Learning About Financing With Invoices

Small business owners can turn unpaid invoices into cash via invoice factoring and financing. It is best for owners whose customers delay paying for services and goods, but who need immediate cash for daily operations. Below are several things to know about financing with invoices.

Invoice Factoring: What Is It?

Invoice factoring isn’t a loan. Rather, business owners sell invoices at a discounted rate to factoring companies in return for a sum of money. The factoring provider takes ownership of the invoices, and they get paid when they collect from customers in 30-90 days. While it’s possible to get loans from traditional sources, banks typically require top-notch credit and collateral.

The Benefits of Invoice Factoring

  • Quick cash: Invoice factoring provides immediate operational capital to cover funding gaps caused by customers who are slow to pay.

  • Better cash flow: Companies can provide longer payment terms to loyal customers while improving cash flow and growing the business itself.

  • Easy approval: Factoring offers a financing option to companies that may not be able to obtain funding from other sources. Some business owners can’t get loans because of insufficient collateral, poor credit or a short history.

The Disadvantages

  • Higher cost: Some factoring services are expensive, and customers have to look for hidden costs such as application, credit check and late fees. A late payment can trigger an APR increase.

  • Lost control: Because the factoring company collects invoices directly, it’s important for customers to choose a service that deals with customers in a fair, ethical way.

  • Customers’ poor credit can be detrimental: A factoring company may need to check customers’ creditworthiness. If a customer has a history of missed or late payments, the application may be denied.

Invoice Financing and Factoring Options

Financing and factoring are a bit different. Invoices aren’t sold to factoring companies; rather, they are used as collateral on cash advances. If a company is looking for invoice financing or factoring, the owner can visit the website for additional details. With the right invoice financing or factoring company, business owners can get the cash they need for daily operations and other needs.