This Is How Invoice Factoring Works

Posted on Posted in Financial

Invoice factoring has become a vital new tool for a business to improve its return on outstanding accounts receivable. This method can be used to resolve temporary shortfalls in operating capital which otherwise might cripple a business. However, not many people understand just how invoice factoring actually works.

Factoring accounts receivable is a means by which a company sells its own sales invoices to a broker for cash. This strategy is employed as an alternative to taking on additional debt through emergency loans by instead directly trading outstanding invoices. In effect, the business is selling debts owed to it; getting needed cash without adding to its own debt or diminishing equity. This can provide predictable, periodic infusions of money which can be applied to improving liquidity, generate additional working capital as needed, and enhance both revenue creation and marketing efforts. A secondary benefit to the business is the reduction in otherwise wasted time, effort and cost in managing these outstanding accounts receivable and debt collection. The invoice factoring broker handles those tasks instead as part of its business.

Invoice factoring can work for a wide range of businesses. This is especially true for companies involved in large-scale operations such as freight handling and transportation, manufacturing, garment making and textile operations, agriculture, and especially the oil and gas industries. Any company involved in high-dollar orders and transactions for goods and services can benefit from selling invoices for immediate financial assistance. As long as the outstanding debt is not older than sixty days from the date of transaction, it is fungible through an invoice broker.

Just about any size business can take advantage of invoice factoring, from small start-ups to very large corporations. The range of service which can be provided by an invoice broker can stretch from a minimum $3000 per month to a maximum $2 million per month. However, businesses such as restaurants, small retailers, or service companies which deal with a larger proportion of small-value invoices are better assisted through a similar type service known as credit card factoring. And the number of invoices which can be handled is up to the client and depends upon the needs of the moment. For more information on these services, follow the link and check it here. Find out how invoice factoring can save your business a lot of headaches and shortfalls and keep business proceeding on the right track.