One of the biggest issues with managing a retailcompany that sells to consumers on credit is collecting the payments. If yourbusiness regularly sends out invoices for payment to your customers then youare probably also familiar with the frustration in dealing with overduecustomer accounts and unpaid invoices. If your business regularly deals withuncollectable invoices, then factoring may be the best option for you.

Invoice factoring is the selling and assigning ofunpaid invoices to third party factoring companies. Essentially, factoringallows your business the right to turn over collections to a factoring company,and the factor will cut your business a check.

Many businesses turn to factoring as a legitimatemeans of collecting on damages and mitigating on uncollectable accounts.Factoring services can either take over for your collections department, or ifyour business does not have a collections staff, they can also act as an outsourcedagency.

Factoring is actually an extremely legitimatebusiness option, and in many cases factoring services can turn a profit for youby generating operating capital – many companies can end up depending onfactoring to make money. Depending on the circumstance, factoring services canactually get your company a better deal on your investment, if you know what to look for.

The process of business factoring is relatively similar toyour business’ own collection options in that they take your outstandinginvoices and contact the consumers themselves. The process is simple, and yourbusiness only needs to collect any unpaid and overdue accounts, and send themin to factoring companies with an application to set up an account with them.

The invoice factoring business will then review yoursubmitted overdue invoices, as well as you business’ creditworthiness andpayment history to see if they want to purchase your collections. If they takeon the collections, they will offer an upfront advancement on the dues, whichusually comes out to a percentage of the late invoice.

Once the factoring company successfully receivespayment, they will deduct their factoring fee and send you the remainingpayments. With depending on the original contract that your business initiatedwith your client, interest and loan options can oftentimes still turn a profitdespite the factoring service fees.

David Liu is a writer and comedian based in San Diego, California. He writes extensively for Resource Nation, an online resource that provides expert advice on purchasing and outsourcing decisions for small business owners and entrepreneurs.

Resource Nation provides free tools, tips, and purchasing advice for business owners and entrepreneurs in over 100 business categories ranging from phone systems to credit card processing. Whether it's connecting businesses with local and national pre-screened vendors, or offering easy service comparisons on a VoIP service, Resource Nation empowers business decision makers by providing the information they need to make smart choices.