What is invoice factoring?

Many business owners face cash flow challenges from time to time. Whether it’s when your business is first starting out, during a period of growth or due to business seasonality. There are several options available to help with this challenge however; some may be harder to obtain than others. Invoice factoring is one of these options and it is often easier to obtain than some of the other more commonly known options.

Invoice factoring allows a business to turn their unpaid invoices into immediate working capital and not have to wait the 30, 45 or 60 plus days to receive payment from their customer. Simply put with invoice factoring the business sells their unpaid invoices to a factoring company and receives up to 80% of the funds, often in less than 24 hours. Then once the invoice is paid by the customer the factoring company remits the balance minus a discount. Companies often use these funds to pay bills, improve cash flow and take advantage of new business opportunities. Invoice factoring allows you to grow your business and worry less about having the money for day-to-day operating expenses, all without assuming any debt as long as your customer pays their bill.

Invoice factoring is often a good option for new businesses and those in a state of transition because the factoring company looks at the creditworthiness of your customers as apposed to the businesses’ like a traditional bank. Additionally, some factoring companies will perform credit checks on your customers and provide this information to you for no cost to evaluate the customer’s history of paying their bills and their creditworthiness.

Invoice factoring is also often referred to as accounts receivable financing, receivables factoring, invoice discounting and invoice factoring all referring to the process of buying and selling accounts receivables for immediate cash.