Start-up companies and small businesses are not the only companies that deal with cash shortages. Even large, established businesses that generate sales in the hundreds of thousands can experience cash flow problems. All businesses need working capital to conduct their daily business operations, but sometimes the money gets tied up in other things. Invoice factoring is a fast, efficient way of attaining quick cash when you need it.
Invoice factoring is when a business sells its accounts receivables (invoices) to a third party called a factor in exchange for working capital. For instance, a company may need to buy a huge supply of merchandise from a vendor or keep their payroll timely but may not have the cash on hand because it may be tied up in the money that is expected to come in from invoices. Invoices may have terms of up to 60 days, so companies may have to wait a while to get paid. Companies still need cash during the interim to pay their creditors and generate sales.
Invoice factoring companies buy the invoices and advance the company up to 90% of the face value of the invoices. The business invoice factoring company takes on the responsibility of collecting the entire amount of the invoice from the debtor. When they do, the invoice factoring company sends the business the remainder of the money, minus their fee of between 2% and 5%.
As more and more banks are saying “no” to business loan requests, even more invoice factoring companies are saying “yes.” Businesses see the great benefits of this alternative funding source, including the fact that it is accessible to so many different types of industries, including furniture, transportation, clothing and healthcare. Businesses of all sizes can utilize the fast, convenient services of invoice factoring to generate cash flow for their company.
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