Invoice factoring refers to the practice where smaller companies sell invoices in order to receive money today. IN this case they do not have to wait for a credit period of 30, 60, or 90 days. Thus by selling invoices smaller companies do not create debt. This practice of invoice factoring is basically used as a finance management tool.
This practice of invoice factoring is usually adopted to avoid any loans or giving any collateral against availing any loan. The fee for invoice factoring is paid in terms of discount. This discount can ranger anywhere between 2.5% to 7%. As a result of invoice factoring the smaller companies avoid exhibiting any loans on their balance sheets plus they also do not have to pay any interest for the money taken. This results in better profit figures.
Various agencies also help small companies in invoice factoring. These agencies set up the company with the right factor for a particular factoring situation. If someone has an invoice or any receivable to be factored then these agencies come out to help in the same.
These agencies help the manufacturers, distributors, importers, exporters, wholesalers, contractors, suppliers etc...
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