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Benefits of Factoring

What is Invoice Factoring?

Invoice factoring is a financial solution in which a business can quickly access funds by selling their outstanding invoices to a third-party company. This method, also known as accounts receivable factoring or invoice financing, allows the business to receive immediate cash flow instead of waiting for their customers to pay their invoices.

When a business chooses to factor their receivables, they transfer the responsibility of collecting the outstanding invoices to the purchasing company. In return, the business receives an upfront payment, which is a percentage of the total value of the invoices. This percentage is commonly referred to as the advance rate and typically ranges from 75% to 95%. Some providers even offer a 100% advance rate.

The invoice factoring company charges a discount rate for their services, usually in the range of 1% to 5%. This discount rate represents the fee charged by the factoring company for assuming the responsibilities of collecting the invoices from the customers. By utilizing invoice factoring, businesses can access the necessary capital to cover their immediate financial needs or invest in opportunities for growth without the burden of waiting for payment from their customers.

How Does Invoice Factoring Work?

Invoice factoring is a beneficial solution for small and medium-sized companies in various industries. With invoice factoring, you can receive immediate funds by getting a cash advance on your qualified receivables in less than 24 hours. Additionally, a non-recourse factoring program takes on the risk of bad debt, eliminating any expense from your income statement. Factors also handle debt collections professionally, allowing your staff to focus on high-value activities.

The process of invoice factoring is as follows:

  1. The invoice seller delivers its goods or services to the client and issues an invoice.
  2. The invoice seller then sends the invoice to the factoring company.
  3. The factoring company approves the invoice and purchases it at the discount rate, which is predetermined in the agreement between the invoice seller and the factoring company.
  4. The factoring company then sends a cash advance at the advance rate, ensuring that you receive the much-needed funds within 24-48 hours.
  5. Now, the factoring company takes on the responsibility of waiting for the client to pay the invoice, relieving you from the burden of chasing payments.
  6. Once the client pays, the factoring company releases the reserve amount minus its fees, ensuring that you receive the remaining funds promptly.

Furthermore, invoice factoring helps in processing invoices, reducing overhead costs, and offering better credit terms to customers without negatively impacting cash flow. It provides unlimited capital that grows with your sales and allows you to take advantage of early payment discounts. Unlike a small business loan, invoice factoring does not add debt or require monthly payments, making it easier to obtain other types of financing. To get started with invoice factoring, fill out the form provided, and one of our sales team members will assist you.

The Invoice Factoring Process

Applying for invoice factoring is a simple process that involves the following steps:

Step 1: Assess Customer Reliability

Before applying for invoice factoring, it’s crucial to ensure that your customers have a track record of paying their invoices on time and in full. Establishing the reliability of your customers is essential for successful invoice factoring.

Step 2: Gather Required Documentation

When you’re ready to apply, make sure to collect the necessary documents that the factoring company will need to review. These typically include:

  • Driver’s license
  • Voided business check
  • Bank statements from the previous three months
  • Business tax return
  • Accounts receivable aging report, accounts payable report, and debt schedule

Step 3: Submit Your Application

There are a few ways you can submit your invoice factoring application. You can either fill out a one-page application form provided by the factoring company or contact them directly via phone to initiate the application process. In either case, be prepared to provide the aforementioned documentation along with details about the specific invoice amount you wish to sell.

Step 4: Consultation with a Representative

Upon submission of your application, a representative from the factoring company will get in touch with you. They will discuss the associated fees and terms related to the sale of your invoices. This step ensures transparency, with a breakdown of all costs provided upfront, so you have a clear understanding of any fees involved.

Step 5: Approval and Funding

The approval process typically takes around two weeks to complete. Once your application is approved, the factoring company will transfer the funds to your bank account within 1-2 days. This ensures quick access to the funds your business needs to maintain cash flow.

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Immediate Funds

Immediate Funds

Receive a cash advance on your qualified receivables in less than 24 hours.

Eliminate Bad Debt

Eliminate Bad Debt

non-recourse factoring program assumes the risk of bad debt, eliminating any expense from your income statement.

Collections Services

Collections Services

Factors handle debt collections in a professional and productive manner, allowing your staff to focus on high value-adding activities.

Invoice Processing

Invoice Processing

Handling invoice processing, including posting invoices to a computer, depositing checks, entering payments, etc.

Eliminate Overhead

Eliminate Overhead

Reduce overhead costs associated with processing invoices while eliminating the overhead costs from collections.

Better Credit Terms

Better Credit Terms

Offer more generous credit terms to your customers to increase your sales without negatively impacting your cash flow.

Unlimited Capital

Unlimited Capital

Factoring is the only source of business financing that grows with your sales. As sales increase, more money becomes available to you.

Early Payment Discounts

Early Payment Discounts

If you can save two percent of your cost by paying bills within ten days, this adds up to big savings long-term.

No Added Debt

No Added Debt

Factoring is not a small business loan; there is no debt and no monthly payments to ‘muddy up’ your balance sheet and make it hard to get other types of financing.

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