Invoice factoring is a process by which you receive cash upfront for your invoices. It is a financing strategy helpful especially to small businesses, but any sized business can take advantage of invoice factoring. It works when you provide a good or service to another company (or even the government). You create an invoice for what you have provided. Usually, your customer will need 30 to 60 days to pay the invoice. But you have already spent the time and money to provide the product or service. This makes cash flow tight, since you do not have payment for what you provided.

With invoice factoring, you take the invoice to a financing company that specializes in these types of arrangements. The company verifies that your customer is credit worthy (and therefore likely to pay), and advances you the cash for the invoice, minus some sort of fee. In this way, you get the cash when you need it, rather than stressing about when the invoice will be paid. The invoice factoring financer then collects on the invoice, rather than you having to do it.

Tags: cash flow, creative method, financing company, invoice factoring, invoices, sized business, time and money