Invoice Factoring Basics

Everything you need to know about the basics of the factoring business

A factoring company buys your invoices in exchange for a certain amount of money. This allows you to continue running your business. If you have to wait for your creditors to pay you, it could be 30, 60 or even 90 days before you see any cash. With invoice factoring--also called accounts receivable factoring--you get a percentage of the money immediately and the balance, minus a fee, when the customer pays.

Understanding invoice factoring basics means you need to learn what factoring is, how it works and when you need it. When you use invoice factoring services, you don’t create debt, because you borrow against invoices, instead of getting a loan.

Rather than consult an invoice factoring directory, consider the following when trying to understand factoring invoices:

1. Visit sites that explain factoring in common language.

2. Note the sites that tell you about the terms of factoring finance.

3. Read more about factoring to see if it fits your business needs.

Understand invoice factoring basics by reading about factoring

Since factoring is new to small businesses, many factoring companies explain factoring. Visiting these sites will give you greater insight into what factoring is and how it work, and help you further understand the basics of the factoring business.

Learn what fees are involved and the terms of invoice financing

There are costs involved when using a factoring company. In the factoring business, fees range from 1% to 5% and advances anywhere from 65% to 97%. You also need to consider if you can pick the invoices you want to factor, if you have to commit to factoring a certain amount of invoices on a regular basis and whether the company offers recourse or non-recourse.

Decide if factoring receivables is right for your business

If you find that your accounts receivable are surpassing your cash flow, you probably will benefit from factoring invoices for business. If you also need extra cash for expansion or to buy more inventory or other things in your business, an invoice factoring company can be right for you.

• When considering factoring invoices don't forget to check and see how long it will take to get your initial money.
• Locate factoring companies that have been in the factoring business for many years and cater to small businesses.

Copyright © 2013 Business.com, Inc. All Rights Reserved.

---