How to Qualify for Invoice Factoring

Financial services companies offer what’s known as invoice financing or accounts receivables financing. Gain the capital your business needs immediately by borrowing against your invoices. Factoring allows the business to sell their expected accounts receivables to a third party and gain the money the business needs now. Essentially once the invoice is paid, the third party collects their money plus a fee and any remaining funds stay with the business.

Small businesses in particular utilize factoring since they don’t typically have a substantial cash reserve. Businesses that would normally struggle to get traditional bank loans can look to invoice financing as another alternative to obtaining needed capital. Evaluate your business to see why you need the money. Use the funds acquired to purchase needed business items, cover unexpected expenses or cover a large delayed customer payment. Ongoing use of accounts receivable financing to cover daily expenses could indicate a larger problem within the business.

Lenders like the low risk of invoice factoring, so approval ratings are higher than standard bank loans. The pending invoices are used as collateral. The first step is to complete an application complete with accounting documents and bank statements. Lenders want to know the business’ expected income and current finances. Upon application approval, unpaid invoices are submitted to obtain the funding. Each lender takes a specific percentage of the total value. Be sure to read all terms and conditions.

The lender sets both repayment terms and the percentage they take during the approval process. However, how the financing is repaid has two available options. Your company can have the invoices paid directly to the lender. They then take their cut, cover the cost of the funding and then send over anything leftover to the business. Or, the business can continue to collect the money as usual and send the amount owed plus interest to the lender.

Read the fine print to see if there are any additional terms and fees the lender requires. Financing agreements depend on the lender chosen. Discounts may even be available to making payments early. The terms, fees and percentage rate depend on the business’ history and financial health.

Qualifying for invoice financing provides businesses with alternative to lines of credit and traditional business loans. Factoring allows you to continue to run your business without adding to your debt. Look at the business’ abilities and long-term needs before choosing any type of financing. Accounts receivable financing may be an excellent choice for small businesses looking for a short-term loan.


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