What is Invoice Factoring?
Invoice factoring is the option of using your accounts receivable income as collateral for a short term loan. Frequently the need for operational capital creates the need for an infusion of income in order to meet financial obligations. If a bank will not extend credit or if other financing options are not available a factoring company will conveniently allow the business to borrow against the value of incoming receivables to cover the shortfall and give the business access to net income sooner.
Why Would a Business Consider Factoring?
- A company wants the ability to grow sales without being limited by a lack of working capital.
- A company is profitable but is occasionally short of cash.
- A company has too much of money tied up in 30, 45, 60 day terms to customers.
- Would your business benefit from a “credit line” based on your receivables which you could draw upon when needed? Imagine the only limit to capital is your ability to sell! Now companies can have access to working capital they need for growth or survival.