What is a factoring company? Most folks would probably scratch their head over that question. In fact, using your preferred search engine will reveal a definition that is so covered in a word salad, it would make a lawyer blush. But, it honestly is not a hard concept to understand once you remove the professional jargon, and what is left is a concept that you are probably already familiar with.
What is a factoring company?
When you provide a service, like a freight trucks, usually an invoice is involved. An invoice is just another word for “bill.” You typically do not see this when you buy something at the store. That is a transaction that is taken care of immediately, but in essence, it could be considered an invoice.
If you are a business owner, invoices are part of the daily decisions. You provide the service, send the invoice to the respective companies and, the bill gets paid. However, let us focus on the last part, “the bill gets paid.” This can be an issue. You see, some companies take their time paying those invoices. Sure, you could send collections after them, but that will cost money. Speaking of money, if you are a small business and rely heavily on speedy invoice payments, guess what? That is going to be a big problem if a business drags their feet on the bill. An invoice could take up to 90 days to be paid. You can imagine how horrible that would go with employees.
Now, let us say you fill out the same invoice and, instead of sending it straight to the company billed, you send it to factoring company. Something magical happens. You get paid!
What is a factoring company? How does it work?
The Benefits of Factoring Companies
Not only does the factoring company pay you the money in advance, if the that was originally billed doesn’t pay up, you don’t have to worry about it. In fact, the factoring company are the ones that send out collections.
There are 28 million small businesses currently operating in the U.S. and many of them are looking to cut down on their bills, employing small business factoring to do so. Rather than send out paper invoices, a small business could send out electronic invoices, saving themselves the 57 percent more expensive cost of paper invoices.
And factoring companies come in different shapes and sizes. Take freight factoring companies, for example. The transportation network sees 12 million vehicles move goods. Back and forth they go, sending invoices out when the job is done to hundreds of companies. Trucking factoring companies are going to be sorely needed to handle such a big invoice list. It isn’t just for small business invoice factoring.