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Invoice factoring is a well-known practice in all business markets and industries. With invoice factoring, a business is able to sell current invoices and receivables that have yet to close to a factoring service that provides an immediate financial advance. While some invoices require customers to pay a fee within 30 to 60 days, an invoicing factoring service ensures that a business is paid immediately with a deposit, optimal for companies in need of additional cash flow.
What are the Benefits of Invoice Factoring?
One of the biggest reasons companies choose to work with an invoice factoring service is the ability to quickly increase cash flow without taking on new debt, as invoice factoring is not a traditional loan. The money that is attainable through the use of invoice factoring is based on the customers who currently owe a debt to your business, not your own credit history or current financial standing. With invoice factoring, it is much easier to stay afloat when you have customers who currently owe money to your company but you have a difficult time receiving the money immediately.
Some of the most popular benefits of using invoice factoring also include:
- The ability to receive money owed to you within one business day using a direct deposit with an invoice factoring service.
- Debt-free operation, allowing you to work with an invoice factoring company without the stress and anxiety most commonly associated with taking out new business loans.
- The service is simple and works based on your customers’ credit score, not your businesses financial record or your personal score.
- Receive actual cash into your company’s business account rather than utilizing additional credit.
- Ease of use. Invoice factoring is possible even if you do not currently qualify for a traditional line of credit or a new loan for your business.
The first step to work with an invoice factoring solution is to seek out a company that best represents your needs and is willing to work with your business. An agreement is necessary to get started and does not require a lengthy amount of time to process. Business then continues as usual, allowing you to charge customers and generate new invoices for subscribers or new customers.
Once your invoice is generated, it is then sent directly to the invoice factoring service you have chosen rather than immediately being delivered to your customers. The invoice factoring company technically purchases the invoices from you, depositing up to 90 percent of the charge directly into your bank account. Afterward, the invoice factoring company then works directly with your customers to eliminate the hassle of obtaining funds that are owed to you. Once this transaction is complete and the customer has paid their invoice in full, you are then responsible for paying a small fee for the service to continue working with the invoice factoring company.
Traditional Steps Required
- Choose an invoice factoring company to work with and sign an agreement that works for both parties.
- Continue offering goods and services to your customers.
- Immediately send all newly generated invoices directly to the invoice factoring company.
- Immediately receive an advance deposit for the invoices sent directly to your company’s bank account.
- Once the customer pays their invoice in full to the invoice factoring company, receive the remaining balance that is owed to you (while deducting a small fee that is agreed upon in your original contract with the business).
Why Choose Invoice Factoring Over a Traditional Loan or Line of Credit
Taking out a business loan or a new line of credit can quickly become stressful and daunting, especially if you are already experiencing money-related issues with your current company. Using invoice factoring is a simplified process that allows you to maintain your current cash flow without negatively impacting your credit score or your ability to continue providing goods and services to your customers.
With invoice factoring, it is possible to seek and receive approval from a company in as little as 15 minutes and often no more than one business day. Once you are approved for an invoice factoring agreement, begin working together and immediately sending generated invoices to the company to receive the cash you require for your own business.
Bank loans and lines of credit are notorious for adding to the debt of a current business, which is not feasible if you are in need of cash to simply stay afloat, pay bills, and steer clear of mounting financial troubles. Additionally, when you apply for bank loans and lines of credit, you are required to wait anywhere from two weeks to up to an entire month for approval, which can result in devastating consequences if you are in need of immediate financial assistance.
Understanding the benefits of invoice factoring and how to make it work for your business is a way to stay afloat financially without falling behind on delivering goods and services that are in-demand for your consumers. With the right invoice factoring solution, maintain business as usual without disruption and with the ability to continuously grow and expand.