products do not have this type of flexibility where you are required to make repayments regularly, no matter how your telecom provider business is doing that month. Invoice factoring also gives you the flexibility to use the inflow of cash on what your business needs. It could be to meet payroll expenses, cover overhead costs, or take care of other daily operating expenses. Alternatively, that money can be used to buy new machinery or other supplies that are helping to grow your telecommunications business. Alternative business lenders typically do not concern themselves with for what purpose you are using the cash advance from accounts receivable factoring.
Why Invoice Factoring is Better Than a Line of Credit?
Some telecom supplier owners make the mistake of using credit cards or high-cost ACH loans to help cover expenses. This is especially true of start-ups and smaller companies who do not qualify for a business loan. That is a bad solution to a cash flow problem because not only is it putting you into debt, but it is also increasing your monthly financial obligations. The start of a cycle of working capital deficits is tough to overcome. AR factoring stops that cycle because it is not giving you money that must be returned. Instead, you are receiving 80% of your money, just ahead of time by 30-90 days.
There is a high demand for telecommunications, making this an extremely competitive industry with a tough entry point. Give yours an edge over your competitors by ensuring a constant flow of cash. With this, you will be able to build a stronger business that the large telecom companies will look for when they need a job fulfilled.