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Understanding Invoice Factoring

Understanding Invoice Factoring

Cashflow issues can arise for a variety of reasons when you are running a small business. One common reason that affects many small businesses that operate on an invoicing system is that of unpaid or overdue invoices.

If this sounds familiar, you might have a viable solution available to you in the form of invoice factoring. Invoice factoring, also known as debt factoring, can be a helpful course of action when you are trying to get back on track after a prolonged period of too many customers not paying up. 

Here is a bit more information about how invoice factoring might be worth considering as a tool for helping you resolve your business’s cashflow issues.

How It Works

When you provide a service or product to your customers, you then issue them an invoice with a reasonable due date. Unfortunately, not every customer is going to be a reliable payee. While every business owner should be prepared for this to happen from time to time, more significant cashflow issues can develop when too many customers are failing to pay their invoices.

As those unpaid invoices stack up, you are unable to make the payments that you need to in the short-term such as payroll or rent on your business’s property. This type of cashflow problem can spiral out of control all too quickly. Before it does, you need to find a way to cover your own payments fast. This is where invoice factoring from Become comes into play.

When you take advantage of invoice factoring, you are essentially “selling” your unpaid invoices to a lender. That lender will pay you around 80% of the total value of your invoices and then assume responsibility of collecting payment for them from your customers. Once all of the invoices have been paid, you will then receive the remaining balance with about 1-4% of the total value being retained by the lender as payment.

How It Helps

You might be thinking that invoice factoring is going to be your one-step solution to your cashflow problems that result from unpaid invoices. However, it is better to think of this as your first step to solving those issues instead. The real problem that you need to address is why your invoices aren’t being paid.

One or two unpaid invoices shouldn’t be a major issue for your company. A large enough number of them which cause you financial distress, though, might be indicative of a trend. Invoice factoring can help you by essentially buying you the time you need to address the underlying problem at hand.

Are you up front and clear with your customers about what they are going to be paying when all is said and done? Do you send your invoices in a timely and efficient manner? Does your company offer a payment plan to help ease the cost of your service or product? If you are having consistent problems with customers not paying their invoices, the real problem might lie with your own invoicing practices

Business

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