What is invoice factoring and invoice discounting?

The Romans were the first civilization to sell IOUs 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, selling the right to collect cash due on your outstanding invoices. Most companies turn to invoice factoring when they need cash up front quickly or have customers who are slow to pay and don’t have the resources to set up an account collections 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, the cash on hand can be invaluable. By selling your bill futures, you can get the cash you need today to attract customers that will move your business forward.

Invoice factoring is not a loan; rather, it is a direct 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 purchase invoices outright, others give you a down payment for the invoice and pay you the balance minus your fee when they receive payment from the customer. One of the best things about invoice factoring is that your credit does not influence your approval; instead, your customer’s credit qualifies the invoice for factoring.

Many different industries take advantage of invoice factoring, including:

Transport

Manufacturers

dealers

wholesalers

Staffing and consulting companies

telecommunication 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 best able to take advantage of invoice factoring. However, any business that generates at least $10,000 in accounts receivable should be able to use invoice factoring, as long as they have acquired creditworthy customers.

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

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

A company in need of new time-limited sales and profit opportunities, but currently with inadequate cash flow to do so

Businesses with income, credit or tax problems

Businesses that have filed for bankruptcy, but are able to make a profit

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

Companies prepared to grow very soon but do not want to go into debt

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

Startups with no current capital base

Businesses with seasonal sales patterns or uneven sales patterns