For every company, it is important to have a consistent flow of capital in order to stay competitive and vital in the business world. Unfortunately, even the most established businesses may have difficulty maintaining and generating the cash they need to take care of the day to day demands, such as manufacturing and payroll. This is because it is very probable to become a company that is rich in assets but not in cash, due to outstanding invoices from your customers. If this is happening with your company, then you may be an ideal candidate for asset-based lending, finance factoring or purchase order financing. With this type of lending, your company receives a cash advance based on the value of your assets and the creditworthiness of your customers. In most instances, a company can receive up to eighty to ninety percent of the value of their assets in cash, quickly and efficiently. When compared with traditional credit-based loans, which can take extended periods of time to obtain and can affect your credit, asset-based lending can be the better choice for small and mid-sized companies in need of a quick cash solution.
Table of Contents
Business Invoice Factoring May Be Helpful in These Tough Economic Times
Many small and medium sized businesses are having an increasingly hard time with the strain of the economic crisis. There are a plethora of people that are being forced to downsize their businesses simply because they do not have a sufficient cash flow that they can depend on to run their business.
Many businesses are finding it impossible to obtain any funds from any lending institutions. Banks and other private lenders are decreasing the amount of money they lend out, in order to keep their own business afloat.
The good news is there are alternatives that business owners can take advantage of to help them during these tough economic times. Invoice factoring is helping many businesses remain afloat and allow businesses to keep their doors open, despite our shrinking economy.
Factoring is the process whereby a business sells its account receivables at a discounted rate to an invoice factoring company. The invoice factoring company will then supply cash to the business for the invoice that was sold. Therefore, allowing the business to have a sufficient amount of cash to cover any financial obligations that they may have.
Basic Information About Invoice Factoring
There are three parties involved in invoice factoring. First, there is the party that sells the receivable, which is normally the business owner, the debtor, which is normally the client who owes the money indicated on the invoice, and the factor, otherwise known as the invoice factoring company.
The seller basically sells one of their company’s invoices to the invoice factoring agent. This agent will take the information on the invoice and run the client’s credit history to assure that this client will pay for the services requested.
The factoring agent will then provide the funds on the invoice to the business. In times when cash flow is low and your business finds itself waiting a long period of time to receive payments from your clients, you can simply factor invoices and receive the funds immediately.
Does Your Company Qualify for Business Invoice Factoring?
First of all, in order to determine if your business qualifies for business invoice factoring, you need to understand what invoice factoring truly is. Invoice factoring also goes by the name accounts receivable factoring.
Despite what you call business invoice factoring, the process is the same. You are submitting invoices from your clients to an invoice factoring company. They will then buy your invoice from you and pay you immediate funds for the invoice.
How much does your account receivable have to be in order to commence in factoring invoices?
If you are invoicing an amount that falls below $10,000 a month, a lot of invoice factoring companies will not be able to assist you. Many of the companies only deal with fairly larger orders. You need to let the invoice factoring company that you are considering working with know what your company’s monthly volume normally is.
How many customers should you invoice at one time?
A lot of invoice factoring companies prefer that you invoice more than one customer at a time. This way they cut down the risk of not receiving payments for the invoices that you sent to them. If your contract with the company included a recourse clause you you may have to pay the invoice factoring company back the money that they rendered to you if they could not collect.
Ensure that you have your aging report on hand in order to show it to an invoice factoring company
Your aging report is extremely vital to an invoice factoring company. This report will show the rate of your businesses cash flow. An accurate detailed summary stating your account receivables that you have coming in each and every month will show factoring company how much money your company is generating. The better your company looks in the eyes of your factoring agent, the more money you can expect to see from your invoices.
When Is It the Right Time to Obtain Business Invoice Factoring?
If you run a business that consistently caters to the credit needs of your clients, there may come a time when cash flow is extremely tight. Many people that deliver goods or offer services to larger commercial and government firms can find themselves waiting sometime 30 to 60 days before receiving payment for the services that they rendered.
When your immediate cash flow that is supposed to be circulating through your business has depleted, you need to consider business invoice factoring.
How will business invoice factoring assist my business?
Business invoice factoring will give you an ample amount of funds that your business needs in order to remain operational. Often times waiting an extended period of time to receive money for your invoices can be extremely frustrating, especially when you have already performed the tasks that were requested of you.
An invoice factoring company will be more than willing to buy your existing account receivables from you for a discounted price. By selling your invoices to the company at a lower price you are able to obtain the funds that you need in order to run your business.
What about obtaining a bank loan to assist my business?
You can always opt to obtain a bank loan to assist your business. However, chances are slim that you will get approved for the loan, or upon getting approved that you will be able to get the amount of money that you are hoping for.
When you factor your invoices you are not putting your business into any means of debt. You are simply using your businesses invoices to get money for the services that you have already performed. After your customer pays the amount that they owe on their invoice, your transaction with the factoring company is done.
When you get a bank loan you will have to pay on that loan on a monthly basis for a prolonged period of time. This can in turn cause your company to fall subject to an immense amount of debt.
Business Invoice Factoring versus Purchase Order Financing
Meeting the cash flow demands of a business can be a trying prospect for even the savviest of business owners. Depending on the type of business and the clients that you are dealing with, it is normal to extend a few days of credit to the customers. Unfortunately, until the outstanding amount is received, the company is ‘invoice rich but cash poor.’ In the meantime, if there is a pressing need for liquidity the only option in front of the business owner would be to opt for a bank loan or to consider investments from a venture capitalist. Both options have their fair share of drawbacks. While liability is the main concern with loans, you will be handing over decision making rights to a third party investor with venture capitalism.
On the other hand another common situation is when goods have already been sold to customers in return for a small advance but they have yet to be delivered. However, the business may lack liquidity to fund the purchase of resources required to manufacture the products. This is where two innovative options to get funds come into the picture: business invoice factoring and purchase order financing.
Business Invoice Factoring:
Business invoice factoring is easy to procure and terminate. The perquisites to qualify are fairly standard. You must have credit worthy clients and you should have no primary claims on your account receivables. If these two perquisites are met, it can take as little as twenty-four hours to get the funds that you need with invoice factoring. The amount of money that you receive or cash advance will depend on the value of the invoices that are provided as the collateral. Normally, you can receive between sixty-five to ninety percent of the invoice value primarily, and the remainder is paid after the payment is received with a deduction of three to five percent, which is the factoring fee. The business has to incur no liability like in a loan. Also the business has no hand in collecting the dues. The factoring company takes complete responsibility of bill collection.
Purchase Order Financing:
PO or purchase order financing is a good way to replenish the cash flow for companies dealing in import, export, distribution and manufacturing. It is a short term funding option which can be used to purchase resources or manufacture goods that have been presold to the customers. Through purchase order financing you can either get a letter of credit or actual funds that will help you to procure the items that you need to complete the orders.
Why Business Invoice Factoring is Better Than Taking Out a Business Loan
If you are seeking out a business loan, you may want to think twice before you do. There are many businesses that are begging to be approved for business loans all over the world. In reality, business loans and lines of credit are common practices. Unfortunately, they are extremely difficult to obtain.
In certain instances invoice factoring may steer your business in the right direction when compared to obtaining a business loan. There are three main things that you must take into account when it comes to factoring invoices.
The first thing you need to ask yourself is, “Is waiting on slow payments hurting your business?” The second question that you should ask is, “Are you turning away sales simply because you lack more working capital?” And the last thing that you should ask yourself is, “Does your business has sufficient growth potential?”
If you answered yes to all of these questions, then factoring invoices will steer your business in the right direction.
Here’s a little background on business invoice factoring.
Factoring is based on assets that you already own. Therefore, it does not have the limits that many bank loans have. The larger your business grows, the more funds that you will be able to obtain. Therefore factoring will benefit your company by supplying the much needed funds that it needs to expand.
Upon sending invoices for your company, you simply duplicate the invoice to give to a factoring company. The factoring company will then either accept or reject the invoice, and if they accept the invoice, they will give you a percentage of the invoice value.
After you sell your invoice to the factoring company, they will then be responsible for collecting the funds from your client. The client will not longer be in debt to you, but to the factoring company. The transaction is complete when you sell your invoices to the factoring company. Factoring decreases your business liability.
Unlike bank loans, there are no contracts or long waiting periods in factoring invoices.
TCI Business Capital is proud to be the top invoice factoring company in North America. Our invoice factoring programs provide a cash-flow solution to thousands of companies in a variety of industries.
- Oilfield Factoring Services
- Factoring for Staffing Agencies
- Trucking & Freight Factoring
- Factoring for Telecom and Wireless Contractors
- Factoring Programs for Utility and Pipeline Contractors
- Factoring for Renewable Energy Contractors
- Factoring for Government Contractors
- Factoring for Technology and IT Service Companies
- Factoring for Construction Companies Factoring for Sub Contractors
- Factoring Solutions for Companies in Many Industries
BlueVine gives small businesses a flexible line of credit to run their business or an advance on their invoices to meet payroll, buy supplies or grow.
- Get larger credit limits
- Fund only what you want
- Free up your cash
- Transparent fees
With traditional factoring, A/R financing and asset based lending, altLINE accelerates your cash flow and allows you to invest into your business.
- Facility Services
- Food and Beverage
- Professional Services
- Textile and Apparel
- Oil and Gas
- Janitorial Services
- And Many More!
Triumph Business Capital is an invoice factoring company that provide advances on your outstanding invoices.
- Invoice Factoring for Trucking Companies
- Invoice Factoring for Freight Brokers
- Invoice Factoring for Staffing Companies
- Invoice Factoring for Oil and Gas Companies
- Invoice Factoring for Government Contractors
- Invoice Factoring for Small to Mid-Sized Businesses
Bibby Financial Services is the UK’s leading independent invoice finance specialist, currently providing cash flow funding for nearly 7,000 businesses.
- Security: protect against customer insolvency with Bad Debt Protection
- Convenience: check your funding at any time with our 24/7 Client Online system
- Personal: a relationship based approach backed up by our Service Promise
- Flexibility: no long-term contracts, so you can benefit from a rolling 28 day contract
- Simplicity: complete transparency with no set up charges and one simple fee
- Speed: access to cash within 24 hours once your account is up and running
BlueVine gives small businesses a flexible line of credit to run their business or an advance on their invoices to meet payroll, buy supplies or grow.
- Easy to get started
- Flexible by design
- Dedicated advisors
Commercial Capital LLC offers competitive factoring, supplier financing and purchase order financing plans. 1.15% rates.
- Improves cash flow
- Allows you to offer 30-day terms to clients
- Is easy to get
- Offers a flexible line that grows
Strategic Capital offers numerous business financing programs to small and midsize businesses. Our experienced team of capital advisors will help you select the right funding solution for your business needs.
- A+ BBB Rating and 5 Star TrustPilot Rating
- Strong and Robust Industry Partnerships
- Simple repayment terms
- Approval in as fast as 1 hour
- Commitment to our client’s goals
- We’ve completed the research for you
- 84% applicant approval rates
- Funding in as fast as 24 hours
As a leading invoice factoring company, PMF Bancorp has funded 1000s of businesses over three decades, in solving their working capital needs.
- Competitive Prime Plus Bank Pricing
- Competitive Advance Rates
- Credit Insurance / Letters of Credit
- Financing for Foreign and Domestic Invoices
Carter Funding Corporation has been providing Business Factoring solutions for clients since 1994 with simple answers to their cash flow needs.
- Same Day Funding
- Factoring Rates Starting at 1%
- 24/7 Online Reports Access
- Up to 90% Advance Rates