Cash flow is the lifeblood of small business. When the invoice was eventually paid, your business collected a total of 98% of the original invoiced amount, while greatly improving cash flow. In this example, the transaction provided an advance that kept operations running smoothly. When the account debtor eventually pays the invoice, the remaining 10% balance is refunded to you, less a factoring fee of usually around 2%. The account debtor is now instructed to remit payment to the factoring company, not your small business. The factor is confident of repayment, and decides to advance you 90% of the invoice’s face value. They conduct due diligence on the invoiced customer, including credit checks and searches for outstanding liens and lawsuits. Assume a factoring company is considering buying a number of outstanding invoices from a small business. Effectively, the business has sold the rights to collect on the invoice to the factoring company. Instead of waiting for payment (and spending valuable resources on collection efforts) businesses sell their outstanding invoice to a third-party factoring company. Your business has to make payroll, buy inventory, pay bills and accept new projects. The resulting cash flow deficits makes running a business very challenging. This can take 30, 60, even 90 days depending on the customer and the net terms. When a small business performs a service or delivers goods on credit, they invoice their business customer, and wait for payment. The idea has been around for centuries-Greek merchants utilized the practice to finance lengthy shipping ventures. That is because the sale of outstanding invoices is an asset sale, not a loan. It’s a funding strategy that provides fast funding without debt. Invoice factoring is the discounted sale of accounts receivable to a third-party. Today, small businesses need to be wary of the amount of leverage in our financial system and the dangers of being overly-indebted. We are staunch advocates for factoring- a funding option that doesn’t incur debt. Welcome! If you’re a small business looking for information about invoice factoring, you’ve come to the right place. Small Business Line of Credit: You’ve Arrived.Industrial and Commercial Bank of China.Security Service Federal Credit Union Reviews.
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