Invoice factoring is sometimes also referred to as cash flow financing or debt financing. Factoring is a financing tool that enables small businesses to leverage customer debt (unpaid receivable invoices) to access working capital – or cash flow. By improving cash flow, small companies are better able to take on new business, meet financial obligations and reinvest in their business more quickly.
Within days (or even hours) a small business factoring invoices can access money that might otherwise be tied up in customer invoices for 30-45 days, or even longer. Cash in hand, they can reinvest in their business immediately. Instead of waiting on customer payments, they can create more consistent, predictable cash flow.
Minimizing the costs of this cash flow financing solution is the key to getting the most benefit from small business invoice factoring. Fees and costs directly impact the amount of cash flow unlocked when a small business factors invoices instead of waiting for customers to pay. From the cost of receivables financing (the factoring fee) to add-on fees that small business factoring companies might tack on, the more a small business pays for factoring services, the less effective it is as a cash flow financing solution.