What is invoice factoring and how does it work?




Late paying clients can disturb your business operations and expansion plans in the future — inventory, maintenance, payroll, investment in technology or equipment, or even additional manpower can help you scale your business. How do we solve this problem: invoice factoring is the solution.

A traditional bank loan can be very expensive, not to mention the instant debt acquired with obtaining one. What can you do if you have clients who opt for 30, 60 and even 90+ days to pay you for work you’ve done a long time ago? This is where invoice factoring or invoice discounting can benefit a business to get an immediate cash advance on its unsettled invoices. Learn all about how invoice factoring works from the tips below. What is factoring?


Invoice factoring is also referred to as ‘factoring’, or ‘debt factoring’. It is a financial product that allows businesses to sell unsettled invoices (accounts receivable) to a third-party factoring company (a factor).

Invoice factoring firms buy the invoices for a percentage of their total value and then take responsibility for collecting the invoice payments.

Factoring is a popular form of alternative business funding. This type of alternative financing has grown in popularity since it has become more challenging for businesses with deficient credit to use traditional finance products from high street banks.

How Does Invoice Factoring Work?

Most factoring companies pay in two installments, the first covering the large portion of the receivables (fulfilling your need for instant cash-flow) and the balance when your client pays their invoice, minus any factoring fee.

After eligibility is recognized, the factoring company will buy the unpaid invoices for a percentage of their value and then take over the debt collection process. The remaining amount unpaid to your business for the invoices will then be repaid once the factoring company has collected the total amount of the invoices from your customers.

How Does Invoice Factoring Work?


Several factoring companies pay in two installments, the first covering the large portion of the receivables (fulfilling your need for instant cash-flow) and the balance when your client pays their invoice, minus any factoring fee.

After being qualified, the factoring company will buy the unpaid invoices for a percentage of their value and then take over the debt collection process. The remaining amount unpaid to your business for the invoices will then be repaid once the factoring company has collected the total amount of the invoices from your customers. When should your company use factoring?

Your company should use invoice factoring when you regularly have a lot of unsettled invoices and your cash flow is hurt because of it.

For example, say your company sells on 30-day payment terms. A lot of your debtors will pay within 30 days – some may need chasing, some may not – while others may go over the edge and involve more persistent effort on your part. That 30-day lump of revenue might signify the bulk of your budding cash flow, but you can't really use it. Invoice factoring enables you to release that cash as quickly as possible, or at least a large chunk of it. You could use that money to:

• Cover short-term expenses

• Refinance a loan

• Take advantage of business opportunities

• Or for any reason for which funds might be a limit



If you think your business may benefit from invoice factoring. Better Call Sal at (332-334-1077) and take advantage of our different financing products. Everything from Startup funding, working capital, lines of credit or even equipment finance. We can do consumer financing and get your customers financed up to $50,000 as well.


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