Invoice factoring—also called accounts receivable financing—is the process of selling your outstanding customer invoices that are due and payable to a third-party firm. This firm, called the factor, pays you cash right now in exchange for the right to collect payment from your customer at a future date, plus a fee.
But what’s the benefit of this process? Why would a business want to sell their outstanding customer invoices? Well, as many business owners know, customer invoices are rarely paid within a short amount of time. In fact, most invoices are paid within 30, 60, or 90 days.
For business owners who need to handle ongoing expenses like rent, utilities, and employee paychecks on a weekly, bi-weekly, or monthly basis, these lengthy timeframes for customer invoice payments can cause a lot of stress.
Accounts receivable financing allows businesses to secure the cash they need now, without waiting 30 to 90 days for invoice payment. That means reduced stress when dealing with slow-paying customers, as well as the flexibility to use your money exactly when you need it. The best part? Invoice factoring doesn’t include the risks and complications of traditional bank loans, and adds no liability to your business’s balance sheet.
The invoice factoring process can be summed up in 10 easy-to-follow steps, which are broken down in the infographic below. The infographic also contains key terminology, primary benefits, and a real-life example that outlines how accounts receivable financing works.
Wondering if invoice factoring is the right cash flow management solution for your business? Check out the infographic below to start learning more about this successful business funding solution.
Infographic courtesy of MP Star Financial.