Top Rated Invoice Factoring Company
Accounts receivable, also known as invoice factoring, can help you boost cash flow and increase working capital. If you are waiting for invoices to be paid by clients but need the funds faster, it can give you access to cash and reduce the work involved in chasing payments. Unlike other forms of business finance, it’s not dependent on your balance sheet and doesn’t require personal collateral, so you won’t need to use your house or car as security.
Invoice Factoring Overview
Invoice factoring is an arrangement where businesses can exchange future client payments for immediate cash. The company sells invoices that they haven’t yet been paid for to a third-party financial institution, sometimes referred to as an invoice factoring company. The third-party gets them at a discounted rate and the business receives the funds up-front. Instead of waiting for a customer or client to pay the invoice, they get the cash much sooner, usually within 30-90 days. This provides them with an injection of capital which can be used to pay for operational costs and overheads like rent, utilities, or salary payments.
Small Business Invoice Factoring for Cash Flow Needs
Cash is undoubtedly the most important thing your business needs in order to keep the business cycle going (and growing). When businesses offer goods and services on credit terms (i.e. net 60 days) in order to entice new customers to make purchases, they can find themselves in a cash flow pinch. Several larger corporations will only pay with net terms making this a big challenge for a new up and coming business that needs more capital to keep up. Invoice factoring helps a growing small business’ cash flow needs by providing the necessary up-front capital to be able to fulfill orders without adding more debt to the balance sheet.
How Invoice Factoring Works
After a company delivers the product or service to their customer, they issue an invoice. The company then “sells” the invoice to the factor (us), and in return receives an advance, typically between 70-90% of the value of the invoice. With the capital on hand, the company can take on more work, pay employees or buy more materials, supplies and inventory. Once the debtor pays the outstanding invoice, the business receives a discount or “rebate” for the remainder of the funds, minus a fee that is based on the term and value of the invoice. In the end, both parties benefit as the customer gets cash up-front and their customer gets favorable payment terms.
How Does Invoice Financing Compare with Invoice Factoring?
Invoice financing and invoice factoring may sound similar but they are actually different financial solutions. Invoice financing is a type of loan which the business pays back over time. They can borrow an amount based on the invoice value, which acts as collateral for the loan. The bank uses the invoice as security, since if the borrower fails to repay they can get the money from the invoiced customer instead. The business repays a percentage to the bank or third-party institution each month.
However, invoice factoring works a little differently. It’s not a loan and the invoices are not used as collateral. Instead, the third-party company buys the invoices belonging to another business for a discounted value. The business gets a slightly smaller amount than they would have if they’d waited for the loan to be paid by the customer, but they get the benefit of receiving cash up-front to address more immediate requirements.
While these are actually different solutions, it is common for both to require monthly minimums. We are renowned as a leading invoice factoring company thanks to low minimum processing amounts and our commitment to supporting the growth of client companies.
How Does Invoice Factoring Compare with Other Forms of Business Financing?
There are lots of ways that invoice factoring differs from other forms of business financing such as small business loans, merchant cash advances, or business lines of credit. Loans and lines of credit are a form of borrowing so usually have credit history requirements. Some traditional banks will also ask for collateral such as property. However, invoice factoring is a purchase rather than a type of borrowing, so credit history is less important and collateral is not required.
Invoice factoring has a little more in common with merchant cash advances since they both relate to customer payments. However, merchant cash advances are also a type of borrowing which relies on customer card transactions to be paid off. Whereas invoice factoring does not involve borrowing, it’s just a simple exchange of outstanding invoice for cash. Unlike other business financing options, invoice factoring is tied to your sales rather than your profit and loss statement. The more sales you can generate, the greater amount of working capital you can access using this method. Invoice factoring can offer a continuous source of business funding to meet your operational needs.
Benefits Of Factoring Companies
Factoring Companies like Strategic Capital offer invoice and accounts receivable factoring services that can supply you with up to 90% of your invoice value in less than 24 hours. The main factoring benefits include:
You get paid immediately – as soon as you invoice your work – not in 30, 60 or 90 days.
You can work with a lender whose business it is to know your business well, helping you grow.
You will get more capital from a great factoring company like us than you ever would from a bank.
Someone else does the collecting for you, saving you the time and resources chasing down client payments.
A professional team evaluates the credit risk of your customers, keeping you from extending net terms on dead weight clients.
Variables That Affect Invoice Factoring Rates
Rates can vary from less than one percent to over five percent of the face value of the receivable between lenders. When a factoring company reviews an application to determine the factoring rate, it considers many variables, such as: the credit strength of its clients, a company’s sales volume, payment cycle trends in that industry, invoice amounts and the overall climate of the subject’s industry. Another item that can affect the rate is the existence or the opportunity for accounts receivable insurance.
Deciding On A Factoring Company
Think about how important each of these criteria are for your business and look for a long-term partner that will provide you and your business with the optimal combination of features, flexibility and terms that you deserve. The ideal invoice factoring company will offer transparent and competitive rates or fees so that you know exactly what you’ll be charged from the start. It’s important to read any contracts carefully to avoid unexpected penalties that some banks hide in the small print. You may also want to consider whether the third-party will notify your customers that they’ve purchased the invoices or maintain confidentiality throughout the process. For some businesses, this won’t be an issue but it’s important to decide up-front and side-step any surprises.
We offer an arrangement that offers you the funds, flexibility, transparency and terms that work for you. As a guiding principle, look for a partner you’ll want to work with long-term with people that you like and don’t settle for anything less. Ready to work with an invoice factoring company you can trust now? Check us out!