What is invoice factoring and invoice discounting?

The Romans were the first civilization to sell discount notes, beginning the factoring industry. The United States relied heavily on the possibilities of factoring, when colonial companies were factored by Europeans willing to invest cash in exchange for the promise of great returns, and government bonds also use the same principles applied by companies when engaged in invoice factoring.

Invoice factoring is, in its simplest form, the sale of the right to collect the cash owed on your outstanding invoices. Most companies turn to invoice factoring when they need cash up front quickly or when they have clients who are slow to pay and don’t have the resources to create a bill collection department. Although some companies 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, available cash can be invaluable. By selling your invoice futures, you can get the cash you need today to attract customers who will move your business forward.

Invoice factoring is not a loan; rather, it is a total sale of an asset. Another way of looking at it is as a cash advance: you give up a certain part of the money you expect to receive in the future in exchange for cash available today. While some companies buy invoices outright, others give you an invoice advance 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 has no influence on 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

Recruitment and consulting companies

Telecommunications companies

Service Providers

Because cash on hand is so important to your business, industries that are heavily dedicated to human services and need to be able to fulfill payroll are among those that can best 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 it has acquired creditworthy customers.

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

A young company with solvent clients, but without sufficient credit history for their own business to be considered solvent by the banks.

A company with a need to take advantage of new sales and profit opportunities for a limited time, but currently has inadequate cash flow to do so.

Businesses with income, credit or tax problems

Businesses That Have Declared Bankruptcy But Can Make Profits

Businesses that are growing too fast for available 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 apply for bank loans.

Start-ups with no capital base currently

Businesses with seasonal sales patterns or uneven sales patterns