An invoice factoring company is a company in which someone forwards some of their company’s invoices to a third party for the purpose of maintaining their cash flow and improving their company’s revenue stability. The factoring company will pay a majority of the invoiced amount immediately and then collect payment directly from the customers who seek your company’s services.
Invoice factoring usually means that you sell control of accounts received accounts, either partly or fully.
The process of invoice factoring takes place in the following steps:
1. You go about your normal routine of providing goods and services to your customers.
2. You invoice customers for your goods and services.
3. You forward the raised invoices to the factoring company.
4. The factoring company then pays you the majority of the invoiced amount instantly after verifying if it is valid.
5. Your customers will then pay the factoring company.
6. The factory company will pay you the remaining invoiced amount after deducting their fee once they are paid in full.
Deciding to hire an invoice factoring company is usually cheaper than when you try to obtain a bank loan. This makes it suitable if you are looking for short-term funding. It is also a good choice since it rids you of the headache that comes with debt management.