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Invoice factoring is the selling of unpaid invoices to a financial institution known as a factor. This enables businesses to instantly receive money owed to them instead of waiting until the end of the typical 30, 60, or 90 day payment period during which their customers must pay invoices for services or products. Factoring is a finance management tool that does not create debt, nor does it require you to give up any ownership in your company.
A business pays for this service in the form of a percentage discount, deducted after all of the invoices have been paid to the factor. The amount of discount depends on the length of time it takes to collect on the invoices (common ranges of 2.5% to 7%). When shopping around for the right factoring institution, look for the company that charges the lowest percent and ask for references so that you can be assured of the the factor's reliability.
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