Confectionery Shop Owner

WHAT IS INVOICE FACTORING?

Invoice factoring, also known as accounts receivable factoring, is a form of small business financing where a business sells its invoices to a factoring company in exchange for upfront funding. When the invoice amount is paid by the customer, the remaining balance is paid to the business owner minus a fee.

Invoice factoring allows you to receive the working capital you need to maintain operations and plan for the future, but without taking on the periodic fixed payments associated with a term loan. If slow-paying clients are stalling your ability to pay bills or meet payroll, invest in technology and equipment or hire more staffing, invoice factoring can help you bolster cash flow by liquidating your outstanding accounts receivable to meet your business needs.

 

Fast Financing For Your Business

After submitting your invoices to the lender for invoice financing, you’ll receive the amount of the invoice minus a percentage as payment. Once the client pays you, you satisfy the agreement with the lender. While it may be helpful to have the lender collect unpaid invoices on your behalf, understand that you will have less control over the collections process and that your clients may become aware of your cash flow shortages.

 

Invoices

Small business owners sell outstanding invoices to a factoring service (the factor) at a discounted rate. The factor advances a lump sum up to 95% of the value of the invoice.

 

Collections

The factoring service then proceeds to collect all payments directly from the clients of the small business. 

 

Imbursement

The factoring service sends the remaining balance to the business, minus any fees, which is typically an agreed-upon percentage.

No Upfront Costs

 

Invoice Factoring Details

Qualifying Criteria:

Required Items:

  • 700+ credit score

  • 6+ months in business

  • $10,000+ average monthly bank deposits

  • Signed one page funding application

  • 3-5 most recent business bank statements

  • Invoices you wish to redeem

No Collateral Requirements

 

Advantages

  • Invoice factoring provides a safe, immediate source of cash flow by releasing working capital that is tied up in unpaid invoices.

  • Having a lender collect invoices for you can help you save time spent on administration and chasing late payments.

  • Factoring provides flexibility as amounts can expand and contract with your sales volume.

 

Disadvantages

  • Invoice factoring companies will verify your invoices with clients to ensure that they are accurate. Including a third party can affect customer relationships and also means that you will have to give up some control.

  • If your client has a weak payment history or credit score, it may affect your approval.