What is Invoice Factoring?
Ready to take control of your cash flow? If your customers pay on 15, 30, 60+ day terms and your small business could benefit from getting paid sooner, then invoice factoring might be exactly what your business needs.
Let’s start off with the basics. There are different terms you will hear associated with invoice factoring, such as “accounts receivable factoring” or “invoice financing.” It’s all the same. Invoice financing involves selling your accounts receivable to a factoring company in exchange for a cash advance. Factoring invoices helps small business owners get paid sooner for work completed. And by sooner, we mean within 24 hours.
Invoice factoring helps small business owners improve cash flow to cover payroll, pay suppliers, reinvest in marketing efforts and take advantage of new growth opportunities.
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We know how to get your business funded. If you’re not sure which funding product is best, we’ll walk you through the options.
The Invoice Financing Process
The process of invoice factoring is easy. You provide goods and/or services to your customers and issue them an invoice like always. If you want to factor the customer, submit a copy of the invoice to the factoring company. The factor verifies the invoice and provides an initial advance of up to 95% within 24 hours. The remaining portion is held in a reserve account. The factor collects payment from your customer based on the terms you already have in place. All payments are sent to a lockbox account. Once your customer pays the invoice, the remaining percentage is released back to you, minus a fee for the factoring service.
Approval
We will take over the collection process, giving you time for other projects.
Payment
Your business will send completed work invoices to the factoring company. The factoring company will then advance you between 70-95%.
Reserve
The remaining percentage will be held in a reserve. Your clients will pay for the invoice, but instead send the payment directly to the factoring company.
Success
Once the factoring company has received your customer’s payments, the reserve will be released back to your business, minus a small factoring fee.
Benefits of Factoring
Invoice factoring helps small business owners improve cash flow to cover payroll, pay suppliers, reinvest in marketing efforts and take advantage of new growth opportunities. There are plenty of reasons to work with a factoring company!
Easy Approval – You can qualify for factoring with bad credit. Since factors collect from your customers, approval is based on their credit history.
Fast Invoice Funding – If you need funding within 3-5 days, invoice financing can make that happen.
No Long Term Contracts – Many factoring companies have month-to-month contract terms.
No Minimum Volumes – Your business decides which customers to factor and when to factor invoices.
Unlimited Funding Potential – The amount of financing grows with your business. The more invoices you have, the more financing you can obtain.
What Types of Businesses Factor Receivables?
Businesses of all stages and sizes use accounts receivable factoring to maintain a stable source of cash flow. Since every business weathers cash flow challenges, invoice factoring can benefit a one-person shop that just landed their first account yesterday or a long-established corporation that’s looking to extend payment terms to a big client. We help nearly every industry with funding:
- Transportation Factoring
- Staffing Agency Factoring
- Manufacturing Company Factoring
- Technology Factoring
- Oilfield Service Providers Factoring
Check out all the industries we serve. Don’t see yours listed? Don’t worry. If you’re billing other businesses on payment terms, we should be able to help.
Types of Invoice Factoring
Recourse Factoring
Recourse factoring is the most common factoring program. If for any reason your client does not pay the factoring company for your services, your business will be responsible for paying the factor. Since it’s less risky for the factor, recourse factoring fees are lower than non-recourse.
Non-Recourse Factoring
With a non-recourse factoring option, your business is not held accountable for unpaid invoices. Keep in mind that this process is not all encompassing, and there are rules and regulations that go along with it. Non-recourse terms may vary by factor, so it’s important to get all the information before signing a contract.
Spot Factoring
Spot factoring, or “single invoice factoring,” is a type of invoice factoring that allows a business to do a single factoring transaction. Some factoring companies allow a “one and done” style of factoring without further commitment. This process works great for businesses who need funds quickly over a short amount of time.
Pros of Invoice Factoring
Immediate Cash
You have immediate access to your money within 24 hours of invoice verification.
Leverage
Tell us what you’re looking for & we’ll fit you with one the best invoice factoring companies. You can go back to what you do best – running your business.
Quick Approval
We’ll find you the lowest rates & highest advances for your business. Let us work to find you the best deal. Best of all, our services are 100% free to our clients.
No Debt
Factoring gives you a clean balance sheet because, unlike a loan, you don’t have to worry about creating a negative.
Save Time
It’s usually the responsibility of the factoring company to manage payment collection, saving you from hunting down customers to pay.
Cons of Invoice Factoring
Importance of Customer’s Credit
Approval is based on the creditworthiness of your customers, so if your customers have a not-so-great payment history, you may not be approved.
Customer Desire to Factor or Not
Your customers may not want to factor. In our experience, most businesses are familiar and comfortable working with factors, but sometimes a customer may not want to get a third party involved with the payment process.
Why Do Businesses Decide to Factor Invoices?
- The desire for business growth, but low on working capital.
- Capital to cover slow paying clients who don’t pay for 30-90 days.
- Growing rapidly and need more capital to serve new clients.
- The need for working capital to cover payroll and other bi-weekly expenses.
- Funds for new hires, training, equipment or other expense to delve into new markets.
- Ensuring enough funds are saved up for unexpected expenses and yearly taxes.
Factoring Companies Give Small Businesses a Chance to Succeed
The truth of the matter is, banks see small businesses as a risk. Small businesses that will get approved do not have the time to wait around to for the approval process to be done and to get the funding they need. Interest rates can also be a worrisome aspect of loans. They are ever-changing and can reach havoc on business struggling to grow. With an invoice financing company, a business can get approved and paid within a week.
Simple and Affordable Business Financing
The factoring companies we work with vary. It is our job to pin point a factor that will meet your needs whether it be low rates, back office support, fast approval, or anything else. Our partners offer competitive perks to ensure your business is happy and stays happy during the factoring relationship. One of the best things about accounts receivable factoring is it is debt-free. Since your clients are the ones paying the factoring company, your business is left to grow and prosper.
