You’ll need to provide basic information about your small business, though the factoring company will take far more interest in the quality of your unpaid invoices. Generally, it begins with the application process.Īpplying for factoring is similar to applying for any other type of funding. How does invoice factoring work?Īs with many other small business funding solutions, how an invoice factor works and their process can vary from company to company. This is important to note as it’s the defining characteristic separating invoice factoring and invoice financing, the difference of which we’ll cover below. In other words, factoring is the sale of your accounts receivable at a discount to the factor for access to capital today, rather than 30, 60, or 90 days from now.Īs a result of this transaction, the factoring company takes ownership of collection efforts. Instead, it’s a finite transaction that results in the transfer of goods - i.e., invoices - from your business to the factoring company. Though often listed among business financing options, true invoice factoring is not a bank loan, or any kind of loan. In the simplest sense, invoice factoring, also referred to as accounts receivable factoring, is the sale of your outstanding invoices to a third-party, or factor, in exchange for cash to cover the cost of day-to-day operations or other expenses. Factoring companies typically advance 70-90 percent of the invoice value up front. Invoice factoring is a financial transaction in which a business sells its accounts receivables (invoices) at a discount to an external financing company, known as a factor or factoring company. However, if you have net 30, net 60, or net 90 terms with customers, you may want to consider invoice factoring. From small business loans and lines of credit to purchase order financing and cash advances, there are many ways you can weather gaps in cash flow. Even if customers regularly pay their invoices on time, the lag between the payment terms small businesses offer to their customers and when those invoices are paid can contribute to cash flow challenges.įortunately, there are a number of financial tools available to business owners to help manage gaps in cash flow. And while there are many factors that can impact cash flow, past-due invoices, or an aging accounts receivable, can account for a fair share. Many, roughly eigthy-two percent, of small and medium-sized businesses fail because of cash flow problems. We'll protect and monitor your personal and business credit, so when it comes time to find financing you're prepared on all fronts.
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