Invoice factoring is a financing option that allows businesses to convert their outstanding invoices into immediate cash. It involves a business selling its invoices to a third-party company, known as an invoice factoring company, at a discount. The factoring company then advances the business a percentage of the invoice amount and takes over the responsibility of collecting payment from the customer. Once the customer pays the invoice, the factoring company sends the remaining balance, minus their fee, back to the business.
Step 1: Submitting Invoices to the Factoring Company
The first step in invoice factoring is for the business to submit its outstanding invoices to the factoring company. The factoring company will review the invoices to determine their value and creditworthiness.
Step 2: Verification and Approval
Once the factoring company has received the invoices, they will typically conduct a credit check on the business’s customers to ensure that they are likely to pay the invoices on time. This is an important step since the factoring company is assuming the risk of collecting payment from the customer.
Step 3: Advance Payment
Once the invoices have been verified and approved, the factoring company will advance the business by a percentage of the invoice amount. This percentage typically ranges from 70% to 90%, depending on the factoring company and the creditworthiness of the business’s customers. The advance payment can be used immediately by the business to cover expenses or invest in growth initiatives.
Step 4: Customer Payment and Collection
The factoring company then takes over the responsibility of collecting payment from the customer. They will send a notice of assignment to the customer, informing them that payment should be made directly to the factoring company. The factoring company will then collect payment from the customer when the invoice becomes due.
Step 5: Remaining Balance Payment
Once the customer pays the invoice, the factoring company will send the remaining balance, minus their fee, back to the business. The fee charged by the factoring company can vary but typically ranges from 1% to 5% of the invoice amount. The fee will depend on factors such as the creditworthiness of the business’s customers and the volume of invoices being factored in. An invoice factoring company like New Century Financial has no hidden fees, so businesses know exactly what to expect.
Step 6: Repeat the Process
Once the factoring process is complete, the business can repeat the process with additional invoices as needed. Factoring invoices can be an ongoing financing option, providing businesses with immediate cash for their outstanding invoices.
New Century Financial offers comprehensive invoice factoring with no hidden fees or long-term contracts. We also place you in control of which invoices, or parts of invoices, we factor, so you can customize your plan and reach your next big milestone. Contact New Century Financial today and start factoring your invoices – we guarantee cash within 24 hours of approval.