Business Invoice Factoring, Remedying Cash Flow Issues

business invoice factoring

Unsurprisingly, businesses success is centered around its finances. In fact, amongst the 28.8 million small businesses in the U.S., issues related to cash flow are the main reason that 82% of them fail, according to a U.S. bank study.

Initial startup capital required for a small business, on average, is $10,000 – according to the Wells Fargo Small Business Index – and 99.7% of all businesses within the U.S. are categorized as small businesses (with less than 500 employees).

Naturally, capital and cash flow should be prioritized, and business invoice factoring may be a very useful tool in ensuring the continued running of a company. Invoice factoring is a service that converts outstanding invoices due within a certain period of time (90 days) into immediately usable finances.

Unfortunately, however, statistics show that 60% of invoices are paid late. If all were paid diligently, small companies would collectively be able to hire 2.1 million workers more, consequently reducing unemployment rates by 27%.

The best way to tackle this issue? Getting the word out to small business owners that there are services available in assisting with cash flow issues.

What is invoice factoring?

First, what exactly is an invoice? Strictly defined, it is “a document issued by a seller to the buyer that indicates the quantities and costs of the products or services provided by the seller.”

Now, what are factoring services? The service of invoice factoring requires that a business sell its invoices to a factor or a third party. The tool, of business invoice factoring, is utilized in order to meet immediate financial needs. Think of factoring services as lending based on assets.

So how do factoring services work? How does invoice factoring work?

When a business provides goods or services to clients, it then sells those invoices – a list of the goods or services provided along with a bill – to a company that provides business invoice factoring. After verifying those invoices, the company lends the business immediate payment.

Clients of the business then pay directly to the invoice factoring company according to certain terms. The company returns the balance of the paid invoice to the business, after taking out a fee (for those services).

Remedying Cash Flow Issues

Essentially, this is a process that makes finances more readily and immediately available to small businesses. Cash flow issues are handled by the company that provides the business invoice factoring services.

That company becomes the medium through which the client (of the small business) pays for the good or service provided. When the paid invoice is returned to the small business, a small portion is taken out as a factoring service fee.

Want to Share This?
error20

3 Comments

Leave a Reply