Invoice factoring can be a huge benefit to your company if yours is a business that routinely issues a high volume of invoices to your customers each month. The age-old problem with invoicing customers is that they are frequently slow to pay those invoices, and that means you have to wait for incoming revenue. Unfortunately, your creditors will not wait, and that means you need to have cash on hand immediately to pay them. One way you can do that is through invoice factoring, where you would sell some or all of your invoices to a factoring company in exchange for upfront cash. Here’s how the process works.
Basic Process of Invoice Factoring
First of all, you would invoice your customers with net terms somewhere between 30 and 90 days. Then you would sell as many of those invoices as you want to a factoring company, for an amount which is something like 80% of the face value of those invoices. You would then receive this amount as an upfront lump sum of cash, and at that point, the invoices become the responsibility of the factor. When the invoice comes due, your customers would then pay the factoring company directly.
Once the factor receives your customers’ remittance, the factor would send you the other 20% of the invoice amount, after subtracting its service fee. The beauty of this arrangement is that you get cash immediately, without any of the hassles of having to collect on those invoices. Almost any company which has a number of invoices assigned every month would be eligible for invoice factoring, even if you don’t have particularly good credit. Since approval hinges much more on the credit-worthiness and prompt paying habits of your customers, your own business credit history doesn’t come into play very much for approval.
Considering Invoice Factoring for Your Company?
If you’ve been considering invoice factoring for your small business, we’d like to hear from you. Contact us at Coastal Commercial Capital so we can discuss how factoring can help your business, and get you started on the program.