What is invoice factoring and invoice discounting?

The Romans were the first civilization to sell promissory notes at a discount, starting the factoring industry. The United States relied heavily on the possibilities of factoring, when colonial businesses were factored by Europeans willing to invest cash in exchange for the promise of big profits, and government bonds also use the same principles that companies apply when they participate. in invoice factoring.

Invoice factoring is, in its simplest form, the sale of the right to collect cash due on your outstanding invoices. Most companies turn to invoice factoring when they need cash up front quickly or when they have customers who are slow to pay and don’t have the resources to create a bill collection department. Although some businesses are large and established enough to obtain accounts receivable financing through a regular bank, it can also be helpful to have access to invoice factoring companies.

Most companies use invoice factoring to get quick cash. In today’s intense and fast-paced business environment, cash on hand can be invaluable. With the sale of your invoice futures, you can get the cash you need today to attract customers that will advance your business.

Invoice factoring is not a loan; rather, it is an outright sale of an asset. Another way to think of it is like a cash advance: you give up some of the money you expect to receive in the future in exchange for cash available today. While some companies buy invoices outright, others give you an initial payment for the invoice and pay you the balance less your fee when they receive payment from the customer. One of the best things about invoice factoring is that your credit does not factor into your approval; instead, your customer’s credit qualifies the invoice for factoring.

Many different industries take advantage of invoice factoring, including:

Transportation

Manufacturers

dealers

wholesalers

Staffing and consulting companies

telecommunications companies

service providers

Because cash on hand is so important to your business, industries that are heavily invested in human services and need to be able to pay payroll are among those that can best take advantage of invoice factoring. However, any business that generates at least $10,000 in accounts receivable should be able to use invoice factoring, provided it has acquired creditworthy customers.

Other situations that may make invoice factoring a good choice for you include:

A young company with solvent customers, but without enough credit history for their own business to be considered solvent by banks

A business with a need to pursue new, time-limited sales and profit opportunities, but currently with inadequate cash flow to do so

Companies with income, credit or tax problems

Companies that have filed for bankruptcy, but can make a profit

Companies that are growing too fast for ready capital to keep up with business needs.

Companies ready to grow very soon but do not want to get into debt

Companies that are growing rapidly, but do not have enough credit to obtain bank loans.

Start-ups with no current capital base

Businesses with seasonal sales patterns or uneven sales patterns