July 25 2016.

Consider a business that sells to other businesses. Most of the time, they’ll take a purchase order from their customer and agree on a quote for the work, then send a sales invoice to the customer once the work is completed.

Payment terms for these invoices could be 28 days for some, but as much as 120 days for others — taking even longer if the customer doesn’t pay on time.

In other words, there’s a big cash flow gap between spending money to complete a project, and receiving payment for it.

How does factoring work?
Invoice finance (of which factoring is one variation) aims to solve this problem. As soon as the invoice is raised, you send it to the invoice finance provider, who will advance most of the value immediately (up to 90%). When your customer pays, you get the remainder of the invoice value minus the lender’s fees.

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