Selecting the right factoring company for your business is extremely important. You must have a certain number of years in business and provide financial statements to show profitability. Qualifying for accounts receivable financing, is also more similar to qualifying for a loan. Accounts receivable financing is a form of asset based lending, more similar to a loan, where the line of credit is based on the value of your accounts receivable. Instead of selling your invoices to a factoring company, you use the invoices as collateral to get access to working capital and you remain responsible for collecting payment on the invoices.

Invoice financing, also known as accounts receivable financing, is a bit different from factoring. How Are Invoice Factoring and Invoice Financing Different? If you can’t afford to risk customer non-payment, make sure the factoring company you choose offers non-recourse factoring.

If it’s a recourse factor, the factoring company may require you to buy back the unpaid invoice. There’s no certainty the invoice factoring company will successfully collect on your unpaid invoices. If the customers have a history of late or missed payments, or if the business has weak revenue, you may not be approved for the financing. The factoring company will need to verify the creditworthiness of your customers. Customers’ Bad Credit or Weak Finances Could Derail Your Financing And the service must be completed before the factoring company will purchase the invoice. The invoice must be for a B2B transaction. The Cons of Invoice Factoring Not All Invoices Qualify for Factoring Non-recourse factoring essentially provides accounts receivable insurance, along with the cash advance. Typically, factoring companies base approval on the value of the invoices you’re looking to factor and the creditworthiness of your customers. Invoice factoring provides financing to companies that might not be able to get capital from other sources, such as a traditional bank, because of a lack of collateral, a limited operating history, or poor personal credit. You can keep loyal customers on longer payment terms but still improve your cash flow to help you grow your business. Invoice factoring can provide immediate working capital to help cover a cash flow gap caused by slow-paying customers. The Pros of Invoice Factoring Fast Business Capital Invoice factoring has some pros and cons, too. Bank loans may require a strong credit report or collateral to secure your loan, while other types of financing may ask for part ownership of your company or future earnings.

There are benefits and drawbacks to every type of financial support. In this blog post, we explore how invoice factoring is different than a bank loan. That way, you will not have to wait 30, 60, 90 days or more for your customers to pay. The net result is that your company can convert its receivables into immediate operating cash. Many refer to business factoring by several names such as receivables factoring, invoice discounting, invoice factoring and debtor financing. Invoice factoring can be an excellent option for companies that need money quickly but who aren’t able to secure a conventional bank loan. How Is Invoice Factoring Different Than a Bank Loan? Once the factor is paid, the remaining 10% of the invoice value will be paid to the contractor, minus the factoring fee. The factor sends the invoice to the customer and will collect payment in 30-60 days. The factor verifies completion of work and advances up to 90% of the invoice within 24 hours. Once his service is completed, he send his invoice to the factoring company instead of the municipality, his customer. In order to solve his cash flow problem, he chooses to factor his invoices. In the meantime, he needs to pay his employees and purchase materials for his next job. Let’s take a look at a sample invoice factoring scenario:Ī contractor doing maintenance for municipalities is billing for completed work but won’t collect payment for 30-60 days. The factoring company now owns the invoices and will collect according to the payment terms of the unpaid invoices from the customer who is being invoiced, typically 30-60 days. The factoring company provides immediate capital for those invoices. A company sells its unpaid invoices to the factoring company at a discount. Invoice factoring is a financial service used to boost a company’s cash flow.

Invoice factoring requirements