There are many ways to maintain a positive cash flow when growing your business and dealing with accounts receivable issues. One popular way to increase cash flow is a form if business financing called factoring. Accounts Receivable Factoring (also known as Invoice Financing) is the practice of selling your accounts receivable (invoices) at a discount to a factoring company. You get the money from the factoring company that you sold your accounts receivable to and they become responsible for collecting on the invoices.

The reason many companies decide on this type of business financing is to ensure the continuous cash flow to the business. Essentially, businesses who use factoring as their business financing choice are focusing on having most of the money now rather than all of it later. It can take time to collect on an invoice, so when a company finances its accounts receivable, they are getting their money faster and without the hassle of the collection process.

With small businesses, it is even more important to free up working capital through factoring. The money can be invested into new equipment, used to pay bills, or used toward payroll. Of course, the alternative is to chase the customer for the invoice payment and defer everything else while the money is tied up in the collection process.

In order to fully understand factoring, you should be familiar with the service: You may consider the following ideas so that you may have a better understanding of factoring. It could be best option for your business.

Is Invoice Factoring a type of loan?

No.

Even though invoice factoring is commonly referred to as “ factoring loans”, it is a financial transaction between the business seeking funds and the factoring company, but no bank. Accounts Receivable Financing (Invoice Factoring) is when a company, like Charter Capital, purchases your accounts receivable invoices at a discount and provides you with immediate cash.