Unpaid invoices mean waiting for cash you've already earned. Small business invoice factoring solves this by selling those invoices to a third party (a factor) for immediate cash. Instead of waiting 30-90 days, you get up to 95% of the invoice value now.
Here's how it works:
- You bill your client.
- You sell the invoice to a factor.
- The factor advances you most of the cash.
- Your client pays the factor.
- The factor pays you the rest, minus a fee.
This isn't a loan; it's selling an asset. Approval depends on your customer's credit, not yours, making it accessible for new or growing businesses. Factoring provides the working capital needed to cover payroll, buy supplies, and seize growth opportunities without taking on debt.
There are two main types:
- Recourse Factoring: You are liable if your customer doesn't pay. This is cheaper.
- Non-Recourse Factoring: The factor takes the credit risk. This offers peace of mind for a higher fee.
Factoring is a powerful tool to improve your how to improve business cash flow and maintain momentum. It's a strategic alternative to a traditional working capital line of credit or a merchant cash advance.
Ready to unlock your cash flow? At FSE - Funding Solution Experts, our advisors can help you find the right factoring solution for your business.