Turning Receivables Into Cash Since 1998
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How Invoice Factoring Works

Invoice factoring is a financial solution that helps to unlock new possibilities for businesses who are limited by their current cash flow configuration. While the process is fairly simple, it helps to understand some of the finer details regarding the basics of how invoice factoring works, who can benefit from it, how to know if you qualify for the service.

The Basics

Invoice factoring has many names (invoice financing, accounts receivable financing, or just factoring) and they all refer to the exact same thing; turning unpaid invoices into cash.  One common misconception that people have about invoice factoring is that it is a loan. It is not. The process involves three parties; your business (the owner of the invoice), your client (the account debtor), and the factor (the financing company supplying the cash). In the first step of the process your business sells its invoices at a discount of 70-90% of the original value to the factor. The factor then collects on them from your client, which typically occurs in a 30 to 90 day window. Once the collection occurs, a “rebate” of the invoice’s remaining value is issued to your business minus a small factoring fee, which typically is worth 1-5% of the invoice’s original value.

To illustrate how factoring works we put together a small table showing a simplified factoring transaction involving a an invoice with an original value of $10,000. In the example the factor purchases the invoice for 85% of its value and upon collecting from the account debtor issues the remaining advance. Finally, the factor charges a factoring fee.

Who Can Benefit From Invoice Factoring?

All three parties involved in factoring benefit from factoring which is why it is such a valuable solution. If your business has clients that are slow to pay then you stand to benefit the most. By being able to get cash up front, your business is able to capitalize on opportunities it previously did not have. You have greater financial flexibility to purchase assets, pay expenses, and take on more work. Your client is happy because they don’t feel squeezed by unfavorable payment terms that limit their own business interests. The factor makes its money through the factoring fee applied to the invoice based on its term and face value.

How do I Know if My Business Qualifies?

Diversified Funding Services Inc. has very simple pre-qualification criteria required of businesses interested in our invoice factoring services. They are:

  1. Has your company provided a product or service to another business with good credit scores?
  2. Has your company delivered the product or rendered the service?
  3. Has the company you are doing business with been invoiced and you are currently waiting to receive payment?

If you meet the above criteria and are interested in utilizing the benefits of factoring for your business we encourage you to submit a quite online, or give us a call toll free at (888) 475-1290.

 

 

Diversified Funding Services was founded in 1998 by Mark Little with the mission to provide businesses the opportunity to obtain critically needed cash flow for their companies with Account Receivables financing, traditionally known as Factoring.

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Diversified Funding Services, Inc
125 Habersham Drive / Suite C
Fayetteville, GA 30214
Toll Free: (888) 603-0055
Phone: (770) 603-0055
Fax: (770) 603-9823