Factoring Basics | What is Invoice Factoring?

WHAT IS INVOICE FACTORING?

Stressed Employee in Need of Invoice Factoring to Manage Invoices As a business owner, you understand the many frustrations of invoice management. No matter the size of your business, late payments on invoices can completely drain your cash flow. You can end up waiting 30, 60, or even 90 days to receive payment from customers. No matter how many times you seem to remind them to make payments on their invoice, you still run into cash flow issues. If this all sounds familiar to you, don’t worry, you’re not alone. Thousands of businesses struggle with this problem every day, but thankfully, there’s a solution.

With invoice factoring, your business can have instant access to the money owed to it. This can help your business get paid faster, and ultimately, keep your business afloat.

Invoice Factoring Explained

Invoice factoring is a financial service where an invoice factoring company purchases your outstanding invoices. Depending on your needs, you can factor all or some of your invoices. The invoice factoring company will not look into your business’s financial history, only those of your customers. They will purchase the invoices that are backed by credit worthy customers and advance you up to 96% with low rates.

The invoice factoring company will advance you these funds in just 24 hours or less, allowing you to have almost instant access to your working capital. This service also places the sole responsibility of collecting your customer’s payment on the invoice factoring company—another major benefit. This allows you to free up time that would normally be spent on administrative tasks.

Who Can Use Invoice Factoring?

There are many businesses that can utilize the many benefits of invoice factoring. Here are a few of the businesses that invoice factoring companies tend to factor with.

B2B Businesses

Invoice factoring is best for B2B (Business to Business) companies. An invoice factoring company typically favors factoring invoices for B2B businesses. Typically, a debt collections company handles the collection process between businesses and customers.

Businesses with Creditworthy Clients

As mentioned previously, the factoring company will look into the financial standing of your clients, rather than your business. In order to have your invoices factored, creditworthy B2B customers are an important key to getting approved for invoice factoring.

Companies with Invoices Less Than 90 Days Overdue

Invoice factoring companies tend to factor to B2B businesses that have invoices that are anywhere from 30 – 90 days past due.  Any invoice that has gone past 90 days are typically harder to get factored. Some invoice factoring companies will factor these invoices, but with increased rates.

How Invoice Factoring Can Help Your Business

Invoice factoring can provide many invaluable benefits to your business. Your business will not only have instant access to its working capital, but will be able to keep its cash flow secure. With a strong source of working capital and steady flow of incoming and outgoing cash, your business will be able to accomplish the following.

Stockpile Inventory

With more cash in your pocket, your business will be able to take advantage of bulk purchase promotions. Not only will this allow you to stockpile your inventory to combat slow seasons, but also help your business save thousands of dollars.

Make Necessary Updates to Machinery & Operations

With an increase in capital, your business can make necessary upgrades to equipment and operations to ensure that it can keep up with competitors. You can hire more people, purchase new machinery, and more—the opportunities are endless.

Pay Off Debts

Starting a business comes with the expense of borrowing money. It can be nearly impossible to pay off debts when your cash flow is low. With invoice factoring, your business will be able to secure more cash to make it easier to make monthly payments to combat past debt.

Growth

The last, and certainly not least, benefit of invoice factoring is growth. When your business utilizes invoice factoring, it will be able to secure more cash and more time. Without the task of collections and the threat of poor cash flow, your business can have immense opportunities for growth.

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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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