Cash flow is like a business’s backbone; whenever it stops or slows, it will send your business down the drain. All businesses require reliable sources that can offer fast cash infusion whenever required. And that’s why invoice factoring comes in. 

Invoice factoring is one of the best financing options for most businesses. It allows you to utilize your unsettled invoices to get cash before clients can pay up. Also called invoice financing, factoring will come in handy when you need quick cash and can’t qualify or wait for other financing alternatives. 

Whenever invoice factoring companies buy your invoices, they will pay a percentage of your pending invoice upfront, mostly 80-95 percent. When they receive the payment from your clients, they’ll deduct their percentage and give you the remaining money. 

How Factoring Works

With many providers, the invoice factoring procedure is easy and fast. Once the business is approved for invoice factoring, the invoice will be submitted to the factoring firm. The company transfers the money to your bank within one or two business days. Since this is a sale transaction and not a loan, you won’t pay any interest, and your business won’t carry any debt on the balance sheet.

Factoring firms accept businesses with no credit or poor credit since the client’s financial stability matters most when approving the funds. If you have clients with a strong track record of paying bills on time, you are an eligible applicant for factoring.

Things that Make a Business Ideal for Factoring

Any enterprise offering invoices to clients can qualify for invoice factoring. However, this isn’t a cheap financing option since there are other drawbacks. Nevertheless, if you need quick cash to run business operations and you can’t access other types of traditional loans, invoice financing is the best option.

Here is what to consider to know if factoring is good for your business.

• Do you have business clients (B2B?)

 Factoring companies will accept receivables provided to other companies. It’s because they depend on the financial abilities and payment history of the clients to define if they’ll be able to collect the receivables.

They can’t conduct that kind of due diligence on the personal client.

• Does your company provide extended payment terms that stretch invoices to 30-90 days?

Being competitive is one of the challenges of most small businesses. So, they must offer favorable payment terms like 30, 60, or 90 days. For businesses depending on every coin of their cash flow to run a business, such a wait might look like an eternity.

Waiting on client payment will cause periodic cash flow scarcities, making it hard to take on more significant or new orders. Factoring turns invoices into money that can fund business operations.

Good invoice factoring companies can be a perfect contributor to your success. Does your company meet the above criteria? If yes, invoice factoring is the best option when you need instant cash. If you believe you are eligible for factoring, don’t wait to create a factoring account.