An invoice is simple but what does it mean when “factoring” is added to create the term? The result is an opportunity for businesses (or individuals) to make money from unpaid invoices by selling them in bundles to companies that specialize in the topic.
What happens in the process of invoice factoring is fairly simple:
- A company produces an invoice
- A client may have become delinquent in fulfillment of said invoice
- A company (the factor) steps in to purchase the invoice from the original company
In the end, the company that sells the invoice gains an immediate bump in revenue (albeit with a cut for the service) and the invoice factoring company has an investment which can yield a decent return depending on the client and any additional terms.
Which brings us to…
Is it right for my company?
Invoice factoring is perfect when your business finds itself in a gray area where funding is needed but there are issues preventing traditional loans and lines of credits from financial institutions. When a business needs a quick injection of capital to push them over the top and hitting the market hard – this is where invoice factoring comes into play.
With a quick infusion a company can do a variety of great things:
- Purchase new inventory to handle rapid growth
- Sign on additional staff during stressful shopping seasons
- Invest in new equipment to overtake the competition in design and production
Be sure to fully understand, however, some of the pitfalls that may appear if you suddenly rush into invoice factoring as it does require the correct research and due diligence to prevent oneself from making common mistakes with the service.
Don’t get too cocky when new, working capital floats your way and you’re not completely prepared to take on the responsibilities… but, really, that’s all finances and you, already being in business, should have that as your primary concern.
Where can I start?
There are a number of different companies that provide invoice factoring – one of which worthwhile of your research is Dealstruck.
The process of obtaining loan or line of credit based around this subject is quick and forward:
- Cover the basics of your business and choose an option that suits your needs
- Verify your business and complete the contractual obligations
- Work with a financial consultation, sign, and begin receiving funding
Rates are reasonable and low compared to many financial institutions with them going as low at 9.99% and terms up to 48 months. The fixed payments and early pay also give you greater control.
The requirement couldn’t get much easier for a small business:
- 1+ years of operation
- 600+ personal credit score
- $150k annual revenue
Certainly obtainable for a small business doing well, wouldn’t you agree? With additional funding through these factoring services, it could truly set the business as the front-runner in the market.
All-in-all, invoice factoring provides a business with opportunities to continue generating cash flow without the hassle of late and delinquent invoice payments. Factoring companies provide quick services and reasonable rates which can keep the business moving along. Is it right for your business? Take the assessment and explore the options.