Invoice factoring is a very common practice used to provide funding when smaller sized businesses are faced with cash flow issues. In this form of funding, outstanding invoices can be converted into cash which can be immediately put to use by your small business. It’s an ideal form of financing for those small businesses which would not ordinarily qualify for a bank loan, and which don’t necessarily have collateral which can be used to acquire a loan. It can also be completed in a much faster period of time than any traditional bank loan can, and the requirements for approval are far less stringent than with a traditional loan.
How It Works
There’s a significant difference between invoice factoring and invoice financing, although the two terms are sometimes used interchangeably. With invoice factoring, your small business would assign some or all of its monthly invoices to a factoring company in exchange for about 80% of the face value of those invoices. Sometime before the invoices are actually due, the customer would then directly pay the factoring company instead of submitting their payment to your small business. When the factoring company has received payment from customers, it would then remit the remaining 20% to your company, after it has subtracted out its factoring fees.
Invoice financing works in a slightly different way. In this form of funding, you would create an account with a lender, and then synchronize it with your accounting software. After this, you would choose all the invoices that you’d like to clear out for the month, and a lender would pay you 100% of the amounts from those selected invoices. Over the next 12 to 24 weeks, you would then repay the lender the entire amount which was originally provided to you for those invoices.
Both of these processes have worked very well for specific industries, and in order to choose which one is best for your particular company, you should contact an alternative lender, and discuss some options which may be available to you.
Interested in factoring?
If your company is considering invoice factoring as a means of supplementing its income, we may be able to help. Contact us at Fast Commercial Money, so we can discuss with you some possibilities involving factoring for your business.