Small Business

FAQ On Invoice Factoring Asked By Business Owners

Published on: May 6, 2019

Last Updated on: January 29, 2022

invoice factoring

toc impalement

Invoice factoring is a business option that allows your company to pay a third party to take charge of your accounts receivable, this service is provided by a factoring company. The factoring company will pay you the amount of your invoice in two installments, the first is usually around 80 percent.

You will receive the remaining 20 percent (less factoring fees) once the invoice has been paid. Many business owners could use a little help with invoicing, but they have too many questions to consider factoring, so offer a list of the most common ones with some helpful answers. Apart from this, you can also take Affinda’s OCR invoice processing service in this regard.

1. When should I consider factoring?

You can consider factoring as soon as your company is providing goods and services to your clients and you are generating invoices. You could definitely benefit from factoring if you are experiencing cash flow challenges, which are hampering the growth of your company. Look here for more information about invoice factoring companies:

  • A factoring deal can bee did within 24 hours. If you are thorough with your cash flow or you are aware of the fact that you will be paid for your services within a short period of time. It also cuts short of the collection process.
  • You can easily avail for factoring is your business is not getting a business loan. Mostly invoice factoring companies are there to revamp your company goals if you are out of business for a long time.
  • Invoice factoring also helps those companies which have no collection department. This mainly happens when your business is understaffed.

2. Must I factor everything?

When you adopt invoice factoring you can use it as and when you need it. You are not obliged to factor every transaction, just those that are affecting your cash flow. You do not have to make a long-term commitment to a factoring company. If you wish you can choose just to factor invoices for clients who typically take a long time to pay.

3. How does invoice factoring differ from a loan from a bank?

First of all, invoice factoring is not a loan, therefore it does not show up as a debt on your company’s financial history. When you are applying for a bank loan, the financial institution will look at your company’s cash flow and financial history. When you apply for invoice factoring, the factoring company will look at your customer’s’ creditworthiness.

4. Is invoice factoring suitable for a small business?

Because invoice factoring is an effective way of optimizing your cash flow, it is suitable for businesses both large and small. It also doesn’t matter what industry you are in, you can always make factoring work for you.

It is much suitable for small business because these startups are mostly understaffed And they lack resources to expand their businesses. In this case, invoice factoring helps a lot in getting many they need for more business optimization.

5. Which specific benefits should I look for in a factoring service?

6. How can invoice factoring help my business grow?

If you’re a start-up factoring can help you become established. If you are a larger, well-established business, factoring can help you diversify and expand. It also helps you with resources where you can let your products be manufactured in a developing country and get more productivity out of less investment.

It is most helpful to those who are lacking the qualification to avail for a business loan in the banks. There are also invoice discounting methods which help you in getting exactly what you want.

7. What should I consider when choosing a factoring company?

The following issues are important to consider when you are comparing invoice factoring companies.

  • Their invoice factoring terms: Different factoring companies set out different fee structures. You need to make sure you understand the structure and that there are no hidden fees. Don’t be embarrassed to ask questions, a reputable company will be able to fully address your concerns.
  • How long they have been in business: You need to be aware of their experience in your particular industry or one that matches your needs. In this business, experience does count for a lot.
  • Their capital structure and client base: You need to select a factoring company that has sufficient resources to provide the funding you need now and in the near future. You will be able to estimate this by checking the size of their biggest clients.

8. What industries use factoring?

All kinds of different industries use invoice factoring including gas and oil companies, manufacturers, telecommunications, staffing, transportation, logistics, pharmaceutical, wholesale, and printing.

9. My company owes taxes, can I still use invoice factoring?

You may still be able to use factoring even if you owe taxes. This will depend on how much you owe and what type of taxes are owed.

10. How long does it take to receive the funding?

This will vary slightly depending on the industry, but typically it takes 1-3 business days after the factor receives your contract.

11. What happens if the company sends outstanding money to me instead of the factor?

In this situation, you should send the money to the factor immediately. Your company must never deposit checks from clients who are being funded by your factor. The customer will always be notified in advance when the payments should be sent to a factor.   

Now you’re armed with this information, you can choose a factoring company today. It’s the painless way to get paid, it will keep your cash flowing and allow you to continue production and expand your business even when some of your clients are tardy at making payments. Although, you need to invest your money wisely so that, you can boost up your sales with less investment.

Jennifer Kent is a small business owner who also loves to write about her experiences. She enjoys helping other startups by sharing what she has learned along the way by posting on various business blogs.

Please leave a comment in the comment section below and let us know whether this FAQ article was helpful to you or not.

Read More: 



Mashum Mollah is a tech entrepreneur by profession and passionate blogger by heart. He is on a mission to help small businesses grow online. He shares his journey, insights and experiences in this blog. If you are an entrepreneur, digital marketing professional, or simply an info-holic, then this blog is for you. Follow him on Instagram, Twitter & LinkedIn

Related Articles