Invoice Factoring is a financial tool that allows businesses to improve cash flow by selling their outstanding invoices to a factoring company in exchange for immediate funds. Instead of waiting 30, 60, or even 90 days for customer payments, businesses receive a significant portion of the invoice value upfront, with the remaining balance (minus a fee) paid once the customer settles the invoice.

🌱 How It Works
1️⃣ Invoice Issuance – A business provides goods or services and issues an invoice to a customer.
2️⃣ Sell the Invoice – The business sells its unpaid invoices to a factoring firm for quick cash.
3️⃣ Advance Payment – The factoring company advances 75%–90% of the invoice amount within a few days.
4️⃣ Customer Payment – The customer pays the full invoice amount to the factoring company.
5️⃣ Final Settlement – The factoring company deducts its fee and releases the remaining balance to the business.

📌 Example:
Imagine you own a manufacturing business and have just issued an invoice of INR 1,00,000 to a customer with a 60-day payment term. Instead of waiting, you approach a factoring firm.
✅ The factoring company reviews your invoices and approves your application.
✅ They advance 80% of the invoice value, i.e., INR 80,000, within three days.
✅ Your customer pays INR 1,00,000 directly to the factoring firm after 60 days.
✅ The factoring company deducts its fee and transfers the remaining balance (INR 20,000 minus the fee) to you.

💡 Who Benefits from Invoice Factoring?
✅ Small & Medium Businesses (SMEs) struggling with cash flow
✅ Startups that lack a credit history for traditional loans
✅ Companies with seasonal sales fluctuations
✅ Businesses with long customer payment terms (30-90 days)
✅ Rapidly growing businesses needing funds to fulfil orders

📌 Key Advantages:
✔ Immediate cash flow without waiting for customer payments
✔ More accessible than traditional loans
✔ Helps manage operational expenses efficiently
✔ Reduces the burden of chasing payments

⚠ Potential Drawbacks:
❌ Factoring fees can range from 1%–5% of the invoice value
❌ Some contracts may require long-term commitments
❌ May impact customer relationships if collections are handled aggressively

🔄 Back To Basics With Rubix: This series aims to simplify business terminology, making it accessible to all. We hope to share more concepts that enhance your knowledge. Stay tuned for upcoming posts, and feel free to share your thoughts and experiences or ask questions! Let’s build a community where knowledge is shared and celebrated. 🤝💡

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