Competing as a small business owner often means giving customers 30 days, 60 days, or even 90 days to pay outstanding invoices. When they pay them late or not at all, it leaves your company scrambling to meet expenses due to limited cash flow. Unfortunately, it’s impossible to pursue new business opportunities when you’re just focused on getting by each day.
Invoice factoring offers a simple solution to this dilemma. When you have tried working with late-paying customers to no avail or want to avoid the cost of sending accounts to collections, it’s nice to know that you can use the power of your own accounts receivable to receive the prompt funding your business needs.
The Basics of Invoice Factoring
When you factor an invoice, it means that you sell it for face value to another party such as a factoring company or an alternative financing company. The buyer typically charges a fee upfront that it deducts from the amount of the unpaid invoice. When the time comes to pay the invoice, your customer will pay the company you sold it to instead of your own company.
It’s important to understand that invoice factoring can’t help you with accounts that have already gone past due. That is because invoice buyers only want to buy the unpaid debt of your best customers. For that reason, you should only submit outstanding invoices of customers that always honor the terms of your agreement. The third-party organization that purchases the invoice will run a credit and background check on your customer and not your company.
Invoice factoring can be more attractive than a bank loan for many small businesses without solid credit history or that need quick access to cash. While it can take a month or longer to gain approval for a bank loan, invoice factoring companies typically process requests within a few days.
If you’re ready to learn more about invoice financing or other alternative forms of business financing, please contact Norus Capital to schedule an appointment.