April 18, 2024

Business Bib

Business & Finance Blog

What Exactly is Invoice Factoring?

3 min read


So, you’re wondering what is invoice factoring?

If you are a business owner searching for credit and financing options to help keep your company running smoothly, invoice factoring could offer a solution to your cash flow issues.

In many cases, business owners may not be in the position to assume new credit lines or loans for any number of reasons. Applying for traditional business loans and lines of credit can become time-consuming and require a significant amount of time to process.

If you are in a position when you need to access funds quickly, the chances are good that you don’t want to waste valuable time. It’s even more inconvenient if you have to wait to find out that you didn’t qualify for the loan or another financial service you sought.

Benefits Of Invoice Factoring

Bad Credit Is Acceptable – Unlike traditional banks that enforce stiff credit requirements to qualify for loans, invoice factoring companies work with company owners who have a proven record of accepting credit card payments. Credit scores and past credit history are insignificant.

Funds Can Get Used For Any Reason – Traditional business loans and lines of credit often come with strict rules on how the funds can get used. With invoice factoring, business owners can use the advance for whatever purposes they need, whether they need to make improvements, increase inventory counts, pay bills or outstanding invoices, or need additional money to grow their operations.

It Is Not A LoanInvoice factoring is not a traditional style loan. Instead, it is an advance on projected future receipts. Company owners who are seeking an invoice factoring advance must supply supporting documentation on their business activities, such as bank statements and credit card receipts. The factoring company assesses the information to determine the eligibility for a factoring advance.

Fast Funding – Approved invoice factoring advances are typically made available in the business account of the applicant within 24 to 72 hours of approval. Once deposited, these funds are available for use for any purpose that’s required. Repayment is made automatically on a daily basis using the same business account the funds were initially deposited. For more information on repayment terms, refer to the terms and conditions of the invoice factoring company.

What Is Invoice Factoring Helpful For Doing?

There are many situations when invoice factoring can be helpful for small businesses. Here are a few cases:

Handling Slow Payments – Depending on the nature of your business, you may not always get paid on the day that you deliver goods or services. If you offer Net 30, 60, or 90 payment terms for customers, invoice factoring can help bridge the gap while you await payments for clients on this payment plan.

Emergency Needs – Into every business owners lives a little rain must fall. An invoice factoring advance provides a solution if you need to have an emergency repair, you need to hire additional employees or staff, or you need to restock inventories in a hurry.

Seasonality – If your company has a traditionally busy season and a slow season, invoice factoring helps smooth out cash flow. For instance, if you operate a company that focuses on hospitality services in a tourist area, you might require cash flow to make improvements or otherwise prepare for the upcoming busy season. The same principle applies to companies who do the bulk of their sales around the holidays.

As with any financial product or service, always be sure that you understand the terms of the agreement before entering. By doing so, you avoid complications and confusion later.