Invoice Factoring for Beginners

Using your invoices to normalize cash flow is an easy process that sidesteps the need for loans and credit lines, but it does represent a change of pace for those who have never done it before. If you’re getting ready to apply for your first factoring agreement, there are a few things you should know before you take the plunge.

Application Timeframe and Requirements

To apply for this service, you need to use invoice billing to handle customer orders and payments, because you are essentially selling the debt represented by the invoice to the financing company. That’s how you get the working capital to use for other applications like cash flow or short-term opportunities. If you have invoices and your customers have solid payment histories, you will probably be able to get some kind of advance. The newer the invoices and the more valuable they are, the more you can expect.

Invoice factoring takes a few days after you submit an application before you get a determination, and the first offer is tentative. If you respond quickly to requests for more information or negotiations about the final contract, you can close in under five days easily.

Normalize Cash Flow

If you make a habit of sending out your invoices on a regular basis, you can create and control your own pay dates. From there, it should be relatively easy to set a budget that lasts until your next invoice submission. If you’re doing well, you should be able to use it to budget and still have some capital left for profits or additional reserve savings, it all depends on how busy your business happens to be.

When you use this service regularly and the lender knows your customers and your pattern of invoice submissions, approval times are much faster than the brief few days they are at the beginning, too. After a couple of rounds, you’ll even get a feel for the costs and help from the financing company when it comes to optimizing them.

Outsource Your Receivables

While you do wind up accepting less than face value for your invoices, factoring is still a great deal because you can learn to fold the costs into your quotes for jobs while enjoying the fringe benefit of outsourcing collections on your invoices. That means you can be done with them once you have your money, and the financing company will worry about collecting. The extra project hours you gain from that labor alone might offset the cost to you in some industries, especially if you are a freelance professional.