Unpaid invoices can pose a major problem for small businesses. Fortunately, there’s a financing option called invoice factoring that allows you to quickly convert unpaid invoices into working capital, and you can also pass on the responsibility of seeking payment to someone else, saving time and energy by not needing to track down delinquent payments.

Invoice factoring gains popularity due to its ultimate convenience. A lender provides you with a lump sum of money by buying most of the money owed in the unpaid invoices. Typically, you receive a percentage of the receivables upfront, and once the lender collects payments from your debtors, you get what’s left of the balance after the lender deducts their fee.

The lender collaborates with you to determine the percentage of receivables you’ll receive, but it’s common to get as much as 90% or higher of the value. You can usually see the funds in your account within just a few days.

Invoice factoring becomes an ideal option during stressful times when unpaid invoices have piled up or cash flow is suffering. The speedy funding it offers can assist with unexpected expenses, such as repairing equipment, purchasing materials for a big project, hiring new employees to meet rising demand, or seizing a unique business opportunity.

To determine whether the cost of invoice factoring is worthwhile for obtaining an influx of cash, you need to assess your situation. If you can leverage the capital for crucial expenses, this financing option becomes a compelling choice.

The application process typically involves two steps: first, the lender will need to approve you, and then they will need to approve your debtors. To get started, you’ll want to provide necessary documentation:

• Previous 6 months business bank statements
• Current Financials (P&L and Balance Sheet)
• AR/AP Aging Report
• Sample Invoices to be factored