Manage and Improve Your Business With Invoice Factoring

Growing and developing your business will increase your turnover and profit. But you can’t push your business in the right direction and earn more money when you’re wasting time chasing unpaid invoices.

A recent Quickbooks survey revealed that 65% of mid-sized businesses spent 14 hours per week on average to tackle the administrative tasks related to customer payment collection.

One solution to free up your time, reduce stress, and minimize overdue invoices is to use is invoice factoring, also known as debt factoring. So, what exactly is invoice factoring, and how will it help you develop and grow your business?

Understanding Invoice Factoring

Invoice factoring is when you sell your business’s unpaid invoices to a third-party company, known as a factoring company, for a fee. Typically, you’ll make between 80% and 90% of the invoice’s value when you sell them. 

When the factoring company successfully receives payment from the debtor, the remaining balance is paid to your business, minus the factoring company’s fees, which are usually between 1% and 5%. This is ideal for businesses with slow-paying clients or, as you’re about to see, those who want to grow their business and reduce stress.

You may have come across the term “invoice financing,” and it can be easily confused with “invoice factoring.” Both of these options utilize unpaid invoices but in different ways.

The Difference Between Invoice Factoring and Invoice Financing

Invoice factoring, as we discussed, relates to selling unpaid invoices to a factoring company. Then that company works directly with your clients to retrieve payments and reduce your company's workload.

Invoice financing, on the other hand, uses the collateral of unpaid invoices to get a loan approved from a lender. The lender will advance you up to 90%. You pay them back, plus interest, after your client eventually pays you.

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