Business factoring, unlike a business loan, creates an increase in cash with money that’s already owed to your business by customers. Alternatively known as invoice factoring or invoice financing. Some people also use the term debt factoring.
The basic process is simple; you sell your outstanding invoices to a factoring company that pays a lump sum. This can usually be between 70 and 95 percent of the invoice total. Then, this money will be sent to your bank account and can be used immediately for working capital.
This can be particularly helpful because you don’t have to wait as long as 30 to 90 days for customers to pay your business. Instead, you could get this money in a matter of days from an invoice financing company.
It’s important to note that the business factoring lender will charge a fee for the service, often a percentage of the invoice amount. Then, the task of collecting outstanding invoices will belong to the invoice factoring company.
There are also downsides of working with an invoice factoring company, despite the benefits. You should weigh the debt factoring advantages and disadvantages prior to applying for invoice factoring. Our expert team of consultants at Ignite Business Group can assist you on your journey.
Conclusion: Is Business Factoring Right for Your Business?
When considering “what is factoring”, not every financing solution works well for all businesses. While business factoring might be great for some businesses, like construction or recruitment, it may not the the answer for others. You should always aim to speak to qualified invoice factoring consultants to review what is right for you and your business. Once you know the answer to “What is Factoring”, you can decide if its best for your company.
Business factoring works well for business owners that need money quickly. They also need to have reliable customers that have a history of paying invoices on time. And lastly they need to be able to afford the fees that come with selling invoices to a third party. If this sounds like your business, you might benefit from a business factoring solution.