Small businesses need extra money. If the cash flow stops somehow or business depends on slow-paying clients, the company may face financial problems. Invoice factoring is a simple yet very powerful and reliable financial guarantee. If you are new to invoice factoring and want to explore it, then welcome to the right place.
Invoice factoring vs. regular loan
First of all, we have two separate main financial solutions — invoice factoring and a conventional loan. Those institutions do not have anything similar, as they have different approaches to financial stability.
Unlike a regular loan, during invoice factoring, you have access to extra funds. How do you get additional funds? Most businesses have unpaid invoices. The process of invoice factoring is entirely related to unpaid invoices. You cooperate with a company whose primary work is to transform due invoice to a paid one. You may wonder how they do it? It’s simple, they take contact information and get in touch straight to a customer who has not paid the invoice. They work hard to make sure that invoice paid, and you get extra funds.
Overall, they give you some percentage (depends on factoring company) from unpaid invoice and rest is taken by that company. Keep in mind, “factoring” company will have contact with your customers, so be sure that they won’t have a problem about breaching their privacy. That could be a real issue while using invoice factoring as a financial tool. Fundbox has detailed guideline, and you can learn how invoice factoring works.
Why does invoice factoring matter?
In recent years, we see massive growth of interest in invoice factoring. Most small business owners love that financial tool, as it’s not a loan. You, as a small business owner, don’t have to cooperate with the bank or lender. There will be “factoring” company, your business and customer. You can get extra funds fast for the work your business has already delivered — that’s an advantage. If your business provides a top-notch service/product and gets paid for it, that’s a huge success.
Invoice factoring improves cash flow
Whether you want to buy new equipment for business or hire new employees, you’ll be in need of additional money. That’s inevitable while growing an actual profitable business, so be cash flow could be a real issue. With factoring unpaid invoices, you get ahead of your financial schedule as you get money that was already hopeless.
How to process invoice factoring?
First, you have to find a reliable and trusted “factoring” company. How to understand their reliability? Check their rates, customer service, customer reviews, and contracts.
As you choose the suitable factoring company, they may ask for personal information of your customers. That could be a little issue as customers don’t like when they get calls from third-parties regarding unpaid invoices. Again, everything depends on your goals and budget. If you are good with “factoring” company, then you sign an agreement with them. Every “factoring” company has its terms, and the percentage you may get from each invoice.
