How To Use Invoice Factoring
Invoice factoring can be a great tool for supplementing your business’s cash flow. It’s a short-term financing option that reduces your debt and lets you obtain capital without having to put up expensive collateral. In other words, it’s a risk-free way to get access to funds. Many businesses use factoring from time to time, including small businesses and large corporations.
What You Need To Get Started With Factoring
The process for getting started with this type of financing is relatively straightforward, but there are a few requirements. First, you need to have a regular cash flow. This tells the financing company that your business is healthy. Some lenders have requirements related to a certain time in business, but it often depends on the number of regular customers you have.
Second, you need valuable unpaid invoices. These invoices are what your company will use to obtain financing. In factoring, you essentially “sell” these invoices to the factoring company. Instead of waiting 30-60 days for your customers to pay, you get the cash immediately. In exchange, the factoring company gets a small percentage of the invoice’s value.
Finally, your customers need to have good credit. That tells the factor that the bill will get paid. If you sell products to large stores, for example, it’s usually easy to use those invoices in the factoring process. The same thing goes for lawn-care businesses that have dependable clients who always pay on time.
How The Factoring Process Works
Different factoring companies have slightly unique systems, but most allow you to choose whether you want to factor a single invoice, multiple invoices at the same time or even your entire accounts receivable department. Many factors use high-tech applications that let you submit invoices automatically online. You transmit the invoice, and the company deposits money in your bank account and handles collections. When you choose a trustworthy invoice factoring partner, the entire process is quick, painless and easy.
How To Use Factoring To Grow Your Business
Every business needs extra capital from time to time. Even if you have enough cash flow to take care of all of your company’s monthly expenses, it’s still good to have something extra for a rainy day. With factoring, it’s easy to get capital for business growth. For example, if you want to invest in a new computer system or upgrade some equipment, factoring can be an excellent option for making the purchase without taking on a ton of debt. After all, you’re getting a cash advance, not a loan.