In the world of lending, speed is often a much-desired factor that is absent when seeking funds from traditional financial institutions. It is no secret that you may wait months for a loan to be approved by a bank. It is because of this that invoice factoring has proven to be a viable alternative lending option. With the added benefit of being available to clients with less-than-stellar credit histories.

The Mechanism of Invoice Factoring

The essential benefit of invoice factoring is the ability to get you some much-needed cash faster than usual. In the typical scenario, you may invoice clients for a service rendered; they are then slated to pay you perhaps within 30-90 days (it varies widely). However, having to wait so long can seriously hamper your cash flow and thus stifle other business operations.

An invoice factoring company can take on your invoices and send you around 85% of the total amount of these in a very short amount of time. Then, the company becomes responsible for collecting the payment from your customers in the agreed-upon (contract) time. Once all receipts are paid, the invoice factoring company sends you the remaining 15%; after they have deducted their fees – all of which, of course, will be listed in the agreement you signed at the beginning.

Advantages of Invoice Factoring

Another major benefit of this cash flow-improvement mechanism is that your personal/business credit history is relatively unimportant. Whereas the opposite is true in invoice financing. The former makes factoring much more widely available for businesses just starting, or businesses with subpar credit. The credit histories of your clients are a lot more important than yours.

Another positive is that collections now become the burden of the invoice factoring company, freeing up your business resources for other matters. Additionally, the number of outstanding loans you have has no bearing on whether or not you can continue benefiting from the services of an invoice factoring company. Ultimately, as long as you have enough clients for the associated costs to make sense. Invoice factoring can be a major asset to business operations.