![]() Invoice factoring allows you to release that cash almost immediately, or at least a large part of it. ![]() That 30-day chunk of revenue might represent the bulk of your potential cash flow, but you can't actually use it. ![]() Most of your debtors will pay within 30 days – some may require chasing, some may not – while others may go over the limit and require more persistent effort on your part. Your company should use invoice factoring when you routinely have a lot of invoices outstanding and your cash flow is suffering because of it.Īs an example, say your organisation sells on 30-day payment terms. The factoring company pays you the remaining invoice amount – minus their fee – once they've been paid in full. The factoring company chases invoice payment if necessary. Your customers pay the factoring company directly. The factoring company pays you the bulk of the invoiced amount immediately, typically up to 80-90% of the value, after verifying that the invoices are valid. You "sell" the raised invoices to a factoring company. You invoice your customers for those goods or services. You provide goods or services to your customers in the normal way. Invoice factoring means selling control of your accounts receivable, either in part or in full. Invoice factoring is also referred to as accounts receivable factoring or debt factoring. There are benefits and disadvantages to invoice factoring, which we'll cover in this article. A factoring company will pay you most of the invoiced amount immediately, then collect payment directly from your customers. Invoice factoring is type of invoice finance where you "sell" some or all of your company's outstanding invoices to a third party as a way of improving your cash flow and revenue stability.
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