This article will tell you how invoice financing works and before that you have to know about it. Invoice factoring is a kind of finance; in which you have to sell the invoices of your company at a discounted rate to a third-party service. This way, you will be able to improve the cash flow of your firm. One good thing about this invoice factoring is you can receive the cash immediately.
Your customers can pay the money directly to the factoring company; as it chases the invoice payment. This concept works well for businesses that need cash immediately, and the thing is your company must have reliable customers. Now, it is cleared that the factoring company purchases the invoices, which are not paid, and then take over them. Thus, you can live in peace with a pocket full of money at the needed time.
Most of you might think it is a kind of loan but getting lump money in exchange for selling your invoices. Then the customers have to pay the invoices to the factoring company within a few months. The factoring service that helps in the construction field is called a construction factoring company. It works the same way as any other factoring service and will pay the invoice amount to a construction firm.
Here is the step by step process of factoring:
- Offering service or selling products to other businesses.
- Submitting invoice to factoring service.
- Receiving immediate cash from the factor.
- Your customer pays the invoice to the factoring service.
- After deducting the factoring fee and the advanced amount, the balance is paid into your bank account.
There are two types of construction factoring, and they are spot factoring and contract factoring. Since construction payments come slowly, you can choose one of them; based on the need for money. When you compare getting a loan from a bank with, working with a construction factoring service is an easier option to get enough money at the right time. As this service relies on your customers whereas, you have a good credit score when you are requesting money from banks.