How to Use Invoice Factoring to Get an Advance on your Invoices

Hurry up and wait. It's common knowledge that clients always want business owners to hurry up and delivery their services - only to have them wait 30 to 60 days before invoices are paid. Giving 30 to 60 days terms to clients can have substantial implications for small and medium sized businesses, who simply may not be able to afford to wait for payment.

Unless a company has a substantial capital reserve, waiting for payments can be very difficult. There are businesses expenses that must be met - rent, telephone and supplies. There is also payroll, one of the most important businesses expenses that must be met - on time - every time.

If you lack the funds to wait, the obvious solution is to get business financing. This is easier said than done, especially in the current market. Qualifying for a business loan can be a long tedious and uncertain process. One alternative to business loans - at least in some instances - is to get and advance on your invoices using invoice factoring.

Invoice factoring is a simple financing process that provides you with an immediate advance on your invoices. Instead of waiting for your clients to pay, a factoring company advances you funds on each qualifying invoices. The transaction is completed once your client pays the invoice in full. The factoring company charges a fee for this service, which is usually based on a percentage of the invoice gross value.

Factoring has a couple of advantages over conventional business financing. A factoring company is in effect, buying your invoice for a discount (their fee). Because of this structure, they are more interested in the credit quality of your clients than in the financial strength of your company. This makes it easier to qualify for. However, your company must be reasonably well managed and free of any liens or encumbrances. The other advantage is that qualifying for factoring is a quick process - and can usually be completed in a couple of weeks.

Although factoring is not a cure-all, it's an innovative solution that should be considered if your company cannot afford to wait to get paid on its invoices.