Invoice Factoring

It’s not uncommon for businesses to find themselves facing a serious cash shortage that interferes with their capacity to fund continued operations. This isn’t a problem restricted to small, struggling businesses—even large corporations periodically must contend with the difficulty of obtaining needed cash. To solve this problem, many organizations turn to invoice factoring. Put simply, this involves selling verified invoices to a third party, known as a “factor,” in exchange for cash. But why should a business resort to factoring, as it’s called, instead of traditional financing?

Bank loans can certainly provide a lifeline for businesses in need of cash—but not every company will qualify for one. Poor credit history will scare off potential lenders. Another option is equity-based financing, where a company sells off shares in exchange for money; however, not every business owner is comfortable with surrendering partial ownership of the organization. By contrast, a factoring company in many cases can supply much-needed cash for a growing business.

Factoring companies provide an easy way of obtaining funds in no time—literally only a few days after invoices have been verified. With invoice factoring, a company can shift one of its more burdensome responsibilities—collecting money from customers—onto a third-party organization, the factor. Better still, factoring receivables is an option open for growing companies for owners marginal credit, as the funding agreement hinges not on the company’s financial health but, rather, on the ability of its customers to pay their debts. That’s why many companies, big and small, sometimes turn to a factoring company for fast cash.