Invoice Factoring is an attractive funding option for small business owners. However, as is often the case with financing, it’s a good idea to understand a few key terms to get a clear picture of the process.
Invoice Factoring consists in selling your invoices to another company that takes care of the collection process and gets paid from your clients. Although this explanation is very simplified, it’s easy to see how Factoring can benefit your small business. Read on to gain a more detailed understanding of how Invoice Factoring works.
This is the amount that you are owed by your customers. When you send an invoice (or bill), it becomes part of your accounts receivable. In theory, this should be a straightforward process: You offer a product or a service and are paid accordingly. But if your clients are slow to pay, you may find yourself with a lot of money tied up in unpaid invoices. This has a negative effect on your cash flow and may prevent your small business from taking advantage of new opportunities.
Cash flow is the amount of money going in and out of your business. This is an important concept because lack of cash is one of the main reasons why small businesses don’t succeed. Invoice Factoring is a smart way to maintain a “positive cash flow”. This means being in a situation where you are always able to pay your bills so your small business can keep moving forward.
The company that buys your accounts receivable is called a Factor. They acquire your unpaid invoices and take care of the collection process in exchange for a small percentage of the invoice. This way you get the money right away and increase the cash flow of your small business while the Factor receives the payment from your customer, usually between 30 to 60 days.
There are two main types of Invoice Factoring: recourse and non-recourse. In recourse Factoring, you take responsibility for any non-payment if the Factor is unable to collect your invoices from your customer. In short, this type of Factoring means that you must buy back any unpaid invoices from the Factor.
With non-recourse factoring, the Factor assumes all risk of unpaid invoices. That’s why non-recourse factoring is a very attractive option for any small business owner: Not only are you improving your cash flow, you are also protecting your business from the risk of non-payment.
At ACS Factors we take the credit risk if your customer cannot pay—our loss, not yours!
We are a Factoring company located in Upland, California, and have many clients in the distribution and logistics corridor which includes Ontario, Riverside, Fontana, Jurupa Valley, and Moreno Valley. Reach out today by email (firstname.lastname@example.org), telephone (909-949-5599), or through our social media accounts on Facebook, Twitter, and YouTube to learn more about the benefits of turning your invoices into immediate cash!