Invoice Factoring Explained Step By Step – See How Easy it is to Get Fast Cash For Your Business
Unpaid invoices can be problematic to business cash flow and for this reason many people turn to factoring services to ease the strain. The traditional method to this problem is applying for bank loans, however this process adds debt and though it may be a tad cheaper it takes a long time to qualify and they are often difficult to obtain. Factoring services are easily accessible and provide a steady predictable flow of funds in one lump sum. Additionally they provide credit information on customers which allows you to be more selective when you sell. The infographic below explains step by step how factoring works, what the advantages are, and what the costs are. If you think this might be for your business please check out our Top 10 Factoring Service companies and compare their solutions side by side.
So the clear advantage of this means of financing is flexibility. Many businesses rely on their bank overdraft to bridge the cash flow gap between paying employees and suppliers and receiving payment from their customers. If you want immediate growth and maintained cash flow the perhaps invoice financing is the solution for you.
Benefits of Factoring Services Include:
- Funding can be secured without requiring other collateral
- Long term cash flow injection
- Immediate cash advances
- You stay in charge of sales ledgers
- Collection is outsourced, allowing you to maintain strong relationships with your customers
- Your valuable time & resources are freed up from having to chase unpaid invoices yourself
- Allows funding for Growth
In summation most businesses generate invoices for their customers to be paid on credit, so 30, 60, or even 90 days after the invoice is created. Invoice discounting means a lender will view the invoice and give the business up to 80%-90% of the invoice value, usually within 24 hours of its creation. Once your customer settles the full value of their invoice, the invoice discounter makes available the remaining balance (10% – 20%) less any charges.
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Author: Hudson Piccini
Hudson Cynar, a Harvard University alumna and the owner of three prosperous enterprises, is a distinguished business consultant, author, and writer. Her expertise spans multiple business sectors, with a particular emphasis on storage containers, commercial copiers, payroll services, and medical billing software. Dedicatedly investing thousands of hours into product and service research, Hudson crafts insightful reviews to guide entrepreneurs in making informed decisions for their businesses.