Write Sign In Addy Gili Addy Gili Dec 14 · 2 min read · How Does Invoice Factoring Work?

A keen understanding of invoice factoring and how it works can help you decide if it’s an ideal solution for your business. If you are strapped for cash and looking for funds, this option can provide the support you need. Here’s what you need to know about the process before moving forward.

Invoice Factoring: What is it?

Invoice factoring allows you to borrow against your unpaid invoices. It’s also one of the easiest financing solutions to qualify for, making them a better alternative than traditional financing options, like bank loans. If you want to receive the funds faster, consider invoice factoring as a viable option for your business.

Will Invoice Factoring Work for You?

You can consider factoring invoices in Canada, depending on the following factors:

· Clearing time of the invoice. Some factoring companies only accept invoices with a clearing time of 90 days. That doesn’t apply to all companies. However, before you choose one, check that detail to make sure your invoices qualify.

· Advance rate. Most invoice factoring companies will advance you about 70 percent to 90 percent of the total value of the invoice. So, if you need more, you’re out of luck. You may need to look for other financing options. However, you can combine invoice funding with other types of funding solutions.

· Additional fees. Invoice factoring charges fees, like any other business. Some companies offer affordable rates. But you would do well to be thorough. Be sure to check for any hidden costs. Some dodgy companies try this tactic to get customers to pay more. If you don’t want to fall for that trick, ask about any possible fees or costs. If they’re not upfront about the costs, walk away and hire the services of a different company.

What to Look for in a Factoring Company?

When you hire a factoring company, keep the following considerations in mind:

· Industry specialty. Find an invoice factoring that caters to businesses in your field. Do you work in the construction industry? A company that offers invoice factoring to construction companies or has had experience in dealing with construction firms should be at the top of your list.

· Low-interest rates. Invoice factoring companies can charge high-interest rates, so be on the lookout for lower rates.

· Online invoice management. Choose a company that has excellent online platform that allows you to log in and check the invoice status. Can you submit new invoices for factoring easily enough? An online platform that is easy to understand and use is a must.

· Fast funding. Factoring companies should provide you with funding within 24 to 48 hours. If it takes weeks before you get the money, consider other companies. Easy and quick access to funds is the point of the invoice factoring process, so any longer than a few days isn’t ideal. Some even manage to send the cash within a day or, at most, two days.

· Easy renewal process. Once you receive approval from a factoring company, you can also add additional invoices, which can help you get more of the funding you need.