Invoice factoring is just one tool a company can use to improve cash flow. But many people don’t understand how truly simple it is and how it works.
When you factor your invoices, you are selling the invoices to the factoring company, you are not borrowing money. Therefore, there is no principal or interest due to a lender and you don’t carry a loan on your balance sheet. You aren’t making payments and you are getting your invoices paid now (when the factoring company buys them) instead of waiting for your customers to pay you.
Cash flow is dependent on how much and how fast money flows in and out of a business over a period of time. Simply put you can improve cash flow by slowing the outgoing money or speeding up the incoming cash allowing you to pay bills or invest in your business on your timetable.
Invoice factoring gets you paid for your invoices now instead of waiting 30, 60, or 90 days when your customers decide to pay you. This faster payment results in improved cash flow.The payment of your invoices by your customers is what pays the factoring company. For that reason, your factoring partner is more concerned about your customers’ credit worthiness than yours. This is especially helpful if your company is young, growing rapidly, or still building credit, or if you’ve had some recent credit issues.
As your company grows and sells more product or services, your accounts receivables grow. This means you have more invoices to factor and thereby receive larger up-front advances from your factoring company to accommodate your growth.
With most business loans you need to provide tax returns, financial statements, accounts payable aging, inventory reports, personal financial statements, and the list goes on. Approvals can take weeks which means funding can take even longer.
You can get started factoring simply by providing a signed application, a detailed accounts receivable aging report, a customer list, and a sample invoice with backup documentation. Once invoices are verified, you receive your money. And ongoing, you can receive funding daily, weekly, or on whatever schedule works best for your business. You choose the timing of factoring new invoices, so you control your cash flow.
So, what are you waiting for? Get started with invoice factoring today, then watch your cash flow improve and your business grow.