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Back to Basics: What Is Invoice Factoring?

Invoice factoring is an important concept to understand for any business owner. It can be a game changer for your business and so it’s critical to have an awareness of what it can do. Utilizing invoice factoring can help a stalling business survive and grow much faster. If you’re a business owner who doesn’t fully understand the implications of invoice factoring, this article will give you a refresher course on the basics so that you can potentially give more life to your business.

Invoice Factoring

Financing is the core of every successful business. The money coming into your business is what keeps it running smoothly, and it’s obviously important for every business to keep this supply of money flowing constantly. One stumbling block in this process is waiting on funds to come through from major corporate and government clients. This can become a big strain on the working capital available; if the funds are not available when you need them, they can prevent growth and leave your business lagging behind. You can’t pay your staff and vendors when you need to. There is a solution to the problem of waiting on payments called invoice factoring. The definition for invoice factoring is fairly simple: it’s the process of taking your unpaid invoices and transferring them into pure cash that is immediately available for your business. This means that instead of having to wait a month or more for a payment — you can have the money instantly! This is a great way of funding your business further and allowing it to grow.

Invoice 2How Does This Process Work?

This might seem like a far-fetched idea to most who are not familiar with it. After giving your client an invoice for the services provided by your business, the usual process involves waiting a while for the actual payment to come through. Instead of waiting, however, you can sell the invoice to a factoring company in Kennesaw, GA. From there, they can provide up to 95% of the invoice value. You can pump this money immediately back into your business and use it keep things running smoothly. Rather than waiting and letting your business stagnate, factoring companies allow your business to further expand. It means you can meet your payroll deadlines, buy more inventory and whatever else your business requires at the time.

Why Not a Bank?

The application required for a factoring company is much simpler than that of a bank loan. Banks have tougher acceptance criteria and will take longer to approve the application. There is also a significantly higher rejection rate or you may not qualify for as much as you need. Banks are still wary over lending to small businesses after the stock market crash of 2008. Don’t spend time waiting for a loan to be accepted, if you choose a factoring company, you could have funds already being used in your business. Time is money. A factoring company is much more time conscious, as they will let you know you have been accepted much sooner than a bank will. They also have a much higher approval rate, looking at the quality of your customers rather than your credit scores. If your customers are good, they will likely accept your application and release the funds to you.

Invoice factoring should be a consideration for every smart and savvy business owner. Rather than waiting months for a payment to come through, you can have funds available within 24 hours and pump them back straight in your business. Ultimately, this could be the difference between a successful business and a failed one, as the successful business will be quicker to move than one that’s stalled due to unnecessary payment delays.