What You Need to Know About Invoice Factoring

When you run a business, you understand the importance of having operating cash available to help keep your business running. Without access to money, you can’t manage your daily finances and take care of routine things such as paying your utilities and employees or running a marketing campaign. If you depend on your customer to pay invoices and they don’t come in regularly, you may be left with gaps in your operating cash that need filled in order to continue doing business. That’s where having factoring can be useful for your business.


What’s Factoring?


Simply put, factoring is a type of financing that provides same-day access to your funds. You work with a finance company to essentially purchase your invoices in exchange for cash up front, which allows you to maintain your business. In exchange, the finance company will handle all the back-end processes associated with the invoice, such as collecting payments or handling delinquencies.


Why Use Factoring?


Factoring allows you to keep your business operating smoothly. You won’t have to worry about receiving your invoices because you’ll always have a steady income stream. This can help you keep your bill payments coming out in a timely manner. It also frees up your time to focus on other things such as running your business and bringing in new clients, which in turn can help your business continue to grow. In addition to those benefits, you’ll be able to maintain a good working relationship with your customers because you won’t be associated with bill collection if they’ve ever delinquent on their payments.


How Much Does it Cost?



Factoring pricing can vary depending on different factors, such as when you sell your invoice and what your monthly volume is. Some factoring companies will charge a discount rate if you regularly use their services, so ask them what they have available if you’re willing to commit to a certain number of invoices each month. You should also consider other fees for using the service, such as an application and maintenance fee, early termination fee if you’re locked into a contract and diligence fees.


Because every business’s needs are different and cash flow is unique for each company, you should consult with a financial professional to completely understand the pros and cons of factoring. It can be a great way to manage your operations if you work in an industry where invoice payments can have their ups and downs. The more fully you understand how factoring works, the more you’ll be able to use it to your advantage to help your business be a success.

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