Invoice factoring is the process of selling your invoices to a company on lower rates in order to get nearly instant cash. This method is mostly used by small businesses to arrange cash for their short term working capital or other sudden needs. When you sell an invoice to a company, they may pay you over 90% of the invoice value, based on their terms and will then get the invoices cleared directly.
Pros of Invoice Factoring
Invoice factoring is easily approved because the buying company does not have to consider your credit score for the transaction (though they do have to consider the credit of the company that will be paying the invoice). You invoices are proof of the money you have already ‘earned’, therefore the process is smooth and quick.
Creates Consistent Cash Flow
Invoice factoring is one very good method of creating a consistent cash flow in a business. Using this method businesses do not have to wait for invoices to clear to manage their routine expenses.
Short Term Solution
Invoice factoring is a very short-term financial commitment therefore it does not burden a business financially.
Invoice factoring is one of the lowest risk methods for all the parties involved in the deal, unless your client who has given the invoices fails to make payment.
Non-Notification and Notification Factoring
If you don’t want your clients to know you are factoring, Priority Lending can arrange “non-notification” factoring in which you will collect the funds on your invoice. By contrast, if you are in an industry where factoring is common, like trucking/transportation, Priority Lending can arrange typical, “notification” factoring, in which the factoring company will collect.