Invoice Factoring 101

If you’re looking for financing that can help you take on more and larger projects, streamline your cash flow, and provide you with the opportunity to increase your market share without limit, then you need to look at your options for factoring. Whether you use this kind of financing on your general accounts receivable or your invoices, it’s a powerful tool for making sure your business is always ready to take on new orders. If you’ve ever experienced a bottleneck in your business because you were owed funds you needed for the next project, this is the financing for your company.

The first thing to know about factoring is that your customer’s credit and payment history will generally be more important than your own. That makes this tool powerful for businesses looking to avoid a lot of long-term debt being added to the company. They’re also very fast to approve once you’ve found a lending partner you work with fluently, so it’s important to make sure you’re selecting a great lender.

When looking for a factor to handle your advance, you should be sure to check into the fees and payment schedules their programs operate on. This is because your customers might pay late, and with some providers, that could result in penalties that you’ll want to know about up front. Every factoring arrangement is different, so don’t be afraid to shop around until you have the right combination of penalty fee structures, regular costs, and repayment windows.

The other thing to remember when you’re choosing a factor is that you will want to keep your finances versatile, so it’s important to avoid being locked into contracts that would keep you from shopping around if you feel you could get a better asset financing deal elsewhere or if you need to switch to another form of asset financing.

Last but not least, remember that your factoring provider is probably going to notify your customers when you sell invoices, and they’ll also ask for payment to be routed to their account so they can deduct their fees before sending you the remainder. These are common practices you should be prepared for, and if necessary, you might want to talk to your customers in advance about why you are adopting the practice of selling invoices and what they should expect from this process.

If you handle everything correctly, this kind of financing can relieve a lot of pressure on your business while setting you up to make the most of future opportunities. All it takes is the right provider.

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