Cars and other vehicles are a major part of our lifestyle. The automotive supply industry is key as to why this industry is able to thrive so well.
But like most other businesses, automotive supply companies also face financial difficulties due to prolonged waiting times for invoice payments. A sure way of generating funds for an automotive supply company is by selecting factoring as a financing tool.
Factoring not only provides you quick cash but also comes in handy in case of emergencies. Factoring can also be a great way of meeting cash requirements for shipping or maintaining inventory of automotive parts for your clients.
In case you are new to the entire factoring process, here is a simple outline of how it works for so many industries, including automotive supply.
- The supply business delivers products to a central warehouse for a particular automotive company. The quantity of the product and the payment terms are pre-negotiated in this case, which defines the waiting period of the invoice.
- The automotive supply company selects a factoring firm who will purchase their due invoice/s. Which invoices are sold depends on the amount funds of needed by the company, and which are approved by the factor
- Prior to acceptance, the factor checks the creditworthiness of the customer. Once the invoices are submitted, the factor verifies with your clients the work has been done, is acceptable. and will be paid to the factor. Assuming all is in order, the factor’s purchase of the invoice is approved.
- After the verification process and approval, the factor sends the funding advance into your company’s bank account. This amount is usually around 80 to 90% of the total due invoice, though this can vary.
- You and the factoring firm then wait for your client to pay the invoice according to the payment terms.
- Once the invoice has been paid, the factor calculates its charges, which are often based on the length of time your customer has taken to pay. This charge, or discount, and the original advance amount provided your company, are added together and deducted from the amount received.
- The leftover amount (called the rebate) is sent to your bank account and this transaction is complete.
Many factors provide advances within 24 business hours of submittal; in some case you may get same day funding. This usually depends on your customer, the paperwork required, and the amount of the advance.
Additionally, most factoring firms provide you with free credit checks on prospective customers, and their receipt of paid invoices lightens your workload, letting you focus more on what you do best – not collecting payment. You do not have to hire additional people to take care of collections.