1. Issuing Invoices: A business provides goods or services to its customers and issues invoices with payment terms.
2. Invoice Submission: The business sells these invoices to an invoice factoring company (the factor).
3. Funding Advance: The factor provides an immediate advance, typically covering 70-90% of the
total value of the invoices. This allows the business to access cash quickly.
4. Credit Control Transfer: The factor takes over the responsibility of collecting payments from the customers. This includes managing credit control, sending payment reminders, and following up on overdue invoices.
5. Repayment: Once the customers pay the invoices, the factor deducts its fees and any charges, and then releases the remaining balance to the business.
Invoice factoring is often used by businesses facing cash flow challenges due to slow-paying customers or the need for immediate working capital. It allows them to convert their receivables into cash without waiting for the payment terms to be met.