Telecom factoring is the sale of outstanding invoices at a discount to a third-party company, known as a factoring company or a factor. As a result, cable, Wi-Fi and telecom construction service providers and contractors can obtain quick working capital through specialty financing targeting their industry.
Telecom factoring allows companies to sell accounts receivable at a discount to a third-party company, known as a factoring company or a factor. A bank can also purchase the receivables. Using factoring, invoices can be monetized in 2 to 3 days.
The factoring company assumes the responsibility of collecting payments on the invoices it factors – either on a permanent or temporary basis – and keeps a small percentage of the total invoice amount as its fee. A factoring company can buy just a few invoices, known as spot factoring, or all of them as a whole ledger or full-turn factoring.
What are the Factoring Steps?
- The business provides a factor with a copy of the invoice sent to the client.
- The factor verifies the invoice and runs a credit check on the client
- The factor advances a portion of the outstanding amount
- Once the invoice is paid, the business gets the remainder minus the discount rate and any additional fees.
The Easiest Billing Arrangements to Financing
For telecom contractors that want to use receivables as collateral or for factoring purposes, putting forth straightforward net terms and billing the clients by day, hour, week, or work tickets works best. Progress or contingency billing makes the process more difficult because invoices created under either are easier to contest.
Benefits of Telecom Factoring
Nowadays, Wi-Fi, telecom and cable contractors have an unprecedented opportunity to increase their revenue. However, to obtain the working capital needed to finance new projects, contractors can rely on asset-based lending and telecom factoring, among other alternatives.
Factoring Requirements
As with asset-based lending, requirements for factoring receivables vary by company. In addition to a completed application, factors may ask for articles of organization or incorporation and an account receivable aging report. For telecom companies, aspects may also ask to see a copy of the contract or other document that details the work assignment. The contractor must be current on workers’ compensation insurance to ensure the invoice will be paid.
Small Business Factoring for Telecom Entities
Small business telecom factoring is an excellent way for small businesses to monetize invoices quickly. Factoring is an ideal tool for startups and companies experiencing rapid growth or taking on larger-than-usual projects. Factoring allows businesses to cope with an unexpected increase in payroll commitments. In addition, it typically requires dramatically less paperwork than obtaining a bank loan.
Advantages of Factoring
The reason why factoring is a popular solution to avoid cash crunches is that it is a highly flexible and creative way to obtain working capital without succumbing to the restrictions associated with traditional bank financing.
For instance, small business invoice factoring does not increase leverage. However, it typically requires little paperwork and has a fast, 24-to-48-hour turnaround. In addition, factoring companies don’t restrict the use of proceeds.