Almost all small and medium-sized businesses need outside financing at some stage of their growth. Invoice factoring provides a solution to cash flow problems that involves converting unpaid accounts receivables into quick cash. Here are the basics of what you need to know about this method of funding so you can determine whether it is the best solution for your company.
What Factoring Is
When you factor your invoices, you sell them to a finance provider known as a factor. This makes it possible for you to receive most of the cash owed to you immediately instead of waiting for clients to pay their bills.
How Factoring Works
After you have delivered products or performed services for a client, you send out an invoice. However, you may have to wait for 30 to 90 days to get paid. Rather than wait, you forward the invoices to a factor that has accepted your application for financing. The factor sends you approximately 80 percent of the value of the invoices as an advance. When your clients pay in full, the factor sends you the balance minus a factoring fee.
The Advantages of Factoring
One of the greatest benefits of factoring is that your cash flow remains strong even if clients are slow in paying their bills. This allows you to offer generous payment terms to clients. Factoring is also easier to qualify for than other forms of financing, even if your credit is not good and your business is fairly new. No other collateral is required other than your unpaid invoices. As your business grows, so can the funding available to you through invoice factoring.
How to Apply for Factoring
Applying for invoice factoring online is a simple process. It involves selecting a lender, filling out an application form, and providing any necessary documentation.
For more advice on using invoice factoring as a source of financing for your business, get in touch with Whitefish Funding.