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Step 5: The factoring company administers your sales ledger and credit control The balance is payable when the customer has paid the invoice to the factoring company. Usually, businesses receive the first payment of 70% to 95% of their original invoice values (including vat) within 48 hours. Step 4: The factoring company makes an initial payment of the agreed percentage of the invoice values within the next couple of working days. You will upload details of the invoice to the sales ledger without having to send a copy to the factoring company. Most factoring company sales ledgers are now accessed directly over the internet. Step 3: The business uploads details of the invoice to the factoring provider The invoice will contain a notation that it is payable to the factoring company (e.g. Step 2: The business sends an invoice denoting the amount owed. Step 1: The business provides a service or a product to the customer How does factoring workįactoring is a cyclical process based on individual invoices. By selling the unpaid invoices, businesses can tap into their locked in values and continue operating and growing. That leaves a cash gap that often has to be funded.įactoring finance is one solution to that problem. And yet you only get your payment (and profit) back one or two months later. You’ve paid your staff and suppliers to make sure your client gets their product in reasonable time. Your cash flow is threatened, since you’ve invested in the manufacturing of a product or the provision of a service.
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This can often put you and your business at a disadvantage. This could be any time from 30 days up to 90 days or more in some cases. Having sold goods or performed a service a company often has to wait a considerable time for the customer to pay. Unpaid outstanding invoices have a financial value locked inside. A business would assign (effectively sell) their unpaid sales invoices to the factoring company in return for immediate cash. Factoring is the provision of working capital finance for a business based on it’s sales ledger.