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Invoice Factoring Resource International An information and solution resource |
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Invoice Factoring - What is it?
Invoice factoring allows a business to sell its outstanding accounts receivable invoices for cash to an intermediary financial institution called a Factor. The factor or factoring company is not a bank and the cash it provides is not a loan. The factoring company buys the invoice for slightly less that the amount of the invoice and makes the cash available to your company immediately. In turn, your customers pay the factoring company the full amount of the invoice when it is due. Invoice factoring allows your company to finance growth and general operations without assuming any debt. It virtually eliminates your billing cycle turning your business into a COD business within 30 to 60 days. When you sell an invoice the factoring company typically pays you roughly 75 percent of the amount of the invoice immediately, and holds the remaining funds in reserve until your customer pays. The reserve, less the factoring fees, is released once the factor receives payment in full. If
your company sells products and services to other businesses,
and provides payment terms to these customers, you should
carefully consider invoice factoring as an alternative to bank
financing to grow your business. It is much easier and
quicker than Factoring is not for every business and it has certain limitations. Your consumer receivables are not eligible for factoring only your business to business sales. Also a factoring company is not a substitute for a good collection agency, so don't try to factor your past due invoices. Also be prepare for an extra pair of hands dealing with your customers. Some companies welcome the extra set of hands and others view them as an intrusion. Also, be prepared to change the way you process your receivables. The extra pair of hands comes with extra steps to process your invoices. If your company is starved for cash and has substantial receivables, invoice factoring may be just what you need to get back on top of your cash flow. |
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The purpose of this site is to provide general information about issues involving invoice factoring. This site is not intended to substitute for professional financial or legal advice but instead is a general interest site where people can learn more about issues involving the subject matter. Copyright IFRI 2006 - Invoice Factoring |
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Invoice Factoring,
is alternative financing for your business that
allows your business to take advantage of the
cash hidden in its accounts receivable.
Although it is considered alternative financing,
it is widely used and accepted throughout the
world. Almost every successful company
used invoice factoring at some point in its
past.
conventional bank financing and it doesn't require
a complicated application process. Your credit history is
not important because the factor is buying your invoices on the
strength of your customers credit, not your company's.
