When your company is dealing with a cash flow crunch, you don’t always have the time to go through the long process of applying for a bank loan. Some business owners wish to avoid this for other reasons such as poor credit or the need to offer collateral. Single invoice factoring can help in either situation.
Understanding the Process of Invoice Factoring
Invoice factoring is an alternative means of business financing that does not involve taking out a loan. The money you receive from a third-party factor is an advance on an accounts receivable invoice. Put another way, invoice factoring means that you sell your customer’s invoice to an outside organization in exchange for quick access to cash.
Most factoring companies offer 70 to 90 percent of the face value of the invoice upon approval of the accounts receivable advance request. The amount held back covers the factor’s fees as well as interest you pay for the convenience of receiving payment for the invoice now. If you operate like most companies that bill customers after delivery of goods or services, you could wait up to 90 days for the customer to pay the invoice in full. When you have financial needs to meet in the meantime, invoice factoring can help you meet those needs.
Your Own Credit Score is Irrelevant
The factoring company bases its approval decision on the creditworthiness of the customer who owes money to your company. As part of the review process, the factor verifies the information on the invoice and requests a credit report on your customer.
When you only plan to submit a single accounts receivable invoice, be sure to choose one from among your top customers whom you know to pay on time. You could be liable for repaying the factoring company if your customer defaults, but this depends on the terms of your agreement. Once the factor approves your request, you should have the funds in approximately 24 hours.
Could invoice factoring be the right choice for your business? Please contact Evolt Capital today to learn more about it.