A business can often find itself in a position where it requires cash for immediate expenses. But collecting payments from customers on time is one of the biggest problems faced by a small business. It often takes months for a customer to pay an invoice. There is a way to speed up this process of collecting outstanding payments: invoice factoring.
The financial services of invoice factoring can help a company free up funds by turning unpaid invoices into cash. This method allows an indebted business to get paid quickly against invoices that are either past due or yet to be due. The factoring company will pay a percentage of the invoice immediately, usually 75-80%. Then when the invoice is paid the indebted business receives the balance of the invoice minus a small fee from the factoring company, usually 3%.
This process entails the selling of invoices to a factoring company for immediate cash. The company that has bought these account receivables acts as an outsourced credit department and handles the collection and processing of the invoices. Invoice factoring helps small businesses raise cash on an immediate basis and reduce the time spent in managing payments and making collection calls.