What is online micro-factoring?
If you are well aware of how online factoring works, micro factoring will not be a surprise to you. But let’s make sure we’re talking about the same thing – let’s recall the principle of factoring.
Liquidity problems? For trouble factoring!
Online factoring is a service aimed at entrepreneurs who invoice regular customers. As a rule, these invoices are characterized by long payment terms. There can be a myriad of reasons why businesses sell goods and services with distant payment terms. This is usually supported by industry practice and the desire to maintain good relations with important contractors.
Unfortunately, a company that decides to issue an invoice with a 30- or 60-day (and sometimes even longer) payment deadline must expect to be deprived of funds owed to it for at least that long. And yet it is not uncommon for contractors to experience payment delays. Sometimes all it takes is a few extra days of delay to seriously threaten the seller’s liquidity.
Invoices that you issue to contractors result in tax liability. This means that you will pay taxes for an invoice issued in March already in April – even if the due date does not pass until the following month. In the case of small-value invoices, this may not matter much, but a larger number of documents or their higher value can result in having to pay high taxes without access to the funds from the transactions in question.
Factoring at a glance
This is when factoring proves to be an invaluable help. If you invoice regular customers, all you need to do is fill out an online application on the factor’s website, to which you will attach a list of contractors.
After sending your application, you will receive a financing proposal from the factor – if the terms of the offer satisfy you, all you have to do is sign the contract.
When the application is approved and the terms of the agreement accepted, the factor grants the company a factoring limit, under which the entrepreneur can finance invoices issued to previously notified counterparties with deferred payment.
Online factoring is handled in the Client Zone available online 24/7, and the money is sent automatically and hits the company account after a maximum of 2 hours after confirmation of the legitimacy of the transaction. In this way, entrepreneurs can instantly regain liquidity and focus on further development of their businesses.
Who is microfactoring designed for?
We already know that micro-invoicing was created for the smallest companies operating in the market. What does this actually mean?
The amount of the factoring limit
Companies interested in micro-factoring can apply for a factoring limit as little as PLN 50,000 to PLN 250,000. The higher the allocated limit, the – of course – higher the cost of maintaining the limit. This is because it is the duty of the factoring company to secure adequate funds for the factor. The need to pay a commission to access a large limit effectively deterred smaller entrepreneurs. Micro factoring also makes the world of factoring open to small companies with small turnover.
By applying for micro factoring online, you will not only choose the appropriate amount of factoring limit, but also assign the amount you need for each of the clients you apply for. This will allow you to maintain more control over your factoring limit and will work especially well if you issue recurring invoices to the same contractors.
If you’re not sure that micro-invoicing is the right service for your business, or you only need to finance one invoice, check out one-time invoice financing. Under this service you will finance an invoice for a minimum amount of PLN 500 without being bound by a contract.
Does it matter what industry a company is in? The answer is simple: no. Whether your business is producing software, selling handicrafts or providing repair services, you can benefit from small business micro-invoicing.
Date of commencement of operations
Another element that financial institutions often pay attention to is the start date of the company. An example would be to take out a loan from a bank – most banks have a clear condition: the company must have been in business for at least 12 months (often as long as 24). In the case of micro-invoicing, such a condition does not exist – an entrepreneur can submit an application (and expect a positive response) virtually as soon as the business is established.
Why and in what situations should you use micro-invoicing?
Online micro factoring, or small business factoring, is a great solution for almost all small and micro businesses. When is it particularly worthwhile to be interested in the service?
- When your company has problems with liquidity – the use of micro-invoicing allows you to regain proper cash flow, and thus with peace of mind to plan the next movements of the company – repayment of debts, covering current expenses and even investments.
- When you issue fixed invoices to regular contractors – predictability is a desirable trait when it comes to obtaining external financing for your company. If you report invoices issued to regular customers, you incur little risk, and for the factoring company this is important information that allows you to be optimistic about working with your company.
- When you need a small factoring limit – a big problem for smaller companies in the context of factoring is often the need to maintain a high limit. Microfactoring solves this problem definitively!