Invoice Factoring - Accounts Receivable Loan
Invoice Factoring (also called account receivables factoring,) is a form of business financing that allows a business get money today for an invoice that they are supposed to be paid in the future (usually 30 to 60 days in the future.)
It is not a regular business loan, and you don’t have to go through the same long process as when you apply for a business loan. Invoice factoring allows a business to convert slow paying invoices from good credit rating customers into immediate cash. An invoice is basically a promise from a company to pay in the time established in the invoice.
Accounts Receivable factoring works because it solves one of small and mid-size businesses biggest challenge: Lack of cash flow. It gives you the money you need today instead of having to wait for it.
If you are a well-established company with plenty of cash reserves in the bank, invoice factoring is probably not for you. However, if you are a smaller company going through a temporary cash shortage or a fast-growing company needing cash for additional growth, factoring can be the answer for you.
After you set up an account with an invoice factoring company (which usually takes a few days,) you can expect to get paid in as little as 2 days. With the money you get from the sale of your invoices, you can get the necessary cash to pay salaries, suppliers and other business expenses.
The cost of a transaction is usually between 1.5% and 3% of the invoice per month. This cost varies depending on the transaction cost, the factoring company you use and the credit rating of the paying company. This price is what factoring companies charge for giving you the money now and having to wait for the invoice to be paid.
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