Invoice factoring is when you sell unpaid invoices to a factoring company at a discounted price. The company pays you about 70 to 90 percent of the total value of the invoice, often in a matter of hours. Because invoice factoring provides businesses with quick access to funds, it is becoming an increasingly popular alternative for business funding. If you are looking for funds, consider invoice factoring and find out why it’s a better option for you than traditional finance products from banks. 

What is Invoice Factoring? 
Also called debt factoring, invoice factoring is a financial product that allows businesses to sell accounts receivable or unpaid invoices. Once the sale to a third-party factoring company is completed, the invoice factoring company takes on the responsibility of collecting the payment. In addition, factoring companies buy the invoices for a percentage or portion of their total value. 

Why Use Invoice Factoring? 

It’s hard for businesses to stay afloat. Companies often wait 30, 60, or 90 days for invoices to clear. Some invoices can take as long as 120 days to clear. That’s a long time to wait for payments to come in. Factoring invoices gives businesses access to working capital, so they can continue offering extended payment terms to clients. Invoice factoring speeds up the process, so companies can get the funds they need to fill in gaps in their cash flow immediately. Compared to traditional lending options, such as applying for bank loans, which can be a lengthy process, invoice factoring is quick, accessible, and convenient. 

Why Choose Invoice Factoring? 

In 2021, there were 32.5 million small businesses in the United States, according to the latest statistics. Given that these are newly established companies, many of them haven’t been around long enough to build a credit history. Some companies also have poor credit scores. In both situations, companies are unable to apply for a business loan since banks have stringent requirements. That’s where invoice factoring comes in. Factoring helps businesses get funding, allowing companies to take care of their financial obligations. 

Is Invoice Factoring Right for You? 

Invoice finance is ideal for startups, small businesses, and large companies. However, when it comes to your eligibility, factoring companies will consider the following: 

  • The origin and size of the invoices you’re submitting. Factoring companies are more likely to accept invoices with a bigger value. 
  • The time frame or clearing time on your invoices. Some companies only accept invoices that take 90 or longer to clear. Be sure to check on that detail to determine if your invoices fit the bill. 
  • Potential risks or if the customers are credit risks. One way to ensure your invoices are accepted is to choose invoices for customers who pay their bills on time. 
  • Your company’s reputation and credit score. A trustworthy reputation can make a difference, especially if you haven’t had enough time to build a good credit score. 
  • You understand the costs. Factoring costs depend on several factors, including the value of the invoice, the size of the factoring company, and the risk they’re taking on.