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Back to Basics: Business Invoice Factoring vs. Bank Business Loans

Securing financing for your small-, medium- or even large-size company is an ongoing challenge businesses of every industry face. When you think of getting money for your business, you probably think of going to a bank and filling out a bunch of paperwork to secure a term business loan. While this is certainly an option, many other financing options exist such as in voice factoring also known as account receivables factoring.

Invoice Factoring Basics

Factoring Accounts Receivables: As Old As Money Itself

Though you may not have heard of it, factoring receivables has been around for hundreds of years, way back approximately 4,000 years to the days of ancient Mesopotamia. It is a reliable, trustworthy way to secure financing for your business.

Like a bank loan, the terms of the factoring receivables agreement are set out in easy to understand terms and language. But unlike a bank loan, with factoring accounts receivables you can get your money in less than 48 hours whereas a traditional bank may take several weeks to even give you a decision. Here’s a quick, sample overview of how invoice factoring works:

An Quick Invoice Factoring Walk-Thru

You call a reputable factoring company and tell them you need $10,000 in order to cover a cash flow gap in your current business. The specialist will ask you to send them some identifying information as well as existing and most-recent invoices from your customers. The specialists will take some time – measured in hours rather than weeks – to verify and assess this information. Assuming your invoices are good, that your customers have a solid history of paying their bills within the 30- or 60-day due date window, the factoring company will purchase these invoices from you, minus an agreed-upon percentage or fee. You then get the cash you need right away, and the invoice factoring company is responsible for collecting on the invoices over the course of that 30- or 60-day time period. This sample should give you a basic overview of the process, though like any financial transaction each one is a little different. Though from a glance invoice factoring services may sound complicated, it is actually no more involved than a “usual” financial transaction once you get familiar with some of the terminology.

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About the Author:

Robert Bernfeld started in the commercial finance industry in 1974. His early years included positions with Aetna Business Credit and Foothill Group. During the next thirty five years. Mr. Bernfeld established both equipment leasing and accounts receivable factoring companies. He partnered in founding Business Facilitators, Inc. in 1999. Mr Bernfeld graduated from the University of California, Riverside in 1974 and received his Juris Doctorate from Loyola University School of Law in 1977.

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