How Factoring Works: Step-by-Step Process
- Work is completed, but payment is delayed.
Many companies use factoring when clients take too long to pay. Instead of waiting for payments on a balance sheet, businesses turn to factoring services. - The invoice is sent to a factoring company.
The business submits its invoice to a factoring company, which verifies it with the debtor to ensure its legitimacy. - An immediate cash advance is provided.
Once approved, the factoring company advances up to 97 percent of the invoice’s value, allowing businesses to use factoring for quick funding. - The factoring company collects payment.
The factoring company waits for the customer to pay within the original 30-60-day terms. - The final balance is paid to the business.
After the debtor pays in full, the factoring company sends the remaining balance to the business, minus a small factoring fee.
Why Companies Use Factoring Services
Companies use factoring services to manage cash flow, cover expenses, and maintain business operations without waiting for slow payments. Industries like trucking and logistics rely heavily on invoice factoring to sustain daily operations.
How to Qualify for Factoring
Qualifying for invoice factoring is typically easier than applying for a traditional loan. A factoring company evaluates the creditworthiness of your customers, not your credit score, making this a flexible option for businesses with limited credit history.
To qualify for factoring, a business generally needs:
- Valid invoices issued to creditworthy customers
- A record of on-time payments from clients
- No major legal issues or unresolved accounts payable
Get paid faster with Integrity Factoring— request a free consultation today!