I
nvoice factoring is a business financing
tool that helps small business owners that have cash flow problems. Small business owners usually have to offer their customers payment terms and that is the option to pay an invoice in 30 to 60 days.
What is invoice factoring?
The problem is that a few can actually afford to wait that long for payment they actually need the money sooner to so that they can pay their own expenses.
Invoice factoring works by financing those open invoices, this gives the business owners the money they need to cover their operating expenses while they are waiting for the customer to pay.
The transaction settles when the customer once pays the invoice in full after 30 or 60 days.
Cash in advance
Invoice factoring basically allows businesses which need
cash in advance to get that cash and fund the business day to day operation. Essentially if a business needs invoice factoring it would deliver its products and wait 30 to 60 days to get money from its customers.
If the business factor the invoice it would give the invoice to the factor and get advanced with the money they need. 30 days later when the customer pays the business gets back the balance of what it was given to them.
Let’s say the business was advanced by 80% on an invoice the business will get 20% after the customer pays minus fees. This is an amazing way how small businesses grow benefiting itself and the factor that facilitates the invoice factoring advance.
