If you’re a small business owner currently facing a cash flow problem, we hope it comforts you to know that you’re not alone. Nearly every business runs into this issue occasionally, no matter what its size. The good news is that you don’t have to cut staff or survive on a bare-bones budget to increase your cash flow. Assuming that you have several accounts receivable invoices, you can choose to sell one or more of them in exchange for the prompt infusion of cash that your business needs. The name of this process is invoice factoring.
Understanding Invoice Factoring
While most industries can benefit from selling unpaid invoices to a third party, the industries where invoice factoring is the most common include advertising and media, transportation, staffing companies, and government contractors. To qualify for this type of alternative financing, your company must invoice customers for goods or services and provide them with 30 to 90 days or longer to pay.
Navigate Firm understands the dilemma of needing to attract new customers with generous repayment terms while also needing the money owed to you now. Invoice factoring can help to meet that need. Here is a step-by-step process of how it works:
- You select an invoice or invoices from your most creditworthy customers and sell them to a third-party factoring company.
- The factor runs a credit check on your customer, not your company. This is because the factor now takes over the collection of the invoice from your customer and needs to ensure the company is taking an acceptable risk.
- The factor approves the transaction and remits between 70 and 95 percent of its value to your company. You do not receive 100 percent of the invoice value because the factor needs to cover its fees. However, fees are not as high as 30 percent. Some factoring companies opt to put a portion of the funds into an escrow account until the customer pays the invoice in full.
Navigate Firm invites you to contact us today to learn more about invoice factoring and other types of alternative finance options for your small business.