Invoice Factoring means the process of collecting the cash which is owed on outstanding invoice. Numerous startups, SMEs and new divisions engage in it. This is helping them to improve cash flow during periods of rapid growth.
When Invoice Factoring is required:
When a company wants to have cash quickly or if a company has customers who are extremely slow to pay then this is one potential alternative. Many corporations execute their transactions through banks. However, even in this situation, if they have relationships with factoring companies (frequently banks), then it can be very useful.
Through the use of factoring a company can access its receivables more quickly. In today’s world you cannot deny the value of cash in your account. In some cases the receivable is sold. In others, a down payment is made against the invoice.
Industries such as service providers, telecommunication companies, wholesalers, distributors, manufacturers and transportation companies use invoice factoring to access their cash more quickly.
Criteria for use:
There are criteria impacting the feasibility of invoice factoring. Firstly, if a company is very new and has creditworthy customers; then they can likely use factoring. If a company has inadequate cash on hand, they can also avail themselves of invoice factoring to generate cash flow. If a company has tax, credit or income problems then invoice factoring can be a very useful option for them.
Overall, it can be said that invoice factoring can be extremely useful to fulfill the need of improved cash flow in a company. Without the cash in hand, many of the companies will have a problem. So, factoring is becoming more and more necessary for many of the companies in the market now.