The Ultimate Invoice Factoring Guide

Chapter 1: Invoice Factoring Basics


How does invoice financing work?

Invoice financing is a general term used for asset-based lending products that allow companies to finance slow-paying accounts receivable. There are two ways to finance invoices. The first way is through a sale. Invoices can be sold to a factoring company in exchange for immediate payment. The second way is by using receivables to secure a revolving line of credit through an asset-based loan.

How Invoice Factoring Works

What is invoice factoring and how is it used?

Invoice factoring is a preferred financing method for many small businesses because it works by advancing money you’ve already earned. You don’t have to present a business plan, pass credit checks, or otherwise jump through hoops that have traditionally made it difficult for new and small businesses to get funded. With FundThrough, you can collect on your invoices immediately instead of waiting 30, 60, or 90 days for clients to pay.

Does invoice factoring fix business cash flow?

Absolutely. Traditionally, invoice factoring came with heavy service fees and financing charges that made it viable for emergency funding–when you couldn’t make payroll or pay a supplier, for instance. Today, our innovative technology means transaction fees have been reduced to just 0.5%, making invoice factoring an attractive alternative to venture capitalism, bank loans, and other types of funding that require you give up some control of your business or commit to long term debt. You can read all about the benefits of invoice factoring as a cash flow solution in our Ultimate Cash Flow Guide.

Does invoice factoring solve for late payments?

Yes. When you fund your invoice(s) with FundThrough, the funds are in your bank account right away, typically within one business day. Instead of waiting for your customers to pay, you can put that money to work immediately where you need it.

Is invoice factoring a negative way to solve cash flow gaps?

Not at all. Maintaining positive cash flow is critical to the success and growth of your business. Invoice factoring helps you solve gaps in cash flow without taking on new debt or giving up ownership and control of your business with equity or VC financing. You can learn more about improving your cash flow in our Ultimate Cash Flow Guide.

Is invoice factoring bad?

In decades past, there was a certain stigma attached to invoice factoring. This is because back in the day, you had to sell your invoices off to a third party who would then chase clients down and collect the debt. Today, the FundThrough Express app integrates seamlessly with your invoicing software and operates in the background, so clients never know you’re using it.

What is invoice verification for factoring?

Invoice verification is the process of ensuring that the invoices being factored are authentic. FundThrough integrates directly with your invoicing app, taking the legwork out of this stage of the funding process.

Do customers like invoice factoring?

It’s a common question, and for good reason: “Does invoice factoring scare my customers?” You don’t want customers to think you’re having cash flow issues and potentially pull their business.

There are a lot of reasons people use invoice factoring, though. One is to improve cash flow, but companies also use invoice factoring to fund new business ventures or contracts, hire talent, invest in new equipment, and more. FundThrough integrates directly with your invoicing software, so customers will never know you’re using an invoice factoring solution.

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