Invoice Financing and Small Business Funding

Invoice financing is a financing tool designed for businesses across different industries that issue invoices with net terms, usually between 30 to 90 days. The tool allows businesses to sell their unpaid invoices to get access to extra funding quickly. Small businesses tend to use invoice factoring as an alternative funding tool as opposed to working with banks or lenders. However, invoice factoring might not necessarily be the ultimate funding solution for businesses looking to meet their financial obligations in the shortest possible time.

A somewhat invoice factoring guide is provided to help small businesses and other such organizations facing different financial challenges and looking to resort to invoice factoring to solve their problem.

Invoice factoring has become increasingly popular among small businesses in recent years as it saves them valuable time while allowing them to jump on unexpected opportunities that require cash in hand, fast. SMBs have particularly found invoice factoring helpful due to their frequent need for cash to sustain their operations and grow as well.

Industries that have been discovered to commonly use invoice factoring include Recruiting, Manufacturing, Construction, Printing, Courier services, Wholesale, Retail, Construction, Trade Services, Professional Services, and Retail businesses.

How To Qualify For Invoice Factoring

Businesses are required to complete an application before they begin invoice factoring. There are several factors considered by factoring companies as they determine the eligibility of a business.

One of the factors a factoring company will look at when considering the eligibility of a business is the customers of the business. Factoring companies basically take on the financial risk and consequences of any unpaid invoices. Consequently, they need as much information as possible about customers to be sure the outstanding invoices will eventually be paid. 

Factors to consider by business before choosing a factoring company

Businesses also have to consider certain factors to be sure that the factoring company is right for them. Some of the factors to consider are highlighted as follows:

  • Discount rate

  • Factoring period

  • Additional fees

  • Reputation of the factor

  • Length of Factoring Experience 

  • Spot Factoring or Contract Factoring

  • Recourse vs. Non-Recourse Factoring

  • Industry Familiarity

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