Bil decides to sell outstanding invoices to an invoice factoring company. The owner of ABC Manufacturing - let’s call him Bill - needs funds to purchase supplies. By comparison, invoice factoring is more readily available to companies with limited credit history or some form of financial trouble. To qualify for invoice financing, you generally need a strong business credit history and healthy invoices. Companies using invoice financing may choose to draw on their line of credit when they need cash, but they do not have to draw on the line when their cash position is strong enough to meet their current obligations. In invoice financing, the invoices serve as collateral for the loan. Invoice financing is a loan (normally a revolving line of credit) that a lender issues based on your company’s average invoice volume. Although these two models of financing share similarities, they are not the same thing. Invoice factoring is commonly confused with invoice financing. If your customer believes that you did not fulfill your contract or withholds payments due to a dispute, the factor company may still seek repayment of the advance. Most nonrecourse agreements are only nonrecourse if your customer cannot pay due to bankruptcy or other financial reasons.
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