What if you could guarantee you’ll see cash for those invoices?
That’s essentially what invoice financing can do for your business. This can ease the burden on your business if you’re running short of capital or urgently need to meet other expenses, such as taxes, payroll, etc.
How Does Invoice Factoring Work?
Let’s say you have a $100,000 invoice with 30-day terms. A financing company will immediately advance you 85% of that amount ($85,000), holding $15,000 in reserve.
Your customer then pays the invoice 2 weeks before the due date. After subtracting the 3% processing fee ($3,000), the financing company would keep its standard factoring fee, which is 1% per week the invoice was outstanding (in this example that would be 2% or $2,000) and give you the remaining $10,000 that is left over in reserve.