Invoice Factoring Services

As a small business owner, you know first hand the struggle of attaining capital to finance the growth of your business or meet cash flow shortages. When regular small business financing such as loans and credit are limited, some business owners will turn to invoice factoring services. Is accounts receivable financing right for your business?

Invoice factoring services is the selling of outstanding invoices or receivables at a discount to a finance or factoring company that assumes the risk on the receivables and provides quick cash to your business. The amount of value assigned to the account depends on the age of a receivable. A more current invoice will pay more. Any accounts receivable over 90 days typically are not financed. Invoice factoring services are also known as accounts receivable factoring or accounts receivable funding.

While there are many benefits to factoring your accounts receivable, there are also potential drawbacks to using this method to finance your small business. One of the biggest is the cost. A 5% discount fee and other charges might not seem high this month, but over the course of a year the costs can greatly exceed the interest on bank credit or a loan. Rates will vary among companies, so shop for the best deal and contract.

Taking the accounts receivable funding plunge can be the difference between company survival and bankruptcy. Carefully consider all your options. The factoring industry is not as regulated as banking. Spend the necessary time to investigate the companies you are working with. Inspect contracts and negotiate discount rates. In the end, using invoice factoring services can buy time to eventually qualify for a regular credit line from your bank.