Factoring may seem confusing for those that haven’t tried it before. When do I let my customer know? Do funds go straight to my account? When do the advances happen? We’ve listed everything out step by step below to help you better understand factoring.
Application & Approval: After a brief qualification period that generally takes about a week, the funding process can begin.
Notification: Prior to the initial funding a letter is sent to your customer alerting your customers that you have enlisted the services of an invoice factoring company, that payments for your invoices have been assigned to this company and that your invoice payments are to be sent to them.
Product Delivered or Service Performed: Your company provides a service or product to your customer.
Invoice Generated: Invoice(s) are created and sent to your customer and copies of these are sent to the factoring company.
Invoice Verification: A representative from the factoring company verifies that your customer satisfactorily received your product or service and will pay the invoice according to terms. There are many ways that this can be accomplished professionally.
Funds Advanced to Your Bank Account: Upon verification, funds are wired to your bank account typically the same day that the invoices are verified.
Invoice is Paid by Customer to the Factoring Company: When the invoice is paid by your customer, the remaining balance is wired to your bank account less the factoring fee for purchasing the invoice.
Invoice is Not Paid by Customer: In a case where the invoice is not paid for whatever reason within a reasonable period of time, your company can buy back the invoice from the funder or exchange it for a current one.
Process Repeats: The process begins again when next invoice is issued.
There you have it, invoice factoring explained step by step. Feel free to contact us here if you have questions or would like to know more.