Invoice Factoring

Written by Jill Morrison
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The option of invoice factoring should be considered by new or struggling businesses as a method of increasing growth and profitability. This service provides immediate relief for cash flow problems and offers many other advantages for a reasonable fee. Businesses may sell their outstanding receivables to a factor and receive 70 to 90 percent of the total value immediately. The factor then assumes responsibility for collecting the full amount of the invoices.

Understanding Invoice Factoring

The funding from the factor usually happens in two parts. The initial advance of 70 to 90 percent is immediate. After the full amount of the invoice is collected by the factor, a fee is charged and the balance is sent to the business. Factoring is not considered a loan and therefore, does not lower credit ratings. The service saves time for businesses by eliminating much of the invoice processing paperwork. The factor collects the payments and assumes the risk of non-payment.

Invoice factoring has been utilized by large corporations for many years. More recently, small and medium-sized businesses have been allowed to participate. It is a perfect solution for new or struggling businesses because approval does not depend upon their credit standing. It focuses on the financial reliability of the invoiced customers. It can help to improve credit ratings by improving cash flow and allowing timely payment to suppliers.

Invoice factoring is very flexible. You can factor as little or as much as you decide. There are no minimums or maximums. It allows businesses to extend better credit terms to customers. Many consider terms to be more important than price when making a purchase. The potential for rapid growth and expansion is available through use of this service.

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