Invoice factoring is a financial product that enables businesses to sell unpaid invoices to a third-party factoring company. The company buys a percentage of the total value of the invoices off the business and then is responsible for collecting the invoice payments from customers.
Benefits
Quick at releasing capital- Reduce time spent on chasing late payments from customers
- Less expensive than working with an equity investor.
Limitations
- There is a risk of it affecting customer relationships as they must be aware that you are using a third party.
- Loss of control as you are handing over responsibility to the third party.
- The costs involved are higher than a bank loan; this type of financial solution is advised for businesses with a high-profit margin.
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