If you’re waiting for payment on a stack of invoices and need to boost your cash flow quickly, you might consider invoice factoring as a financial option for your business.
What Is Invoice Factoring?
Invoice factoring is a form of short-term financing for businesses. You sell your invoices to a factoring company, and it gives you a cash advance against your receivables. Businesses have used invoice factoring for several centuries as a way of avoiding cash flow shortages while waiting for invoice payments.
Invoice factoring companies in Canada can give your business access to money you need for an injection of cash to boost your operating capital. You don’t have to go through completing the detailed paperwork that comes with pursuing bank loans or seeking investors who might want to control your business. Instead, you’re using your open invoices for goods you have already sold or services you have already performed.
What Is a Factoring Company?
A factoring company is a business that provides financing to other businesses by purchasing their invoices at a discounted price. You don’t have to worry about having good credit to obtain money through factoring. The factoring companies rely on your invoiced customers’ creditworthiness, not yours. That’s why new businesses and businesses with poor credit or no credit can qualify for invoice factoring.
The Invoice Factoring Process
If your business has outstanding invoices of less than 90 days, a factoring company might pay you as much as 90% of the invoices’ value and use them as collateral. The factoring company keeps the other 10%, and only returns a portion of it if they are successful in collecting on invoices. You don’t have to collect on the invoices yourself. Once you sell the invoices to the factoring company, it’s responsible for collecting payment from your invoiced customers.
When the factoring company receives payment from your customers or clients, it subtracts a factoring fee of around 1% to 4.5% per month, and sends you the balance of your invoice amounts.
Keeping your cash flow stable and receiving payment for invoices is important to succeed in business. So is having your financial records organized and up-to-date. How can you do it all? Approximately 4.3 million customers use QuickBooks. Join them today to help your business thrive for free.