A Study on Different Forms of Invoice Finances

A Study on Different Forms of Invoice Finances

Invoice factoring and invoice financing, similar but different solutions for collecting receivables, are two ways to keep cash coming in, even when customers aren’t paying their outstanding invoices.

Invoice factoring works by taking ownership of outstanding receivable invoices due to your business and collecting through a third-party, called a “factor.” The third-party collector or factor pays you the entire amount of the invoice, minus a small fee (generally 1 percent to 5 percent). That’s it; you are paid the money due and the invoice factoring company collects the receivable from the owing party.

Invoice financing, is somewhat the same because it does charge a fee. However, it works differently. Your business is advanced 100 percent of the outstanding invoice amount and repay the short-term advance over a period of weeks or months, plus a fee. Unlike an invoice factor, though, you are still responsible for collecting the money from your customers.

Why Businesses Choose Invoice Factoring

There are several reasons opt for invoice factoring. First and foremost is the quick funding, giving a business the cash it needs without having to wait for their customers to pay.

Another reason is it takes the pressure and frustration away of having to wait out slow-paying customers. Instead of having to constantly send invoice reminders, you are free to run your business.

Invoice factoring also does not require good credit, either business or personal. While some small business owners can apply for traditional bank financing, others will have more difficulty in being approved. Even businesses with great credit and plenty of collateral must still wait weeks or months to be approved for a loan.

Yet another advantage invoice factoring offers is it takes the guesswork out of when you’ll get paid what you are due from your customers. It’s not just the inconvenience of not being paid on time that’s problematic, it also the fact you cannot plan for expenses without knowing when you’re going to be paid. For more information about Invoice Factoring in Texas please see http://proactivelendinggroup.com

For businesses with several outstanding or overdue invoices, factoring makes good financial sense because it’s a small price to pay to have cash on-hand. It allows business owners to make payroll, pay for inventory, supplies, equipment, or meet other necessary expenses. And it does so in a short time frame without having to apply for a business loan.

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