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What Is Invoice Factoring And How Can It Help Your Company?

There are numerous commercial financial packages available to choose from, some of which may be useful for your business and some which won’t. While taking on loans or financial subsidies is not always the right approach on a personal level, it can be a great boost on a commercial level. 

This is because, while debt is never desirable, you will want to have enough spare capital available to invest in your business and expand it without having to leave your company in dire financial straits in the process. This is where a finance deal of some regard can help because you can quickly and effortlessly inject money into your enterprise.

As long as you can pay it back, the move could ensure the long-term health of your company.

However, while mortgage, business loans, and grants are commonly understood financial packages, invoice factoring is not. 

This is how invoice factoring can potentially help your company:

Invoice factoring allows you to receive payment for invoices faster

Firstly, to answer the question of what is a factoring company, you need to take a step back and appreciate the challenge posed by invoicing. When you invoice a client, you may have to wait up to ninety days for payment, due to the conditions of the invoice generator

This makes it difficult for you to keep a steady flow of cash sustaining your company because there will be periods where you are waiting for an injection of money. Invoice factoring is a way around this because it allows you to assign the invoice to a third party, who will immediately pay you what you were originally owed. 

The customer will remain unaffected because they will pay the same amount into the third party’s bank account. Basically, it is a way of being paid quickly, without upsetting your customer or being left to wonder when you’re going to be paid.

You don’t need good credit to make use of invoice factoring

The good news is that you don’t necessarily need an outstanding credit score to make use of invoice factoring. This is because you aren’t asking for a loan of any kind, just an advance payment. The only money you actually have to hand over is a factoring fee to the factoring company. 

It means you don’t necessarily need to take out a loan to get your hands on cash

One of the negative aspects of a traditional loan is that you know you will have to pay it back with interest. This means that you have to have a healthy credit score and be able to pay it back by the allotted time. 

As a result, there are strings attached, severely limiting your flexibility as a business. While loans are useful if you need a considerable amount of cash, they aren’t ideal if you could cover the investment yourself if paid upfront. Invoice factoring helps you do this.

Like all forms of financing, it is not a license to print money

Of course, just because you don’t incur debt with invoice factoring doesn’t mean you should treat it as a money-printing machine. 

You will only be able to receive what you are owed, so you shouldn’t try and overstretch your finances just because you are paid upfront. If your customer base dries up, you could be left empty-handed.

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About Lilach Bullock

Hi, I’m Lilach, a serial entrepreneur! I’ve spent the last 2 decades starting, building, running, and selling businesses in a range of niches. I’ve also used all that knowledge to help hundreds of business owners level up and scale their businesses beyond their beliefs and expectations.

I’ve written content for authority publications like Forbes, Huffington Post, Inc, Twitter, Social Media Examiner and 100’s other publications and my proudest achievement, won a Global Women Champions Award for outstanding contributions and leadership in business.

My biggest passion is sharing knowledge and actionable information with other business owners. I created this website to share my favorite tools, resources, events, tips, and tricks with entrepreneurs, solopreneurs, small business owners, and startups. Digital marketing knowledge should be accessible to all, so browse through and feel free to get in touch if you can’t find what you’re looking for!


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