Factoring Defined

Factoring Defined

It is common for businesses to have difficulties with cash flow due to clients who are slow to pay their bills. The solution for companies waiting 30 to 60 days or more for payments can be invoice factoring. Here is what you need to know to determine whether this funding method can meet the needs of your business.

Invoice Factoring Basics

Factoring involves selling your unpaid accounts receivable to a financing company. After delivering your products or performing your services, you invoice the client and then submit the invoice to the factoring company you are working with. You immediately receive an advance of up to 80 percent of the invoice’s value. When your customer pays for the products or services, you receive the rest of the payment from the factoring company after its fees have been subtracted.

Qualifying for Invoice Factoring

You can qualify for factoring even if your company’s credit rating is not good as long as the clients whose invoices you want to factor in are creditworthy. Your company should be without encumbrances, liens, or significant legal or tax issues. Factoring works well for construction, medical, staffing, transportation, and numerous other businesses.

Advantages of Invoice Factoring

Factoring keeps your company’s cash flow strong so you can handle expenses. Such as rent, utilities, employee salaries, equipment, and inventory. You can qualify even if your business is small, you do not have to sacrifice equity. The only collateral required for funding is your accounts receivable. Factoring enables you to offer favorable terms to your clients, which can help your business grow. As your company grows, the amount of financing available to you through factoring grows with it.

Choosing a Factoring Company

When you are selecting a factoring company with which to partner, consider the amount of time the company has been operating and what industries they usually work with. Compare their rates, terms, and how long it usually takes to initiate an account and begin the funding process.

For more advice on invoice factoring, get in touch with Skogen Capital Lending.