Credit is an effective way to make your products and services more attractive, allowing customers to pay later. It is common to find this practice in purchases involving large amounts of money or long shipping processes.

Well-established businesses can wait for unpaid invoices without a problem. However, small and midsize businesses struggle with cash to cover operational expenses and cannot afford to wait long. The money you get in-house enhances production and product delivery to your customers. Every business requires a flexible payment pattern to compete effectively.

Luckily, savvy business owners use invoice factoring as the most reliable solution in this situation. Let's find out how!

What is Invoice Factoring?

Invoice factoring refers to a method of financing a business to get constant cash flow by selling some of your unpaid invoices to another company offering factoring services. The third-party will provide money to ensure a proper money flow for business processes and stabilize income. The business gets the cash as they wait for customers to pay their outstanding invoices.

The factoring companies offer the business the cash they require almost immediately. Generally, they offer a slice of the unpaid invoice upfront then pay the remainder minus fees after collecting payments from the customers.

In a way, it operates as an on-demand business cash advance for unpaid invoices. If you decide to take an advance for outstanding invoices, you usually pay it for an extra fee after a certain period.

A small business can secure its credit line against unpaid invoices without affecting its relationship with clients through invoice factoring. It also enables them to retain control over their invoices and only borrow from the ones they choose.

Constant cash flow from factoring allows your business to avoid scrambling for money to pay bills. You will have peace of mind when you can get funds immediately with a click of a mouse or phone call.

How to Qualify For Invoice Factoring?

The requirements that qualify your business will be different among various factoring companies. The good thing is that they will not focus on your credit but solely look at your customer's creditworthiness when you submit their invoices. The standard requirements to qualify your business for invoice factoring include:

• You sell on credit terms

• Your company has a stable credit history.

• The buyers generate a turnover of over three million US dollars.

• The business has a turnover of over one million US dollars.

• Have a valid business bank account

• The company has a valid tax ID number

• Personal identification documents for business owners

When you meet the minimum criteria, you can apply for invoice factoring from the company of your choice. The process is straightforward, and you can carry it online. Access the accredited investors ready to offer to fund and send them the necessary details.

The Cost of Invoice Factoring

Invoice factoring is similar to any financial instrument where fees will vary according to the lender you choose to use. However, it is the most affordable form of financing for small and midsize businesses because you are borrowing what others owe you.

To determine your factoring rates, you may need to look at the following factors:

• The number of monthly receivables you wish to factor

• The type of industry you operate in

• The creditworthiness of your customers

• The average size of each invoice you factor

• Length of time customers take to pay

On average, factoring costs fall between 1-5%, depending on the factors above. The volume of invoices you will factor in will largely determine the costs. Larger volumes equal lower fees, and factoring companies also offer discounts depending on volumes.  Contact us at Crown Financial, LLC to learn more about invoice factoring.