Factoring What Is Invoice Factoring?

Invoice factoring is a financial service that allows businesses to convert their unpaid invoices into immediate cash. Instead of waiting 30, 60, or 90 days for customer payments, you sell your receivables to a factoring company at a discount. The factoring company advances you a significant portion of the invoice value upfront and collects payment directly from your customers. This process helps improve cash flow and provides working capital without incurring debt.

How Factoring Works

1

Issue Invoice

You provide goods or services to your customer and issue an invoice.

2

Sell Invoice to Factor

You sell the invoice to a factoring company at a discount.

3

Receive Advance

The factoring company advances you a percentage of the invoice value, typically up to 90%.

4

Customer Pays Factor

Your customer pays the invoice amount directly to the factoring company.

5

Receive Remaining Balance

Once the factoring company receives full payment, they remit the remaining balance to you, minus their fee.

Eligibility Criteria

To qualify for invoice factoring, your business should meet the following criteria:

  • Business Type: Registered business entity (e.g., sole proprietorship, partnership, private limited company).
  • Operational History: Minimum of 6 months in operation.
  • Annual Turnover: At least ₹50 lakhs.
  • Invoice Value: Minimum invoice amount of ₹1 lakh.
  • Customer Profile: Invoices issued to creditworthy customers with good payment histories.
  • Industry: Applicable to various sectors including manufacturing, services, trading, etc.

Documents Required

When applying for invoice factoring, you'll need to provide the following documents:

  • KYC Documents: PAN card, Aadhaar card, or other government-issued ID.
  • Business Registration Proof: GST registration certificate, business license, or incorporation certificate.
  • Financial Statements: Bank statements for the last 6 months.
  • Invoices: Copies of the invoices you wish to factor.
  • Accounts Receivable Aging Report: Detailing outstanding invoices and payment timelines.
  • Customer Agreements: Contracts or purchase orders related to the invoices.

Why Smart Businesses Use Factoring

Waiting 90 days to get paid isn’t just inconvenient — it slows you down. Factoring unlocks up to 90% of your invoice value in just 2–3 working days, giving you instant access to the cash you’ve already earned. For businesses that know how to make money work, that’s a strategic edge.

Faster reinvestment

Put working capital back into your business where it can generate 7% to 36% returns, instead of letting it sit idle in receivables

Outsourced collections

Let factoring providers handle customer follow-ups and payment tracking

Lower risk

Some providers offer credit protection if your customer doesn’t pay

Better buying power

Use early cash to negotiate supplier discounts or bulk rates

Stronger cash flow

Stay flexible and cover day-to-day costs without tapping into credit

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