How Factoring Can Help You Stay On Top Of Invoices


Most businesses that do not use a point-of-sale system send out invoices with aging windows that range from 30 days on up to 90, and even beyond. In a perfect world, customer would pay the second an invoice is receives, but the truth is that many wait close to the full term of the aging period before issuing payment. During that time, a business has to pay for its own expenses, and if money isn’t coming in from customers, then it can cause a huge financial strain, internally. One method business owners use to correct this problem is factoring.

Factoring Defined

Factoring is a process by which a business sells unpaid customer invoices to a factoring company (called a “factor”), at a slight discount, in exchange for cash. This eliminates having to wait for payments from customers, and gives businesses the working capital they need to regain a healthy and steady cash flow.

The Factoring Process is Easy to Arrange

Unlike bank loans that can take some time to process, factoring agreements can be arranged in just a couple of business days. Additionally, once an invoice is submitted, money is typically made available in under 24 hours.

Don’t Worry About a Credit Check on Your Business, You Don’t Need One with Factoring

Bank loans can directly impact your business credit rating. Factoring, on the other hand, requires no credit checks on your business, because it is not a loan. Factors may, however, run credit checks on your customers to see if they are able to pay on the their invoices.

You Will Inquire ZERO Debt

As stated above, factoring is not a loan, so it does not require business owners to take on additional debt, which would impact a company’s credit rating and prohibit them from seeking out additional financing for larger project. Instead, factoring registers on the balance sheet as a sale on receivables, which preserves existing credit and keeps business owners free to secure long-term funding from other sources.

Less Strain on Accounting.. You Could Get Used to This

When customers are waiting out the aging window on their invoices, hunting down payment can use resources that an accounting department can otherwise use to keep track of internal finances. Since sales do not happen all on one day, keeping track of multiple aging period to ensure payment practically becomes a job unto itself. When a business uses factoring, the responsibility of getting payment from customers is transferred to the factor. After the invoice is sold, the factor gets full payment on the invoice from your customers.

Factoring is a great way to stay on top of invoices, remove the strain on your cash flow, and get your business the working capital it needs to stay successful.

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