Most businesses at some stage of their growth have struggles with cash flow. This is typically due to seasonal variations in sales, slow-paying clients, long payment terms, or unexpected emergencies. One solution to funding dilemmas is invoice factoring, also known as accounts receivable financing, which allows you to convert unpaid accounts receivables into working capital that you can use to stabilize your cash flow and spur further growth. Here are some things that it’s important to know about this form of financing.
The Basics of Invoice Factoring
Invoice factoring involves the purchase of your company’s accounts receivables by a factoring company. This company then advances you 85 to 95 percent of the amount of the unpaid accounts receivables. The factoring company collects the payments due on the invoices and then sends you the remaining 5 to 15 percent minus a factoring fee. Invoice factoring allows you access to funds tied up in unpaid receivables so you can purchase supplies and equipment, pay the salaries of your employees, engage in marketing campaigns, and take whatever other steps are necessary to facilitate business growth.
Variations of Invoice Factoring
The most common form of invoice factoring is recourse factoring, in which the business owner is responsible if customers do not pay their bills. Another option is non-recourse factoring, in which the factoring company takes responsibility for unpaid debt, but fees are usually higher for this type of factoring. With invoice discounting, instead of selling your unpaid invoices, you use them as collateral for a loan.
Accessing Invoice Factoring Online
Invoice factoring is a form of alternative financing that can be accessed and implemented online. The entire process of completing the application, finalizing a contract, and selecting which invoices you want to factor is quick and easy. Numerous companies offer these services, so find the one that best meets your needs.
For more advice and information on invoice factoring, get in touch with Fast Commercial Money.