Invoice Factoring
What Is Invoice Factoring?
Invoice factoring is the purchase of a business’s accounts receivable for cash. Invoice factoring is not a loan to the business, instead ensure growth without giving up equity. After invoices are submitted by the business and verified by the factor the funds are received. This process takes less than 24 hours. It provides a business the capital they need to continue to grow and take on the end opportunity. As your business grows more and more customers, it requires a sales term of NET 30 or 45. This means you have to extend credit to your customers, if not they will not do business with you.
Invoice factoring provides you the flexibility to extend those credit terms, you will receive cash for your invoices. This means you can meet your payroll needs, greater purchasing power with your vendors, as you have cash on hand. By having a relationship with a factor, you leverage the factor to determine the credit worthiness of your customers, as well assist with processing of your invoices. These types of service and many others provided by a factor, put you ahead of your competition.
What happens once I receive the fund for the invoices I sold to the factor?
First of all; a factoring company is not a collection agency. Your customer will pay the invoice that is due to the factoring company. The factor when they purchased your invoices holds back a certain amount that is called the reserve. When the invoice is paid by your customer to the factor, the factor will return the reserve back to the business minus any fees. This cycle repeats itself every time you sell your invoices to the factor.