Factoring is a flexible, fast way to boost your business’s working capital. It can come in very handy when you need funds for payroll, lease payments, inventory purchases, and other important expenses. You can even use the funds to invest in smart business opportunities. Still, if this is your first time, you probably have questions about what to expect. This guide can help put your mind at ease.

The Agreement

The first step in financing receivables is creating a customized agreement for your business. This type of financing is provided by private lenders, which gives you more flexibility in deciding the terms of the agreement.

For example, you can often decide what portion of your accounts receivables to factor in and for how long. Some business owners decide to factor their entire accounts receivable department while others prefer only using invoices from a few select customers.

Typically, agreements last about six months. This gives you a firsthand taste of the process and lets you see if financing receivables is a good fit for your business operations. Afterward, many small businesses decide to extend their agreement for another six months or more.

The Factoring Platform

Once you get started, submitting unpaid invoices is easy. You use a simple platform to complete each transaction. Afterward, you can receive the majority of funds for invoices in about 24 hours.

This platform operates similarly to accounting software. You bill your customers normally and then send a copy of the invoice to the company.

To help you and your personnel understand the ins and outs of the process, the financing company generally schedules on-site training sessions for your team. They also set up the platform so you don’t have to worry about a thing.

The Funds

How much money do you receive with each invoice? That varies by company. Here’s how the process normally works.

As soon as you sell an invoice to the financing company, the bill gets processed. In 24 hours or less, you receive the bulk amount of the invoice in your bank account. This is often around 80% of the bill’s total value. For example, if you factor in an invoice worth $1,000, you receive about $800 immediately.

Then, the financing business waits for your customers to pay the invoice. As soon as clients make payment, the remaining portion of the bill’s value is deposited in your account, minus the agreed-upon fees. The total cost of factoring depends on how long your customers take to pay.

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