Invoice Factoring Key Terms

Learn more about invoice factoring key terms and help your business grow
By Rose Bricker, Freelance Writer When your invoices or accounts receivable exceed your cash on hand by a large amount, it may be time for you to consider invoice factoring. Getting a loan is difficult for new businesses. Factoring companies will buy your invoices and give you an advance on them. They take a percentage of the invoices as their fee when the invoice is paid and pay you the difference. Make sure you check the advances and percentage rates of different factoring companies to get the best deal for your business.
 

Invoices or accounts receivable

Invoices are an asset on your books. Instead of getting cash immediately, you give your client credit and receive the cash in the future. If you need cash immediately, selling your invoices can help you raise funds. This way, you get an influx of cash into your business without taking out a loan.
Try: Wise GEEK explains what invoices or accounts receivables are and how they fit into your overall financial picture.

Factoring company

A factoring company buys your invoices or accounts receivable and allows you to get most of the cash immediately rather than in the future. Factoring companies offer you an alternative since factoring is not a loan, and your customers' ability to pay is the basis of your approval.
Try: Team Factoring provides a history of factoring, along with an explanation of the company's services. 

Advance

An advance is the money the factoring company gives you before your invoices are paid by your clients.
Try: J&D Financial explains factoring and advances.

Factoring fees

Factoring fees are the amount of money, usually described as a percentage, that the factoring company charges you for it service.
Try: Business to Business Capital explains factoring fees.

Invoice factoring

Invoice factoring means selling your invoices to a factoring company and getting a certain amount immediately, rather than waiting until accounts are paid.
Try: The Invoice Factoring Group explains invoice factoring and provides you with an example.

Difference, reserve or holdback

The difference, reserve or holdback is the amount of money you will get when your invoice is paid by your customer, minus the percentage the factoring company keeps for itself.
Try: Crestmark Capital explains factoring and includes an example of the difference or reserve.