Invoice factoring can be a good option to increase cash flow for certain types of businesses that use it responsibly. Companies with a temporary cash flow crunch, new businesses, and those that do not qualify for a bank loan often enjoy the convenience and fast turn-around of invoice factoring.

Factoring an invoice means that you sell it to an outside organization before you receive payment from the customer. Although you may need to offer customers up to 90 days to pay outstanding balances to remain competitive, that can leave you with a cash flow shortage until you receive the funds. Invoice factoring helps to bridge the gap. However, you should not use it as a long-term solution since each approved advance also requires you to pay interest.

Simple Application Process

If you have ever applied for a bank loan, you know that the process can be long, tedious, and frustrating. Even after submitting multiple financial statements and other requested documentation, you could wait weeks only to receive a denial letter for your business loan.

With accounts receivable invoice factoring, you choose one or several unpaid invoices and submit them along with a short application. The factor then reviews your application, confirms the information it contains, and provides you with an approval decision. The entire process typically takes just a few days from the time you submit your application and invoices to the receipt of your funds.

Repayment of an Accounts Receivable Advance

Although each factoring company does things a bit differently, the usual arrangement is for your customer to pay the factor rather than your business when the invoice comes due. Be sure to read and understand the terms carefully since you could be liable for repayment if your customer defaults. It is especially important to factor invoices only from your most reliable customers for this reason. Keep in mind that you won’t initially receive 100 percent of the invoice face value since the factoring company holds back its fees.

POM Capital & Funding offers invoice factoring and other alternative methods of financing your business. Please contact us today to learn more.