Business Cash

Invoice Factoring is NOT a Collection Service

Learn more about Invoice Factoring and how it helps your business

It is common for most businesses, regardless of their lifecycle stage, to seek non-traditional ways when looking for financing options nowadays. Factoring is one of the most popular solutions that companies use as an alternative to bank loans. Factoring also referred to as Account Receivables factoring or Invoice factoring. It can be a great funding solution for any business looking for instant funds to fulfill its strategic goals and/or daily activities. However, the concept of invoice factoring is often misunderstood by businesses; that come across it for the first time or those who had the misfortune to obtain their information from the wrong source. Let’s explore the Invoice Factoring together.

What is Invoice Factoring?

Invoice factoring, a type of debtor finance, is a financial agreement in which a factor accepts to buy a business’ invoices at a discounted price. The factor provides an upfront payment to your business depending on the due amounts from your verified creditworthy invoices. After 30, 60 or 90 days, the factoring company receives the debt from the end customers; returns the remaining balance to your business after applying the agreed service fees. Thus, Invoice factoring allows your business to have enough working capital so as to support your operations.

For example, a Consulting Company needs funds at a fast rate for its immediate financial needs. The company contacts a factoring utility offering to sell a number of creditworthy invoices worth $100,000.  The factoring company accepts to buy them for 90% of their value, meaning $90,000. In accordance with the original terms of the invoices, the factoring company will collect the money on due dates and return the money to Consulting Company after subtracting the service fees.

How does Invoice Factoring work?

Invoice factoring can be a great alternative solution for any business that hasn’t got or has already consumed its credit line. If your business is in a critical situation, meaning you are lacking funding options and have pressure to fulfill orders, Invoice Factoring will help you cover your financial needs as it can quickly and effectively provide you with enough working capital for your cash flow needs.

AR factoring works as follows:

  1. Your company contacts the factoring company and enjoy a cost-free, easy application process;
  2. Your company submits all or some of its good invoices to the factor;
  3. The factor verifies the invoices and your customers’ creditworthiness;
  4. The factor can offer to you, depending on your industry, up to 90% of the value of the invoice;
  5. Approval can take as little as 24 hours as the focus is not on your personal credit score;
  6. The factor notifies your customers that they are liable to pay him and not your company in due time;
  7. After 30, 60 or 90 days the factoring company receives the invoices’ payment;
  8. Once payment received, the factor applies its fees and send you back the remaining balance.

How is a Factoring Company Different From a Collection Agency?

At first glance, factoring companies and collection agencies may look quite similar as they both seem to provide unpaid invoices collection services. However, a factor and a debt collector operates differently and give unique services for a non-paid completed work.

It’s vital, as a business owner, to understand the difference between these two services and how each one of them works.  Invoice Factoring is not a collection service.

The factor buys your creditworthy, good invoices at a discount by offering an upfront payment of the accounts receivables worth to bridge the gap between your immediate needs and the payment’s due date. 

The debt collector takes charge of your business’ old owed debts to retrieve the money through a series of letters, emails, phone calls and other legal processes to receive full payment. Many times, collection agencies are law firms or have lawyers on staff.

The Difference Between a Factoring Company And a Collection Agency :

What Are The Benefits of Invoice Factoring?

Invoice factoring allows any business not only manage its cash inflow and daily activities but also invest in growth opportunities. Also, AR factoring provides an alternative option when difficulties occur to obtain other means of funding. To sum up, the benefits of invoice factoring are:

Invoice factoring is available to you now! Call 866-598-4295 or use the fast, safe & secure online-funding application.

Rating: 5.0/5. From 2 votes.