Single Invoice Factoring, Liquidity and Funds

InvoicingWhen liquidity isn’t exactly pristine and immediate funds are on a low, single invoice factoring serves as the first line of defense for many entrepreneurs and businesses. The financing method has long since allowed entities to derive quick cash without the burden of debts during pressing situations. Today, we’ll discuss more about what it is, what it does and how it paves the way for operational continuity.

You see, liquidity is something that businesses are always concerned about. It refers to the amount of assets that can be easily and readily converted to cash or used as such. The challenge often presents itself as companies find that although solvent and profitable, their assets aren’t exactly liquid. While part of cash is retained for specific uses, others are locked up as inventory, receivables or fixed assets. This makes immediate disbursements difficult if not impossible to do. It also raises issues in terms of cash flow and working capital. In order to prevent more serious issues, single invoice factoring is utilized.

The method is a onetime transaction that allows a business to select a specific customer invoice in its receivable pool from which to draw funds from. Its value, often around 80% to 95%, is advanced and received at present even before the invoice itself matures. In other words, collection is hastened and so is the realization of cash. This alone improves liquidity and allows the business entity to make use of the resources as needed.

The remaining percentage shall be withheld by the provider, referred to as the factor, until the invoice matures and they are able to collect in full from the owing customer. Upon completion of payment, the balance less fees shall be forwarded to the company.

The method’s birth came after financing institutions realized that many companies suffer from liquidity issues and cash shortages due to their sales on credit that translate to receivables. They may be assets if we look at them at an accounting standpoint but essentially, they lock them up for periods and make them unavailable for use which can mean trouble in pressing situations.

What makes single invoice factoring a very powerful and useful tool is the fact that it allows for haste. Providers can arrange for and release the funds in as fast as twenty-four hours which is something no other financing method is able to do. Moreover, it is one that involves zero liabilities as it is no debt or borrowing therefore it comes free of interests and the accompanying property collateral.

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