Invoice Factoring is a type of business financing where you use your outstanding invoices to receive an upfront lump sum cash advance from a factoring lender.
The unpaid invoices are used to secure the loan. This option is beneficial if you have some cash flow issues because your customers all pay at different times and you have to wait 30, 60 or 90 days to get payment for your goods or services. This type of funding is an attractive financing option if you need to cover things like payroll, rent, inventory, repairs or you just need working capital fast.
How does Invoice Factoring Work?
The company sells its outstanding invoices to a lender who can advance them upto 80 – 95% of the outstanding invoice balance.
When the lender collects the remaining balance, it then remits the remaining balance minus the lenders fee.
This gives small business the upfront money they need to fund their growth or resolve any short term cash flow problems. Invoice Factoring is a great option because it is not based on your personal credit but rather it is based on the quality of your customer accounts and their credit worthiness. Invoice financing is known for its Flexibility.
Usually it takes 3 to 5 days to set up a customer account once the account is set up, you can receive your advance within 24 hours.
It is very possible to have the advance wired into your account within 72 hours.
Remember this is not a loan, you do not incur debt as you do with a bank loan,
you do not have to put up collateral, you do not have to personally guarantee anything, as this is simply a purchase and sale of your invoices