Invoice factoring is a form of small business financing where a business sells its invoices to a factoring company in exchange for up-front funding. When the invoice is paid by the customer, the remaining balance is paid to the business owner minus a fee.
Invoice factoring allows you to receive the working capital you need to maintain operations and plan for the future, but without taking on the periodic fixed payments associated with a term loan. If slow-paying clients are stalling your ability to pay bills or meet payroll, invest in technology and equipment, or hire more staff, invoice factoring can help you bolster cash flow by liquidating your outstanding accounts receivable to keep your business moving.
Rather than waiting 30 to 120 days for your customers to pay you the money you need to run your business, invoice factoring provides you with working capital within 24 to 48 hours.
The main difference between invoice factoring and invoice financing is which party is responsible for collecting on the unpaid invoices. With invoice financing, the customer retains full control of collections. In invoice factoring, the factoring company purchases the unpaid invoices and takes over the collections process.
After submitting your invoices to the lender for invoice financing, you’ll receive the amount of the invoice minus a percentage as payment. Once the client pays you, you pay back the lender. While it may be helpful having the lender collect unpaid invoices on your behalf, understand that you will have less control over the collections process and that your clients may become aware of your cash flow shortages.
To get prequalified, follow the “Get Started” button and enter some basic business information.
After your submission has been processed, a Business Consultant will reach out with the status and timeframe for approval.
Upon approval and accepting the offer, funds are deposited directly into your bank account so you can use the money immediately.
Factoring companies typically calculate discounting rates using a variable fee structure where the factoring company charges a flat fee for the first 30 days, plus a small additional fee for every 10 days that the invoice remains unpaid. Other factoring companies offer a flat fee structure where a one-time fee is charged upfront and remains the same regardless of how long the invoice remains open. Late fees can add up so be sure to check your customers’ payment histories when choosing which fee structure is best suited for your business.
Factoring an invoice means selling it to a lender in return for a discounted advance. Then, the lender collects the unpaid invoice from your customers on your behalf.
Invoice factoring is not a loan. Factoring allows you to release untapped working capital from your accounts receivable to meet your immediate cash needs.
Invoice factoring is when a business sells its invoices to a third party and then the factoring company controls the sales ledger and collects the debts. Invoice discounting allows you to draw money against your invoices, however, the business maintains control over the administration of your sales ledger.
Flexible financing and repayment based on what you can afford
Draw as you need and only pay for what you use.
Always have enough cash flow to seize opportunity.
Still looking for the right fit? Check out all of Credibly’s business financing options.
When you are faced with an unexpected growth opportunity, access to fast, affordable financing is essential to reaching your goals. To get started, fill out our simple online prequalification form or call our Customer Success Team at (888) 991-3954.
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