What is Invoice Factoring and How Does it Work?
If your company needs a better way to keep up with increasing financial obligations, you may have begun looking at invoice factoring as a potential solution. Invoice factoring allows you to take control of your accounts receivable while eliminating debt and streamlining your daily operations.
It’s easier than you may think! Simply put, invoice factoring is when a company converts its unpaid invoices (accounts receivable) into cash by selling them to a factoring company at a discounted rate.
If you’re in the transportation industry, please refer to What is Freight Factoring?
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The Invoice Factoring Process
The process of factoring invoices begins when the factoring company purchases your unpaid invoices. Qualifying invoices must be valid, accurate, and not pledged as collateral to another company.
The invoice factoring company will verify all submitted invoices and advance cash to the company (up to 95 percent of the invoice amount, higher for the transportation industry), typically within 24 hours. The fast turnaround helps your company avoid missing critical deadlines.
While the factoring company works to collect from your customers, you can continue operating as usual. You may even choose to submit new invoices for funding during this time. Once payment is received, the factor will remit the discounted amount to you minus applicable factoring fees
Benefits to Invoice Factoring
Factoring invoices offers many advantages beyond rapid access to cash, benefits that any qualifying company – regardless of their size or current financial situation – can use to improve their business. There are no limits to how you can spend the working capital you receive through invoice factoring. You can make weekly payroll or cover other employment expenses; invest in new equipment and materials to continue serving your customers; or even market to potential new customers and employees to expand your company.
In addition, you need not worry about minimum or maximum funding amounts when factoring invoices. Complete as few or as many transactions as necessary to establish a comfortable cash flow level and factor on the schedule that works best for you.
Factoring is a phenomenal financing option, but it may not always be right for your company. Fortunately, our invoice factoring partners are ready and willing to serve you without requiring a long-term contract. You can evaluate the relationship as necessary to maintain control over your costs.
Invoice factoring companies take customer service to the next level, providing comprehensive invoice management and collections support. You can monitor your account status from anywhere with 24/7 online reporting options to stay on top of any potential issues. To avoid those issues, your factor will also run background and credit checks on your current and future
Even if your business has been declined for bank financing in the past, you may still be approved for invoice factoring. Invoice factoring companies are able to qualify start-ups and companies with poor credit by basing their funding decisions on the credit strength of your customers.
The streamlined underwriting process for invoice factoring helps you get set up faster – in as little as 3 to 5 working days for most industries. You can submit your initial funding request with the other necessary documents and, once you are approved, receive funding within 24 hours.
To begin factoring invoices, submit the following:
- Factoring application
- Copies of invoices you wish to factor
- Articles of Incorporation and/or DBA filing
- Current AR aging report and customer list
Invoice factoring works with almost industry! Don’t see yours listed below? Call us anyways–we’ll find someone who will help you!
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