Invoice Factoring Financing 101

Invoice Factoring Financing 101

Do you have to wait as long as 90 days before receiving payment for goods and services you already delivered? Then you could benefit from invoice factoring financing. Not only does this type of financing allow you to access working capital, but it also resolves several problems caused by delayed payments.

What Is the Process?

When you decide to factor, you partner with a company that essentially buys your invoices. This partnership is usually ongoing and doesn’t require repayment as traditional loans do.

What Are the Downsides?

Of course, there are downsides to every form of financing and factoring is no exception. As you consider whether this option is right for you, make sure you think about the following downsides.

Customers Are Aware

Companies that finance receivables do credit checks on your customers to determine how much of a risk they are. That means they need to contact customers. So if you go this route, your customers will be aware of the situation.

It Can Be Expensive

When you finance your invoices, you don’t receive the entire payment your customers owe. Instead, you only get a percentage. Unfortunately, that can hypothetically cut into your profits.

What Are the Benefits?

The good news is that the benefits of factoring vastly outweigh the downsides. In fact, here are all the advantages you can count on when you choose accounts receivable financing.

Quick and Reliable Funding

Instead of waiting months for the money, you’re owed, accounts receivable financing lets you get cash immediately. Sometimes you can even get funds as quickly as 24 hours. Additionally, you keep the advance even if the lender isn’t able to collect on customers’ debts. With this reliable cash flow, you can work on expanding your enterprise instead of trying to keep up with expenses.

Flexibility

Many loans have limitations on what you can use the funds for. Since financing your accounts receivable is just a different way to collect the money you’re already owed, you can use the cash however you want.

Outsource Accounts Receivable

Not only do you get funds quickly, but you also don’t have to use any resources to collect on debts. Instead, the lender takes that responsibility. That means you don’t have to worry about expending time, energy, and money to track down customers who end up not paying anyway.

No Collateral Requirements

Finally, there’s no risk of losing your assets when you pursue factoring. Many traditional lenders require collateral, which you lose if you default.

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