How to Understand What Invoice Factoring Is and How It Works for You

Small businesses struggling with cash flow and waiting for customers to pay after 60 or 90 days may have heard about invoice factoring, but have no idea how it works in the real business life. After educating yourself on how factoring works, you should seek a high-quality accounts receivable factoring company to help you dramatically improve your cash flow.

The Factoring Company Pays Quickly

Where you consistently struggle to ensure a good cash flow for your business, which may restrict you from employing new individuals, a factoring company that pays you quickly against invoices you have issued is good for your business.

An accounts receivable factoring company will analyze your business and establish a credit limit which allows you to submit invoices to them for relatively immediate payment. The factoring company will source the funds direct from the customer where you sold your goods or services.

Where Do You Deliver Your Goods?

Once the credit limit is established, you just sell your product or service to your customers and deliver the goods where required. The invoice is sent directly to your accounts receivable factoring company.

They will check that the products or services were received and then the factoring company wires the funds to your bank account, usually within 24 hours. From the invoicing amount, they will have retained a fee that you will have agreed with them.

The distinct advantage is that you are being paid for your products or services immediately after delivery, saving you 60 or 90 days before you would usually receive the funds.

This enables you to purchase more goods that you can turn into products which you can sell to customers. It allows you to take on additional business and as your cash flow is improved, or you may be able to update your marketing activities.

Customers that you have refused in the past will be good for you now, even if they demand long credit terms because you understand how quickly you are going to be paid.

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Author: anvdiribrt

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