Invoice factoring is a popular solution for B2B businesses looking to increase their cash flow. Essentially, invoice factoring involves the purchase of your accounts receivable for cash, at a slight discount to your invoice’s face value, in order to quickly provide working capital for your growing business. Let’s break down how invoice factoring works with the five invoice factoring steps you need to know.
1. Deliver your product or service to your customer.
This part is simple as you just need to keep doing what you’re doing — delivering your product or service to your clients.
2. Send your customer an invoice.
Once you’ve provided your product or service, send your client an invoice with the amount owed to your business.
3. Sell your invoice to a factoring company and receive up to 90% of the invoice value as a cash advance.
Select a trustworthy factoring company and complete their invoice factoring application process. Once you’ve been approved, the factor will arrange to buy your invoices from you. Your factor will advance you the majority of the invoice’s value, giving your business the cash it needs to grow and cover operations expenses.
4. The factor collects payment directly from your customer.
Once you sell the factor your invoice, they take on the responsibility of collecting on it from your customers. This is another reason many B2B businesses choose to do invoice factoring, as it frees them up from having to handle collections themselves.
5. Once the customer pays in full, the factor pays you the remaining balance on the invoice.
The factor will pay you the remaining value of the invoice once they’ve collected it in full from the customer (minus a small factoring fee, typically 2.5 – 3.5% of the total invoice value).
Want to learn more about how invoice factoring works to boost your business’s cash flow? Check out our Factoring Guide below and discover how ei Funding can help your B2B company reach its full potential.