The Beginner’s Guide to Invoice Factoring

One of the biggest challenges any business owner faces is maintaining a strong cash flow. Startups and small businesses typically struggle in this area. One of the reasons for cash flow challenges occurs when efforts to collect from customers are not successful. Instead of throwing your arms up in the air in frustration or spending countless hours making phone calls, sending emails and mailing letters, you should give factoring a try. This financing method can not only help you get your finances back on track, but it will eliminate the need to continually work with difficult late-paying or delinquent customers.

How Does it Work?

Invoice factoring is not a new phenomenon. Businesses in many sectors have used this method to give a boost to cash flow and eliminate fruitless collection processes. When you have outstanding invoices, it’s easy to stress out and get upset over the inability to collect. With factoring, you sell these invoices to a third party known as a factor. The factor will pay you an immediate lump sum of cash and will then take on the burden and responsibility of the invoices. Once the factor collects, you will repay the loan. In the meantime, you have quick and easy access to cash for various business needs. If you’re struggling with issues such as payroll, purchasing equipment and office supplies, or paying for other business expenses, this method can come to your rescue.

The Application Process

Applying for financing isn’t always a pleasant experience. Often it takes weeks before the lender reviews and approves your application. It can be another week or two before funds are available. Also, you often must submit a heap of documentation and materials. With factoring, the process is simple. You fill out some easy paperwork along with bank statements and an overview of your business’s finances. Within a day or two, you should receive approval and funds in your account. The pending invoices will be your collateral for the financing, meaning it’s less risky for the factor.

When Can You Use It?

This financing method is a popular one because it has few limitations. Businesses across virtually all industries use it to help pay for immediate business needs. If you need to satisfy payroll, it’s a great way to have a boost to your cash flow. You can also use the funds for office supplies and equipment such as computers or printers. You may even use the money for additional office space.

Factoring may make sense for your company. Consider this when you’re looking for financial help.


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