Business owners who need a little bit of extra cash usually have a few different options. However, getting a loan can take a bit of time and does increase the debt they owe. Instead, they might want to look into invoice factoring. The first question they might have is, what is factoring? After that, they might want to know a little bit more about how it works.
What is Invoice Factoring?
Invoice factoring is where a business sells their invoices or accounts receivable to another company. The factoring company that purchases these will pay the business for them, typically around 80% of the worth. Then, they will collect the payment on the invoice and take out their fee. This allows a business to get cash quickly without having to apply for a loan.
How to Choose a Factoring Company
Choosing a factoring company does take a little bit of research. Some factoring companies only work in a certain area while others only work in a certain industry. They all have different terms as well, so a business owner will need to look into their options and find one that works in their area, with their industry, and that has acceptable terms.
Recurrent or Single Time Factoring
Factoring is typically done on a recurrent basis. Each month, the business sends their unpaid invoices to the factoring company and receives cash for them. This is typically written into the contract and failing to do this could mean the business owner is penalized. However, there are factoring companies that will do invoice factoring only when the business needs it, which could be just one time. The fees for this might be higher, however, so it’s a good idea for the business owner to consider their needs carefully.
Take the time to learn a little bit more about invoice factoring today to see if this is the right option for your business. If so, you can start looking into the invoice factoring companies to find the right one for you to work with. This can help you get the cash you need right away and enable you to improve your cash flow without worrying about loans.