Invoice factoring is a financial transaction whereby a business sells its outstanding invoices to a third party (called a factor) in exchange for immediate money which the business uses to continue their activities.
Invoice factoring differs from a bank loan in 3 main ways: firstly, the credit worthiness of the company requesting the invoice factoring is not important but the value of the invoices is. Secondly, invoice factoring is not a loan but a purchase of the outstanding invoices. Thirdly, invoice factoring involves 3 parties, whereas a bank loan involves only two.
Quotes and information for invoice factoring.
Who can use Invoice Factoring?
Many different types of businesses both large and small and across a wide range of industries use invoice factoring. Sectors that use invoice factoring include: agriculture, business services, care sector, construction, logistics, financial services, hospitality, IT, manufacturing, publishing, real estate, recruitment, retail and almost any sector.
Invoice Factoring is particularly useful for small businesses because their survival from month to month may often depend on their cash flow. Invoice factoring enables small businesses to turn their invoices into cash to keep their business running and pay their bills. By freeing up cash quicker it can also help a company expand faster and invest more cash.
To decide if a company qualifies to use invoice factoring, the factor considers the credit worthiness of the debtors. These are the companies that owe the money in the outstanding invoices.
The credit worthiness will be considered based upon issues such as if they have a history of paying their bills on time. A factor may even purchase insurance against the debtor’s becoming bankrupt and therefore being unable to pay their invoices.
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