Invoice Factoring for Beginners

If you are looking for a way to reduce your administrative work and normalize your cash flow, factoring is often the best choice. It is an option that is only open to businesses that use invoicing for customer billing, so some companies are excluded, but it is a vital service for many freelancers and owner-operators, as well as small businesses with just a few employees that need to focus on core operations. That is because it is the only option that lets you be totally done with those invoices, allowing you to move forward as if they are already paid.

How Does It Work?

When you apply for factoring, your invoices are reviewed alongside your customer payment histories. The company’s credit score is not really an issue since you are basically selling the debt you are owed, not taking new debt on. Your customers’ history is what tells the factor of how much risk there is in buying the invoices and pursuing collection. The more consistent your clientele is with on-time payments, the less expensive the service gets. With this kind of arrangement, that means the offer you get is for a higher percentage of the invoices’ face value. After the agreement is signed, you notify customers to pay the financing company and move on, then they do the work of collecting.

How To Use Factoring for Better Cash Flow

If your business faces regular cash shortcomings because you are waiting for payments on completed work, then you can use this service to normalize your pay dates with an incredibly simple process. All you do is submit every invoice on a regular basis. Many companies choose every four to six weeks, some do it quarterly. Either way, the regular payments wipe the slate clean and provide the capital needed to keep moving forward. The key is to adjust your costs so that you still make what you need after the discount to face value.

When you work with a factoring company to do this, you will get feedback about customers who are becoming an issue and paying late. Closing those relationships will help keep your costs down, and the longer you work with a particular service provider, the easier it is to dial things in so that you are paying the lowest fees possible on every deal. The first step is applying for your first time, so if you have been on the fence, consider trying it out today.


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