Yubi – Vendor Factoring

Vendor Factoring Solutions by Yubi!

What is Vendor Factoring?

Vendor Factoring is a form of invoice finance in which you as a business owner can sell unpaid invoices to a third-party company, known as a factoring company. When you sell an invoice to a factoring firm, the company will pay you a portion of the overall invoice amount and, in most cases, will take complete responsibility for collecting payment from your buyer on your behalf.

This financing technique will assist your company in maintaining a steady cash flow before the buyer pays for the items or services you provide.

Benefits of Vendor Factoring with Yubi!

Advance Payments:

By using vendor factoring, you will receive payment for all of your invoices immediately and will not have to wait for the buyer to pay off the invoice.

Continuous Cash Flow:

As you will get the funds immediately after the invoice is raised, you will be able to reinvest the funds into your business’s regular operations. Having consistent cash flow gives your company an advantage over the competition.

Payment Collection/Recovery:

Vendor factoring companies are often in charge of collecting the payments from the buyers. This will save you a significant amount of time that would otherwise be spent chasing the buyer for recovery.

Cheaper than Bank Loans:

Vendor factoring is typically less expensive than bank loans, and it is also more straightforward to obtain than bank loans. This will assist in meeting the short-term funding requirements.

Unsecured Financing:

As vendor factoring does not require you to provide collateral, it reduces the danger of losing collateral while also making processing and disbursement more efficient.

How does Vendor Factoring Work?

Let’s understand how vendor factoring works with an example:

X’s company requires cash flow assistance, so he decides to use vendor factoring finance to help with the situation. According to X’s agreement with the factoring company, he will receive an 80 percent advance on the invoice. That means that if X issues an invoice for Rs. 1 lakh, he will receive an advance of Rs. 80,000 from the vendor factoring company.

And once the client pays the invoice amount, the money will be sent to the vendor factoring firm, after which X will be paid the balance of the invoice value minus the fees charged by the factoring company to X. (X’s client would be advised in advance of the existence of the vendor factoring firm.)

One of the most significant advantages of vendor factoring is the ability to maintain credit control. This means that in case a client is late in making a payment to X, the vendor factoring company will contact the client on X’s behalf and notify them that the payment is past due. In some instances, the vendor factoring companies will even go so far as to initiate legal proceedings. Businesses will benefit from these credit management efforts since they will save a significant amount of time.

Why is Vendor Factoring for You?

Purchase order financing can help you fulfill multiple orders so that your business’s growth is not constrained due to growing funding requirements. The process is straightforward – the purchase order financing lender provides you the fund through a letter of credit or cash, you deliver the order to the customer, and you receive the proceeds after paying the financing fee to the lender.

By now, we have seen that purchase order financing is an excellent option for growing small businesses and startups. However, the option can become smoother and easier with the help of an experienced supply chain finance platform like Yubi. Under YubiFlow, an end-to-end trade and supply chain platform, vendor finance, dealer finance, and anchor financing products cater to purchase order financing requirements.


How is Vendor Factoring different from Invoice Factoring and Accounts Receivable Factoring?

Invoice Factoring and Accounts Receivable Factoring are just synonyms of Vendor Factoring. In other words, all three terms have the same meaning.


What is a factoring company?

A factoring company provides invoice/vendor factoring services, it will buy unpaid invoices from you and pay you a certain percentage advance against those invoices. Once the payment is due from your buyer, the factoring company will recover the dues from the buyer and pay you the remaining invoice amount after deducting the charges for their services.


What does it mean to sell your invoice?

Selling your invoice means handing over the invoices generated by you to the vendor factoring company for a percentage advance and, in most cases, complete responsibility for invoice recovery from the buyer.


What is the difference between Invoice Discounting and Factoring?

Invoice discounting and factoring are both methods of obtaining a cash advance on unpaid invoices. However, there is an important difference that you need to note when it comes to invoice discounting.

In contrast to factoring, where the factoring business actually purchases your outstanding bills in full and maintains credit control by dealing directly with your clients, invoice discounting is a loan secured against outstanding invoices.