Benefits of Invoice Factoring
Accounts receivable financing is commonly known as factoring. Factoring improves cash flow and increases working capital without new or additional debt. Factoring improves operating leverage, purchasing power, sales and ultimately profitability. Personal guaranties may be waived for qualified companies.
Factoring converts account receivable into cash. Cash becomes immediately available to take advantage of growth opportunities, reduce debt or pay daily operating expenses.
Expediting Cash Flow
Factoring is the process whereby an invoice or purchase order is submitted to the factor for credit approval. First, the product is shipped or the service performed. The invoice and related support is submitted to the factor.
The invoice is typically used to draw eighty to ninety percent (80-90%) as a cash advance from the factor prior to payment by the customer. The remaining ten to twenty percent (10-20%) is held in reserve with the factor. When the payment is received, the factor releases the reserve less the charges incurred back to the company.