Every business can run into problems that are caused by clients who take months to pay for the services you provided for them. Fortunately, there is a solution to fix these situations and prevent your business from taking out a bank loan.
Factoring unpaid invoices is a great way to have a steady flow of cash to increase the growth of your business and have money to pay off large bills. It will stop business owners from worrying every night about financial difficulties due to outstanding invoices that take up to 30 or 90 days before clients or insurances pay them off.
One of the businesses that could benefit the most out of invoice factoring is nurse staffing companies. When dealing with clients that use a medical insurance company to pay you for providing them with caring nurses, it could take months to get paid by them. Many invoice factoring companies such as prnfunding.com can help guide you through the steps to start the process of receiving a steady cash flow.
This can be your guide to learn everything about factoring invoices and how it works.
What is invoice factoring?
Invoice factoring is seen as a different type of financing that focuses on helping businesses to receive cash immediately instead of waiting for an outstanding invoice to get paid.
The purpose of invoice factoring is to prevent financial struggles that happen from waiting for clients to pay their bill. Invoice factoring only involves three parties, which are the business owner, the clients, and the company that will factor the invoices. It is not a bank loan, it is a much more flexible option that will guarantee that your business keeps running.
When a business owner begins to notice that waiting for clients to pay for their invoices is causing a major damage for their company, they find an invoice factoring company to sell the unpaid bills to at a discounted rate for immediate cash. Once the unpaid invoices are sold, the factoring company will be responsible for collecting the amount of money from the debtor.
How does invoice factoring work?
Selling an invoice to a factoring company starts when the business owner offers it for immediate cash. A factoring company will provide business owners with an advance payment that is 70% to 90% of the total invoice.
For example, if you have an unpaid invoice that is worth $20,000 and your client is taking more than 60 days to pay it off, that could lead to financial struggles for your business as it depends highly on it. Since you need money to keep your business profiting, you can consider selling your unpaid invoice to a factoring company for $17,000 that you will receive within 24 hours of sale. After you sell the unpaid invoice, the factoring company will take the responsibilities of collecting the money from your client and give you the remaining amount from the $20,000 after they take out the factoring fees.
The process of factoring invoices is very easy, quick, and ensures that you get money in your bank account instantly.
What are the differences between recourse and non-recourse factoring?
When you begin searching for an invoice factoring company, you will find two main options to choose from and they are recourse factoring or non-recourse factoring. Each choice has a lot of benefits for your nurse staffing business, it will be up to you to know which one will provide the best results.
Recourse factoring
Recourse factoring is an option for business owners to sell the unpaid invoices while agreeing that you will take the responsibility if your client doesn’t pay the factoring company within a certain time period.
When choosing recourse factoring, the factoring company will pay you for the invoices immediately and give the debtor, who is your client, a time period that could be 60 to 90 days, or 90 to 120 days for an extreme case, to pay them the full amount of the bill.
If the debtor doesn’t pay the factoring company within that time period, you will be asked to provide them with a different invoice, return the money, or have it deducted from other invoices that you factor. Overall, the decision will be made by the factoring company and the terms that you will agree on.
This option is the most favorable among many businesses, especially nurse staffing agencies, as you will sell your invoices for a great amount of money and won’t cost you a lot.
Non- recourse factoring
Non-recourse factoring is an option that will free you from all responsibilities the second you sell the unpaid invoices. When you provide the factoring company with unpaid invoices that you want to sell, you will also be handing out full responsibility to them as well.
If the factoring company gives their customers the non-recourse option, that means that you will not be responsible for the debtor if he doesn’t pay them for the invoice. You will be able to keep the amount of money you sold the unpaid invoices regardless of the result that the factoring company gets when they try to collect the owed money from your client.
While this seems like a great choice that the factoring company will accept full financial responsibility, you are still required to follow the terms in order to get the invoices approved for non-recourse.
Some of the non-recourse factoring terms for nurse staffing agencies are:
- The clinic or client’s hospital filed for bankruptcy when the invoice was factored.
- The clinic or the client’s hospital decided to go out of business when the invoice was factored.
- There is a dispute between your nurse staffing agency and the client who hired your employees.
- The client is being difficult when your nurse staffing agency tries to collect the money that is owed.
Generally, invoice factoring companies will not approve any unpaid bills from clients that have a record of creating problems, refusing to pay, or taking a very long time to pay it off. Each factoring company has its own rules, and it’s best to try exploring every option before making a decision.
Recourse vs non-recourse factoring
For each factoring option you get pros and cons, it will ultimately depend on what works best for your business.
Recourse factoring has great benefits such as high advance payment rates of the total invoice amount and lower fees for factoring. For this option, the future of your financial responsibilities for the unpaid invoices will rely on the debtor to pay the factoring company within the time period they gave them or you will have to find a way to pay them back for the invoices that the company couldn’t factor.
Non-recourse factoring will ensure that the money you receive from selling the unpaid invoices to the factoring company will remain in your bank account. If the debtor doesn’t pay the factoring company, it is not your responsibility to fix that. The only downside to this option is that it will cost you more money by selling the invoices at a higher discount rate and there is a possibility that you won’t get approved for non-recourse factoring.
Are there extra fees to factor invoices?
An invoice factoring company is similar to any service that you receive and that includes additional fees. Aside from the advanced payment that will be 70 to 95 percent of the total invoice, you will be required to cover some fees such as:
- Application fee: A fee that covers the evaluation of your application.
- Diligence fee: Can be referred to as setup fee and it is used to check your credit score and to open an account with the factoring company.
- Wire fee: A fee that will be added if you want to wire transfer the money instead of using the automated clearing house.
- Maintenance fee: A fee to cover any type of maintenance done to your factoring account such as making sure that it is active and you have easy access to it.
- Termination fee: Also known as a cancellation fee, it will be added if you terminate your contract with the factoring company earlier than what both parties agreed on.
How can invoice factoring benefit nurse staffing agencies?
Invoice factoring provides great benefits for many businesses. It offers an instant relief from financial difficulties that can put your business at risk.
Here are the top benefits from invoice factoring:
Grow your business
Selling your invoices will provide you with cash within 24 hours to help you recruit more nurses and growing your clientele.
Reduces financial stress
Invoice factoring will help you pay off all of your bills such as rent and utilities, as well as doing payroll without any delays.
Flexibility
You will be able to factor invoices from clients of your choice without any pressure.
Get approved easily
Your credit history will not impact the factoring company’s decision to approve your application. Instead, they will focus on your client credit history.