Businesses that are just starting out have more than simply office space and utility bills to concern themselves with. Before they ever produce a deliverable that will bring income, they must hire and possibly pay employees, purchase the resources required to produce the deliverables and search for other clients that will allow them to repeat this cycle. Without a history of credit, these businesses have little to back them up when talking to financial institutions regarding start-up funds.

Invoice factoring allows a business to continue with their daily operations and to seek new business without having to worry about how they will pay for the product or service the new business requires. Called factoring, a business delivers a good or service to a credit-worthy company and then sells the invoice to a factoring company, or factor. In exchange, the factor pays the business a percentage of the funds it is owed and send the invoice to the credit-worthy company. When the credit-worthy company pays the invoice (usually within 60 days), the factor deducts a small transaction fee from the amount received and sends the remaining percentage to the business.

The benefits of invoice factoring are two-fold.

Benefits to the Factor
Factors realize that companies that do business with credit-worthy customers can use their clients to indirectly vouch for them. Factors know that an invoice is a client's promise that they will pay for the services or products delivered, and by choosing companies that work with reputable, credit-worthy clients, they are almost always guaranteed to get a positive return on their investment.

Benefits to the Business
Operating a business that must wait 30, 60 or 90 days for an invoice to be paid can halt operations as resources for new customers must be replenished before old customer funds have been received. Akin to providing a loan to their customers, clients that must wait on funds are crippled in using the monies their customers owe. Invoice factoring allows a business to get the cash upfront on invoices that have yet to be paid. This allows the business to carry on with its day-to-day operations without having to worry about its cash flow.

Businesses maintain control over which (and how many) invoices are sold to the factoring companies, thus controlling the amount of capital they receive. They can systematically use this to increase production when necessary, increase their purchasing power and improve their credit by consistently having cash on-hand to pay bills and payroll. They also remove the burden of collection costs and win the battle against clients that are slow to pay.

By choosing invoice factoring over capital investors, business lines of credit or angel investors, a business is allowed to focus their time on running their business, and not on issues related to cash flow.

BlueWaterArticles.com: - The Benefits of Invoice Factoring

About the Author

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