Invoice factoring means you sell your invoices to an invoice factoring company, your “factor.” The invoice is sold at a discount, generally about 3 to 5 percent. The factor pays you, and your customers pay them. That means you no longer have to wait to collect from your clients. No more slow cash flow!



You can decide which invoices to factor. You do not have to factor every invoice. Points to consider when deciding which invoices to factor include client payment history and credit with your business.

Factoring your invoices increases your working capitol and can improve your business' credit rating.

The first step in the factoring process is notifying your invoice factor that an invoice has been generated. Usually, you can send the information to the factor using e-mail, and notify them of the amount of the invoice, and which customer the invoice is from.

Secondly, the invoice factoring company calls or sends a letter to your customer to confirm the invoice. You and your invoice factor will generally agree on the most appropriate method to confirm the invoices. Factors will usually appear to the customer to be your billing department or processor. That way, your customers do not know that you have sold their invoice to a third party.

Many invoice factoring companies stop confirming every invoice once you have used them for a while and have established a good relationship with them. They may, however, still spot-confirm invoices. A few invoice factoring companies are willing to make their relationship with you completely invisible to your customers.

The third step in the process is the best one for you – it's the part where you get paid! Once the factor has confirmed the invoice, they will pay you a percentage of the invoice. This is called the “advance rate,” and it is usually about 70 to 85 percent of the total invoice amount. Once the invoice is paid in full, you get the rest of your money.

If your business has poor credit history, invoice factoring is an option for you to increase your cash flow without the need to take out loans. You don't have to put up your hard assets as collateral in order to increase your cash flow.

Are you a new business owner? Then factoring could be a way for you to build your working capitol quickly, without waiting months to have a steady, reliable cash flow.

Invoice factoring can help you grow your business faster with less stress for you, the business owner. If you decide that invoice factoring is a good choice for your business, you could start increasing your cash flow within only a few days.