What will a business organization do when they need an increase in their cash flow or instant money? They usually opt for bank loans. However there is one more method of financing called Invoice factoring that is gaining popularity these days. This method of financing helps the businesses to raise capital quickly without going into debts or opting for bank loans. Majority of organizations do not opt for this type of financing as they think that invoice financing is confusing. This article will explain briefly about Invoice Factoring, the benefits you get from it and the risks if there are any.

Every business sits on a huge pile of invoices. To keep it simple invoice also called as accounts receivable is the amount of money owed to the company by clients. Whenever a company sells its products or renders its services to the customers an invoice is created. If the customers do not pay the money in time, the cash flow for the company reduces and the number of accounts receivable increases. Companies can use these invoices to get quick money. They sell these invoices to a third party usually a financing company at a discount. There are in total three parties involved in invoice factoring the company selling the invoices, the company buying it and the company or the individual owing money. Let us refer the company selling the invoices as seller, the company buying them as factor and the person owing the company as debtor for our convenience.

Once the factor buys the invoice, they pay the invoice amount deducting the factoring fee to the seller within 24 to 48 hours. Factoring fees depends on a lot of factors like credit worthiness of the debtor, the credit period left and also on the invoice amount. The factoring company takes the responsibility of collecting the money from the debtor. Usually the debtor is made aware about the selling of his invoice to the factoring company. There are also scenarios where in the seller acts as an agent on behalf of the factoring company and collects the money from the debtor.

There is also a variation to invoice factoring called as invoice discounting. The main difference between the two is that the selling of the invoices is kept confidential. That means the debtor is not aware of the selling. The seller is responsible for maintaining the sales ledger and also for the collection of payments from the debtor. The seller should maintain an up to date sales ledger and show to the factor that all the debts are collected in timely manner in order to receive invoice discounting.

Now let us have a look at the advantages of invoice factoring. The first benefit of this financing is the instant cash flow. As a Seller you need not wait for long periods for the customers to pay the money. You can sell the invoices and get cash within 48 hours. This will help you to meet your daily expenses and pay off staff salaries. You can also make bulk purchases of your products and avail special discounts. This method is faster and simpler than availing a bank loan. Also in invoice factoring your client’s credit worthiness is more important than yours. So if your company is new then your chances of getting a bank loan are very slim. In such cases this method is the best for you. There are also advantages for the factoring company as well. As a factor you can decide the amount of funding you want to do. You can increase the funding as your business grows. Since factoring is purchasing of other company’s accounts receivables they are not counted as debts in your balance sheet. This will help you when you opt for a bank financing.

Invoice factoring has its own share of drawbacks. From the sellers perspective, if your clients credit rating is too low then the factoring fee will be as high as a bank loan. Also most of your clients might not like the idea of a third party coming between you and them. This might strain your relation with your customers. For a factoring company there is risk involved as they have to pay the money in advance and then collect it from the debtors. They have to take the risk of losing money if the debtor defaults on paying the money. They can avoid this by taking the with recourse factoring which means that the seller is responsible if the debtor defaults on the payment.

Invoice factoring has its own share of pros and cons. Consider all of them seriously before going for it. This is true for both selling company as well as the factoring company.

Not comfortable with hiring a financial planner? You are not without hope. Traditionally, many people who want to improve their financial health will apply the basic law of saving or spending less. This takes a lot of hard work and discipline but it can be done. Many people are comfortable doing their own research and learn the basics of reaching financial freedom. For those who can afford it and have a considerable amount of assets can consider the professional help of a certified financial or wealth planner.

The certified financial planner or the CFP is an advisor who has been educated, passed requirement exams and has acquired at least 3 years of working experience in financial planning. The role of the CFP includes providing services in taxes, investment, wealth accumulation and retirement. Because of the rigorous process gone through by the planner or firm to become certified, their fees may be more on the high side for most. A CFP charges per hour for consultation and the financial plan prepared may set you back another thousand or more.

For whatever reasons that you are not comfortable with the traditional face to face consultation, online financial planning services may be your cup of tea. Online services have been increasingly more popular and slowly replacing the in-person approach. Financial Planning has moved online to provide cheaper and faster services to those whom previously cannot afford it. It provides clients with user friendly websites, templates and periodic emails.

A client will only need to input some personal information, income and asset details and an advanced software will generate a recommended financial plan and investment tools. The client will also be contacted via video chat, conferencing or telephone calls. Many of the companies providing online advisors feel they are now able to offer affordable services to those who previously could not afford a planner.

With the convenience and speed of technology, many professional financial planners also opt to work for companies providing online services. With the convenience, a planner is able to serve more clients. The planner saves time from traveling to and from appointments and uses the time saved to generate trustworthy plans with advanced software. Online financial planning proves beneficial to both planners and clients.

An individual having a large enterprise would be carrying on with various transactions every day. It is really not possible to assemble the monetary transaction and make a legal balance sheet of the company by a person without having knowledge of accounts. An experienced and loyal accountant would be required for every organization that would carry on with every financial transaction honestly. Yet it is really very difficult to find an honest person with regards to this. People wondering about finding the best and trustworthy accountant for your business can simply take help of their business partners and other friends. It is safe to consider a person for job from a particular reference.

As the businessmen are seen to attend the entrepreneur’s conference, they would be meeting a lot of other successful businessmen. They can speak with them regarding that and find a trustworthy accountant. While finding the best and trustworthy accountant for your business, it is important to judge him by repeated test and analysis about his honesty. You can make a trap by making him available with a bunch of money in absence of other staffs. If he is dishonest, he would be rendering his feet in your trap. This way, you can judge an accountant if you have taken him from the public advertisement. Finding the best and trustworthy accountant for your business can be done through various job consultants and employment agencies. You can make the agency responsible if anything wrong happens with your finances after you have recruited the person referred by them. Reference from current employees can also provide a good business accountant.