Invoice Factoring is a financial transaction that involves a company or an organization that sells its invoice to a factoring company which is a third-party company at a discount. The invoice can also be referred as accounts which a company sometimes factor to meet its current cash requirements.
A factoring company is a great solution to businesses that have slow-paying customers. Factors are not lenders; rather they buy the invoice of the clients at a discounted rate and give the company immediate funds in return.
The Invoice Factoring company is also known as accounts receivable factoring or invoice financing or accounts receivable financing or receivables factoring or invoice discounting or debtor financing.
How does it work?
Want to know how does it work? These are the steps followed:
- Firstly, a company provides its services or products to the client and submits correct bills.
- Then, the same company sells its non-paid bills to the factoring company.
- Thereafter, the factoring company authenticates all the submitted bills and then releases immediate money to the company to fulfill your immediate cash requirements. Most of the invoice factoring companies pays 90% of the amount the same day.
- When all this is done, the creditworthy clients pay the amount directly to the factoring company as per the terms and conditions mentioned in the invoice.
- The factoring company returns the balance of the invoice after deducting their fee.
Some people get confused between factoring and borrowing a loan, but they are different.
Why invoice factoring is significant?
Invoice factoring allows the company to run its business without stopping and waiting for impending money. Your company gets cash whenever you need it so that you can run your business consistently.
A factoring invoice company always finds and validates the creditworthiness and history of the customers before buying the invoices. This is done to ensure that these clients have a history of paying their bills. Some companies resort to non-recourse factoring which protects them just in case the client goes insolvent and denies payment.
So, invoice factoring is one of the best ways to get cash without taking any burden of debt. Receivable account factoring is used by many industries like trucking, freight, broking, manufacturing, staffing, distributors, technology, hospitals, food, logistics, import, etc.
Search for “invoice factoring companies near me” to find one in your vicinity for your factoring needs.