Business owners often struggle with cash flow issues from waiting 30, 60, or 90 days for a customer to pay. It becomes difficult for large and small businesses to access their working capital and often fall behind on necessary expenses.
Invoice factoring, also known as accounts receivable factoring, provides businesses with cash advances on their unpaid invoices. Instead of waiting for a customer’s payment, an accounts receivable financing company will quickly advance the invoice amount, allowing businesses to operate and grow using the funds they’ve already earned.
Before getting into a factoring agreement, it’s important to choose a company that offers your business the best factoring services. Here are the best tips on how to choose an invoice factoring company for your business.
How does invoice factoring work?
A business sells its accounts receivable to an invoice factoring company at a discount to receive payment in as little as 24-hours. A factor advances up to 95% of the invoice upfront, then remits payment minus a fee once the customer pays.
A business starts selling its invoices for working capital once a factoring agreement is signed. Here is the process: