Invoice factoring, also called “accounts receivable financing,” is a form of asset-based funding that allows business owners the ability to get quick cash flow from unpaid invoices. Sometimes, outstanding invoices take 30, 60, or even 90 days to be paid — which can be a problem for businesses that need cash now. Invoice factoring allows your business to get quick capital back into your operation through an advance from AdvancePoint Capital. Your accounts receivable acts as collateral, which means you can get an advance fast.
What Is Invoice Factoring?
When we take a closer look at invoice factoring, you’ll discover how AdvancePoint Capital can help your business succeed. An invoice factoring company offers an alternative route to the funds your business needs to succeed. Whether you’re dealing with a poor financial history, short time in business, or you’re tired of dealing with traditional funding options — invoice factoring offers a different approach you can take to get the cash flow you need now.
If your business deals with a constant influx of invoices, you already understand how difficult it can be to live on the edge of whether or not a customer pays. Day-to-day operations rely on these payments, and when invoices begin to pile up, your cash flow situation becomes a gray area. That’s where invoice factoring comes into play.
Through invoice factoring, you’re able to collateralize invoices in exchange for a loan from a factoring company. For roughly 85% of the total amount of the statement, you’re able to get cash flow fast. What about the remaining 15%? Well, factoring companies hold this amount in reserve. A portion of it will be returned to you, and the rest is subject to factoring fees and processing fees. These fees are dependent on how long it takes a customer to pay and are calculated based on a weekly schedule.
The convenience of invoice factoring comes down to two main factors:
- You need fast cash to keep your operations running smoothly. This offers a way to deal with outstanding invoices by trading a portion of their total for cash on hand.
- You’re unable to receive funds from traditional institutions like banks or other lenders. Because lenders are primarily concerned that the customer pays for the statement, you essentially become a third party. The company with outstanding invoices receives the brunt of credit inquiries and other qualification pressures, perfect for those with poor credit or limited time in business.
Why you should consider invoice finance to help your cash flow:
- Unlimited capital
- Factoring is fast and easy
- Factoring helps build business credit
- Retain your equity
- Detailed management receivable reports
- Leverage expertise of an invoice factoring company
- Invoice factoring is NOT a BUSINESS LOAN, so there’s no debt to repay
- Enhance your purchasing power
- Small businesses are eligible
It can be frustrating to wait on slow-paying invoices, so why not get the cash you need now? Those who are growing know — you’re constantly keeping up with your customers, and it can be frustrating to deal with clients who don’t pay on time. It turns into a snowball effect: delayed payments block up your sales funnel, where funds get cycled back into your company right away. It can be a huge step back from providing great service to your own clients.
We see this issue far too often here at AdvancePoint Capital, which is why we offer some of the best invoice factoring opportunities available. As your factoring company, we can offer a different approach to getting paid for your invoices fast. Skip the wait and give it a try.
How Does Invoice Factoring Work?
Step 1. Invoices Are Issued to Clients
The first step in the process is pretty straightforward. A statement is created to bill a client based on an order that has been completed, letting the client know how much they owe for the order and when payment is due. This is also called the “net” terms.
Step 2. Submit Invoices to Factoring Company
The invoice is then sent to the invoice factoring company for review and processing based on the terms of the invoice factoring agreement. This can be done by an online management portal that the invoice factoring company has, or through a designated email.
Step 3. Getting the Advance Payment
Factoring companies will process and verify the sent invoice(s) that are being “sold” to them and will then give you the advance payment, typically worth 80 to 90 percent of the total bill, depending on your invoice factoring agreement. The advance payment is the first payment, the immediate cash you get as the business owner of the invoice.
Advance payments are made by an Automated Clearing House (ACH) via direct deposit to the business owner’s bank account. If you need the money sooner than an ACH, you may ask your factoring company to send you the payment via wire transfer as an alternative to ACH, which can take a business day or two.
Step 4. Collecting on the Invoice From the Client
Invoice factoring companies are responsible for the collection of the outstanding invoices submitted. Invoices are payable within a certain period. At some point, the client must make the payment to the factoring company based on the net terms that the invoice factoring company approved before the process begins. When the client has paid in full, the factoring company receives the money and the invoice is settled with the client.
A schedule of accounts and accountability of all invoices being advanced are usually available with an online portal provided to the business owner by the Invoice Factoring Company. Sometimes, smaller Invoice Factoring Companies may email the “daily schedule of accounts” which lists the invoice(s) that the business owner “sells” them, the amounts, and the due dates of invoices.
Step 5. Business Owner Receives the Remaining Funds From the Invoice
When the invoice has been paid in full, the business owner receives the remainder of the invoice proceeds, less the Invoice Factoring fee(s) set forth in the business owners Invoice Factoring Agreement.
Invoice Factoring Means Instant Cash Flow
If you could trade your outstanding invoices for instant cash, would you? Well, that’s how invoicing finance opportunities come into play. Essentially, invoice factoring allows you to utilize an outstanding invoice as collateral. Yes, there are processing fees and factoring fees — so it can be an expensive option. However, company after company has used this funding option to their advantage to get a more predictable cash flow solution.
Perhaps you’ve hit a rough patch in your business — this happens all the time. Or maybe you’re running low on capital. Whether it’s getting started on an upcoming project, handling taxes, or making payroll, cash on hand is crucial for running a company. If you have outstanding invoices, you’re missing out on the capital you need to keep your operations running smoothly. Invoice factoring can give you peace of mind and help you continue to grow your business and take care of your clients.
Funding and Fees of Invoice Factoring
Invoice factoring is a simple method that small business owners like you can utilize to tackle bills or immediate costs. There are fewer qualifications required because the risk to the lender is less than alternative payment options. However, there are still fees and restrictions involved with invoice factoring.
This type of funding solution works through processing fees and factoring fees, which requires a bit of math to understand. Let’s explore an example of how you may experience invoice factoring.
Let’s pretend that you have a $10,000 invoice value with 30-day terms — how might this scenario turn out?
- AdvancePoint Capital gives you 90% of the total invoice amount, equaling $9,000, while holding the remaining amount, $1,000, in reserve.
- Once the invoice is paid, the clients then pay the finance company (AdvancePoint Capital) an expenditure fee of 3% ($300).
- The factoring fee is applied, which in this scenario is 1% per week — for two weeks.
- After that two weeks are up, the 2% factoring fee equals $200.
- The factor company (AdvancePoint Capital) pays the customer back the money that was held in reserve, which is $1,000.
- You’ve paid $500 of your original $10,000 invoice for an immediate payment of $9,000 from the lender.
In our example, you can see how this is a sound option for quick funds, especially when your company is strapped for capital in the short term. Additionally, if you’re looking ahead to the future and see better finances on the horizon — this is a great way to mitigate immediate cash concerns for your small business.
Is Invoice Factoring Worth the Cost?
The answer to this question depends on your business. You may be thinking that the costs associated with invoice factoring are steep. Well, if you need quick funds for your business, invoice factoring may be the best option. Say you need money to make payroll or complete some much-needed renovations for your business, then invoice factoring may be a sound choice, and lender’s fees may not look too shabby.
Really, it comes down to weighing the pros and cons of your business’s current financial circumstances. If quick cash flow could drastically affect your business — a fast capital alternative from outstanding invoices can be a great way to move forward.
As a business owner, you need to make sure that you consider all of the possible financial avenues you can take for your company. Whether it’s by taking a close look at the statement amount, the number of outstanding invoices, or how bad the cash flow situation is — a little research and help from a factor like AdvancePoint Capital can make a significant impact.
Features of Invoice Factoring
Invoice factoring has many unique benefits and features that small business owners can take advantage of for their company. This funding solution removes the painstaking process of waiting for invoice payments — because these outstanding invoices act as collateral for future cash flow. Plus, the funding is based on the credit score of the invoiced business, which gives businesses that may be struggling with their own credit history the opportunity to receive funding.
This financial product allows you to finance up to the full amount of the invoice that will be advanced. The lending company is charged with managing the collection of payments from the client or customer, which means you don’t have to worry about collecting the invoice collateral yourself. It’s a simple and flexible option for small business owners looking for an ideal quick-fix funding solution for their business.
If you need cash flow fast, use your unpaid invoices through invoice factoring. In as little as one business day, you can have the advance in your bank account and ready to be used for working capital, renovations, or whatever your business needs are. Factor costs are typically between 1% and 3% of the invoice total — plus any other processing fees and payment terms. It is all dependent on the company you work with.
The fast, convenient and straightforward way to get the money you need for your business – now!
Get your quote today by filling out our simple form.
What are the Qualifications of Invoice Factoring?
It’s simple, really. Any business that has a B2B model with outstanding receivables can qualify for invoice factoring. This funding opportunity is far different from most advances and loans because it doesn’t rely on the business owner’s revenue, time in business, profits, or personal credit history. So, it’s perfect for small businesses struggling with credit issues or that just started up and don’t necessarily have the years in the industry to receive traditional funding.
Lenders are not nearly as concerned with these traditional qualifications with invoice factoring. Instead, they take a deep look at the statement itself, because it is the collateral they will use to advance cash to your business. If you’re curious about the amount you’re able to qualify for with invoice factoring, you’ll need to look at your invoices as well. The advance maximum is based upon the total amount and quality of the unpaid invoices — with a slight look at your creditworthiness.
Generally speaking, lending companies look for an average monthly account receivable ledger of around $50,000 from the business owner. However, exceptions can be made to account for a wide range of variables depending on the lender.
Finance companies will take an in-depth look at the consumer’s creditworthiness that is on the invoice rather than the business owner who is receiving the advance. A finance company is far more concerned with the credit of who is on the invoice bill because they are the ones who will be making the payment.
What is Required to Apply for Invoice Factoring?
Because invoice factoring utilizes such a unique methodology, it’s actually easier to apply and qualify for. Since the collateral is in invoices rather than in assets of the business owner, the person paying back the lender is responsible for creditworthiness and other qualifications. To apply for invoice factoring and eventually get approved, you must provide the following:
- One-page application
- List of names of businesses and contact info you are invoicing
- Accounts Receivable Ledger
- Actual invoices and their terms
Eligibility for invoice factoring is much laxer than alternative forms of funding. Invoice factoring is a great option if you have unpaid invoices and you’re looking for a fast funding option for your small business.
- A simple one-page application
- A/R and A/P reports
- No Credit Checks for Business Owners
- A Line of Credit up to $2.5M
- Receivables due in up to 90 days
- Free up cash trapped in bills
If you need money fast and don’t want to deal with the complex issues plaguing alternative forms of lending, invoice factoring is a great way to get the money you need for your business now.
Fill out our simple form and get your quote today!
Approved for Invoice Factoring — What’s Next?
Once you’re approved for invoice factoring, you will get a “Letter of Intent” or an “Approval Terms Disclosure.” These documents describe the terms and fees of the invoice factoring relationship and are important statements you should know about.
The following items may be covered in the Letter of Intent or Approved Terms Disclosure:
This would be the total amount that can be advanced off of invoices. This amount would be similar to a credit limit for a business line of credit.
This percentage is the approved net collectible value of each amount Invoice Finance Companies elects to purchase. Typical agreements are up to 80% to 90%.
This details the receivable management services and responsibilities of the factor. This should include credit management, collections, cash application, and access to real-time online reporting.
A service fee may be charged with the face amount of each purchased account, for the first 30, 45, or 60 days aging typically; and then a different percentage for each set amount of time thereafter. Typical fees range from 1% to 2% within net terms and the .5% or more beyond net terms thereafter for a future set amount of time.
This non-refundable documentation and due diligence fee may be charged to a client at the time of acceptance of the proposal or offer, usually between $250 to $500.
A percentage of the maximum advances per month. This is only charged if the difference between the monthly minimum fee and the fees actually paid if the monthly minimum fee is greater. (This fee is typically 1%)
Invoice factoring companies may require audits from time to time, in which clients agree to pay invoice finance companies for all reasonable out-of-pocket expenses for performing such an audit.
Lists the term of the agreement or contract. Usually 6 months to 1 year.
Usually a first priority perfected security interest in client’s accounts, invoices, chattel paper, contract rights, general intangibles, books and records, and all proceeds of the foregoing are required.
Any other conditions that might affect agreement.
The business owner(s) should expect Personal Guaranty from the principal shareholder(s); Corporate Guarantees from any parent entity and all wholly-owned subsidiaries, if applicable.
Additional Key Features of Invoice Factoring
- Deal size is $100k to $10 million
- Advance rate is 80%- 85% (we can do 90% for staffing and trucking)
- Pricing depends on volume (example: $2 million volume, we can price it at 1.5% for 30 days, 2% for 45 days, 2.5% for 60 days)
- Pricing is 1% to 3% depending on the risk
- Most of our factoring facilities are non-recourse
- Recourse is an option for healthier companies (profitable with strong guarantors)
- We can work with IRS tax issues, poor credit, etc.
- Terms can go out 120 days and exceptions to 150
If you’re a business owner who charges clients through invoices but needs cash flow fast, invoice finance opportunities are a great way to get the money you need. Small businesses can leverage their unpaid invoices through invoice factoring and get the money they need.
Regardless of the invoice amount, you can get the cash you need in a pinch for renovations, working capital, and more with AdvancePoint Capital’s invoice factoring. Invoice factoring could be a perfect option for those who have had difficulties obtaining other types of business loan products.
Discover how you can qualify for one of the best loan products for small businesses through the invoices your customers haven’t paid yet. Invoice factoring is a perfect way to get cash fast.
Frequently Asked Questions About Invoice Factoring
Invoice factoring can be used for a wide range of industry needs. Whether it be payroll, taxes, expansion, renovations, or getting started with an upcoming project —invoice factoring from a trusted factoring company can get you capital fast. If you rely on customers to pay their invoices, this type of funding may be right for you. Plus, there are no hidden fees as everything is laid out on the table from the get-go.
Well, invoice factoring uses your outstanding invoices that customers haven’t paid yet as collateral. This means that these customers are the ones that are looked at when an Invoice Factoring Company checks for credit histories and time in business. The amount you pay for your loans depends entirely on the invoice amount, as it’s subject to various processing fees and factoring fees. Invoice factoring is a great alternative to traditional business loans for a company that has outstanding invoices from its customers.
Factoring companies take out a percentage of the total amount of the invoice, which is held in reserve and is subject to various processing fees and factoring fees. These factor fees can be something like 1% per week until the customers pay. However, once customers pay, the factoring company pays back what they held in reserve, minus the amount they deducted for processing and factoring fees.
Recourse factoring means that the vendor bears the risk if the customers do not pay the invoice back. In non-recourse factoring, the factor, not the vendor, absorbs the credit risk. This means that if the customers go bankrupt or the invoice doesn’t get paid, the factor has to pay the invoice. Because the factor is providing credit protection for a portion of the invoice in this instance, the amount of risk the factor takes on depends on how much of the invoice the customers are likely to pay.
Non-recourse and recourse factoring both take advantage of a factor and factoring agreement to get paid. When customers have left invoices unpaid and your business needs working capital, a factor can help. Depending on the total invoice value and your customers ability to pay, you can get the funds you need from the factor.
Spot factoring is when a business sells an individual invoice at a discount rate to a third party, also called a factor or spot factor company. A factor may be used by a company when they need just funds from just a single invoice, versus multiple invoices on a rolling basis. Selling invoices to a third party is one way to get the cash your company needs. Spot factoring simply refers to business owners selling one statement at a discount rate to get paid.