If cash flow for your business occasionally runs low, you may need more options to obtain it other than applying for a bank loan. Invoice factoring is one such possibility. When you factor an accounts receivable invoice, you actually get an advance on money owed to your company for products already delivered or services rendered. You can choose to factor a single invoice or several invoices. However, you should select invoices from accounts receivable that represent your best customers. The reason for this is that the factoring company reviews your customer’s credit and not that of your company.
How the Invoice Factoring Process Works
Invoice factoring typically follows this three-step process:
The first thing you need to do is locate a finance company that offers invoice factoring to obtain an application. Be sure to read all terms and conditions carefully to ensure this is the right option for your business at this time. Keep in mind that you will pay the factor a fee plus interest.
Next, submit one or more accounts receivable invoices to the company offering the advance. A member of their staff will confirm the information on the invoice is correct and obtain a credit report on your customer. The verification process may include a call to your customer to verify the invoice amount.
You receive a lump sum payment from the finance company after a staff member has verified all invoice information. The amount you receive will not be the full face value of the invoice since the factor holds back its fees. The finance company could retain a small percentage of the invoice value until receipt of payment from your customer.
As you can see, invoice factoring is a fast and simple process. You will likely have the funds you need within a matter of days. Please don’t hesitate to contact Star Capital USA if you have additional questions about invoice factoring or would like to apply for an accounts receivable advance.