If your business is in need of immediate funds to cover company expenses, one option to explore is invoice factoring. This is an attractive solution for businesses which need flexible financing who are not eligible for traditional loans, or which have few assets.
Invoice Factoring Basics
Invoice factoring allows companies to quickly acquire working capital from a commercial financial company, known as a “factor,” by selling their accounts receivable. These invoices are treated as collateral, though invoice factoring is not considered a loan. Your company is essentially treating invoices as assets, which allows for quick turnarounds and few, if any, restrictions on how the funds are used.
While customer payments on invoices can take one, two, or more full payment cycles to generate income, invoice financing is typically approved in 24 hours or less. This allows businesses to address pressing financial concerns quickly.
How does it work?
Generally, invoice factoring involves a two-step payment process, each generating installment payments for the value of the invoice. The first payment is deposited into your account within 24 hours of approval and covers about 80 percent of the value of the invoice. The remainder is paid when your customer submits a payment in full to the factor.
Your factor will evaluate the payment history and financial situation of your clients to determine their creditworthiness. Your factor will also ensure that there are no roadblocks to payment, which may include chargebacks or a dispute on your billing.
Since your company’s ability to access funds through invoice factoring is based on the size of your accounts and client base, as your business grows the amount of money you can generate through factoring increases proportionally.
Is Invoice Factoring right for your company?
Invoice factoring is easy to qualify for and can be used by large companies, small businesses, and startups alike. If your company is looking for a flexible financing solution, needs cash quickly, or needs to increase cash on hand to cover working expenses, invoice factoring may be the best option.