As a business owner dependent on customer invoicing, you understand how debilitating it can be when they are not paid on time. A lack of capital can lead to limited growth, halts in production, and unhappy clients - all of which can be avoided thanks to invoice factoring.
Outstanding invoices can be debilitating because they reduce the vital capital needed to maintain business operations. For this reason, it’s crucial to seek out additional finance options that can supplement office costs.
When searching for the best lending company, there are several questions to ask to ensure you get the most comprehensive understanding of their invoice financing services, factor costs, and results.
What Is Invoice Factoring?
Invoice factoring is asset-based funding that’s also commonly known as invoice financing or accounts receivable financing. When businesses have outstanding invoices, it can severely hinder daily operations if there isn't cash available. Invoices can occasionally take from 30-90 days to be paid. Instead of worrying about having adequate funding available, companies can apply for an invoice factoring advance from AdvancePoint Capital and see how invoice factoring works.
How Invoice Factoring Works: Get Access to Instant Cash Flow
This alternative financing option is perfect for any company tired of working with traditional funding options or working through lousy financial health. Day-to-day operations rely on paid invoices to meet the financial demands of a business. When invoices are delayed or pile up, this impacts your cash flow and impairs your ability to help other clients. Instead of waiting for these payments, a business can use this service to get the cash flow you need now.
If you have pending invoices, a factoring agreement is an ideal solution.
Benefits of Invoice Factoring Services
Many factors play a role in business owners choosing invoice factoring as their primary funding source.
- Retain your equity
- Access to unlimited capital
- Fast and easy process
- Aids in building business credit
- No debt to repay
- Detailed receivable reports
- Accessible to nearly every industry
Delayed payments can inhibit sales and other steps in production. If you can no longer wait for debts to be paid, it’s time to enlist an invoice factoring company to supplement your resources now.
6 Questions to Ask an Invoice Factoring Company
Now that you have a more comprehensive understanding of what factors can result in payment, knowing what to ask potential lending companies is crucial. See some different questions to ask below:
1. How Can You Use Invoice Factoring?
Invoice amounts can cover payroll, renovations, taxes, and other essential business expenses. This type of financial backing is a great option if you rely on customers paying their bills. There are no hidden factor fees or leveraging against the business, so you know exactly what to expect.
It can feel frustrating if you have hit a rough patch in your business. Maybe you’re running low on capital or resources. You still need to continue delivering to customers, so you can’t afford a stall in services.
Use this type of funding to your company’s advantage to factor in a more predictable cash flow.
Financing and Fees
Given the opportunity to exchange unpaid invoices for cash, would you take it? Time is money, and what better way to get access to cash than through leveraging unpaid invoices with minimal fees?
There are a few key features to understand regarding how to finance your business with AdvancePoint Capital:
- Our factor rate is 80%-85%, but we can also do 90% for staffing and trucking industries.
- Pricing is volume and risk-dependent, varying between 1%-3%
- Poor credit and IRS tax issues are not dealbreakers
The interest payment, or factoring fee, is usually 1% each week it takes for a customer to pay. Once the customer pays, the factoring company returns the funds held in reserve, minus factoring and convenience fees.
Non-recourse and Recourse Factoring
When selecting which invoice factoring company to work with, you must ask if they offer recourse or non-recourse factoring.
- Recourse: This invoice factor burdens you with paying the invoice value if your customer doesn’t.
- Non-recourse: These factoring companies accept the financial risk if a customer doesn’t pay.
While recourse factoring may cost less on average, it has a higher risk potential for your business. For this reason, our factoring facilities at AdvancePoint Capital are mostly non-recourse except for healthier, profitable companies.
2. What Industries Do You Work With?
If you’re new to asset-based funding, asking factoring companies what industries they have experience helping is a great idea. Whether you are a small business or a large-scale trucking company, it’s best to work with a business development representative who understands the nuances of your industry. Explore some of the many industries that AdvancePoint Capital works with below.
- Auto repair shops
- Farm and agricultural
- Non-profit organizations
- Restaurants, bars, and food trucks
- Trucking and transportation
If you don’t see your industry listed above, that doesn’t mean it isn’t eligible for assistance. Work with our team to see how we can help.
3. How Many Invoices Can You Factor?
One thing to consider is whether or not a company will have restrictions on the number of invoices they factor in. Being strapped for cash or having a bad month can leave your company uncomfortable. Therefore, it’s imperative to find a factoring company that is compliant with your needs.
When you partner with AdvancePoint Capital, you can factor in as many as you need, depending on the creditworthiness of your customer. Generally, our deals can range from $100,000 to 10 million, with terms extending from 120 to 150 days.
4. What’s the Difference Between Factoring Services and Traditional Banking?
Signing an agreement with a traditional lending institution usually has a lengthy and extensive application process that questions the owner’s financial history, time in business, and profits. All of these factors contribute to the amount you pay on your loans.
Another major drawback of alternative financial backing for unpaid debts is that they usually require collateral within the business. This can be challenging for small businesses that need the funds but can’t afford the risk of losing capital.
In traditional banking, companies need to meet many qualifications to obtain a lending contract. Now, there are specific times when using this route is necessary, especially when it comes to investing in new equipment or keeping a business line of credit for miscellaneous expenses. Factor in whether you will need additional assets for your particular industry.
When you partner with a factoring company, you sign a limited contract that isn’t as restrictive. It also leaves you open to additional finance options in the future.
5. What Qualifications Are Needed?
Qualifying for invoice factoring is relatively easy and straightforward. Compared to traditional loans or advances that focus on an owner’s credit history, time in business, and revenue, those specifics aren’t considered during factoring applications. Any company that has a B2B model with outstanding receivables can qualify for this funding opportunity.
This is perfect for small businesses with financial concerns or new start-ups who don’t meet the rigid criteria of bank funding. In fact, invoice factoring lenders aren’t as worried about traditional qualifications due to the nature of the process. Since your company’s invoices act as collateral, they determine your ability to access cash through this contract lending opportunity.
Factors to Consider
Several factors are considered during the application process that dictates the amount your business can access.
- A business owner submits a monthly account receivable ledger of $50,000 or more.
- The amount and quality of unpaid invoices determine the advance maximum.
- Financial lenders look into the consumer’s creditworthiness.
Since lenders depend on consumers to pay their bills, the creditworthiness of these clients is more important than the actual business itself. On top of these factors, you’ll need to consider whether or not this is financially beneficial for your business. The small weekly interest charges and processing fees can add up over time, so factor that into your decision.
Nevertheless, it’s still a great way to partner with a lending institution familiar with your industry's ins and outs. This partnership can immensely benefit any industry because it gives you access to a much-needed cash payment to keep your business going.
Invoice Factoring Application Process
Due to the nature of invoice factoring, you can see that it’s easier to apply and qualify for consideration compared to traditional lending facilities. The application process is relatively straightforward and includes the following:
- One-page application
- List the businesses that you are invoicing and their contact information
- Accounts Receivable Ledger (ARL)
- The invoices and their terms
You’ll also sign a contract for predetermined terms, usually between 120 and 150 days. Ask any additional questions you may have during your initial consultation.
Eligibility is more accessible than alternative funding options, which is great for those needing fast cash to cover business expenses. Now, you’ll still need to submit and sign certain required forms and information when you apply, including:
- A one-page application
- A/R and A/P reports
- Miscellaneous additional information
As you can see, there are very few stringent requirements for invoice factoring, which make it a practical solution for those with poor or limited credit. Especially for small businesses, it’s essential to free up cash trapped in invoices that could take up to 90 days to be paid.
Suppose your company requires fast money without dealing with the complicated and lengthy process of traditional funding. In that case, signing a factoring contract is a great way to access your money when needed.
6. What Does the Invoice Factoring Process Entail?
An invoice factoring company will collateralize invoices in exchange for a loan. The process works by providing 85% of your invoice and holding the remaining 15% as a reserve to cover additional convenience fees.
When you need urgent cash flow, you are essentially selling your unpaid invoices to invoice factoring companies. By utilizing invoice factoring companies over traditional banking, you can find a significant way to help your office.
How It Works
After you apply and sign your contract, you’ll receive a “Letter of Intent,” also known as an “Approval Terms Disclosure.” These documents will clarify all the terms and fees associated with this service. See a simplified version of the process below:
- Invoice the clients
- Sell invoices to invoice factoring company
- Receive your cash
- Client pays lender
- Receive the remaining cash
Get Fast Access to Your Money Through Invoice Factoring
Don’t let delayed payments block your sales production or customer service. Instead, find the best invoice financing opportunities through Advancepoint Capital to ensure your business doesn’t miss a beat.
When it comes to whether invoice factoring benefits your business, you need to factor in how urgent the need for working cash is. Many small businesses cannot cover taxes, payroll, or necessary project expenses without sufficient working capital.
Instead of worrying about whether your financial status will inhibit your access to funds, consider all the benefits of invoice factoring. Contact AdvancePoint Capital today to get your free quote!