Invoice factoring is a service provided by alternative financing companies that involves selling your outstanding invoices in exchange for cash, notably known as factoring. The factoring company or “factor” purchases an outstanding invoice, and advances a percentage of that invoice. Additionally, the factoring company will handle payment collection of the invoices directly with your customers. Invoice factoring services provide many benefits for a business, but there are qualification requirements to keep in mind when applying for invoice factoring.
One of the most important requirements for invoice factoring is fully and accurately completing an application. Factors typically request invoicing volumes and other personal information. The more detailed information you provide, the more accurate and seamless the beginning steps will be. The industry of the applying company, along with the type of customers invoiced, will help a factoring company determine whether to move forward with the transaction or not.
Unlike a traditional bank loan, a business’s credit is not a major factor for approval. Instead, they consider the credit risk of the clients they invoice. The main reason for this – the clients will pay the factoring company directly, and do not want to risk nonpayment. It would be in a business’s best interest to consider which customers have solid credit, reputable relationships, and honor debts to get approved.
Factors tend to be more interested in your client’s credit worthiness than yours.
An accounts receivable aging report lists out any unpaid invoices, notes, and credit memos. This is an important document required for factoring. Factors will typically use this document to track what outstanding invoices you have, how much is owed, and when they will receive payment. This report may also be referred to as a schedule or schedule of accounts receivable.
One obvious – yet extremely important requirement for qualification is having invoices to factor. Without any unpaid invoices, you will not be approved for factoring services.
Without invoices to factor, you will not be able to factor.
A factoring company will also require a government-issued tax identification number (in some cases your business utilizes an individual’s social security number). They will use this number to verify your organization’s tax status, along with verifying if your business has any outstanding lien(s).
Many factors may not transfer money to a personal bank account. They tend to wire money to business-only accounts or ACH (Automated Clearing House) transfers. Simply put, if you would like to receive funding from a factor, you will need to have a business bank account.
Factoring companies want to ensure the organization they will potentially work with is financially healthy and sound. To do this, your organization may be requested to illustrate financial reports. These include, but not limited to: Profit & Loss or Income Statement, a Balance Sheet, Aging reports (A.R. & A.P), and bank/deposit account statements. The more readily available these documents are, the most swift and efficient the application process is for your business.
Once a factoring company receives your application, they will tell you what other information they need from you. It is helpful to be prepared for their requirements – the earlier you send the factoring company all documentation, the sooner you can get paid!
Invoice factoring has numerous benefits and can help you grow your business with extra cash in hand. At CapFlow Funding Group, we provide instant liquidity with limited paperwork required.
Alternative financing is funding provided for businesses outside of traditional bank loans. Alternative lenders offer a range of financing products with flexible requirements. Traditional bank loans tend to be a lengthy and difficult process to qualify for. Fortunately, there are other opportunities available for businesses with some alternative financing strategies.
Invoice factoring is an alternative financing process where a business sells their invoices to a factoring company. In exchange for selling their invoices, the factoring company advances a large percentage of the money owed to the business. They also directly manage payment with your customers. Once the invoice has been completely paid off, the factoring company will send you the remaining balance, minus a small factoring fee for their service.
Invoice factoring provides businesses with immediate, ongoing cash flow. This will allow businesses to meet their short-term financing needs instead of having to wait 30-90 days to receive payment on invoices. Furthermore, credit score, collateral and loan history are not a major factor in getting approved for factoring. This makes receiving funding much faster and more flexible.
Crowdfunding is another alternative source of funding that allows for businesses to raise money from investors. Through the use of social media and crowdfunding websites business owners have the potential to meet investors and raise funding. This strategy allows businesses to raise money without resulting to venture capital investors. However, if the funding goal is not met, any finance that has been pledged will be returned to the investors.
With crowdfunding, businesses rely on marketplaces to provide funding for their operations.
With a merchant cash advance, an alternative finance company provides businesses with a lump sum upfront, which is then repaid with a percentage of the business’s sales. This option is best for small businesses that need immediate capital. A traditional MCA is structured where the provider deducts a daily or weekly percentage of your debit and credit card sales until the advance has been fully repaid. This funding can be provided within 24 hours and repayments can be adjusted according to how your business is performing.
Another type of alternative financing strategy is revenue-based financing. Revenue-based financing is a loan that a business pays back with a part of their future revenue. This strategy helps businesses successfully raise the capital needed without sacrificing their equity or any collateral. It also does not involve interest payments – repayment is a predetermined amount plus a flat fee. Monthly payments increase or decrease to match the natural fluctuations of a business, meaning you will not be burdened by payments you cannot afford.
Benefits of revenue-based financing include it being cheaper and more flexible than other funding options, your business will retain more ownership and control of your business, there are no personal guarantees, payments are flexible, you may have a faster funding timeline, and more.
As a small business owner, you may have done research on or taken advantage of the funding options offered by alternative finance providers. During the process, you may have heard some mention of referral programs but dismissed it because you thought it didn’t apply to you. However, you don’t necessarily have to be a banker or lender to participate in referral programs for small businesses. Many alternative lenders welcome referrals from small business professionals such as lawyers, accountants, business consultants, and more. If this piece of information piques your curiosity, it’s time to learn more about how your business could benefit from one of the many referral programs for small businesses.
It can be disheartening to watch one of your clients or business colleagues struggling to obtain funding. Whether you’re a lender that’s unable to provide traditional funding or a small business professional who has a client seeking funding, referral programs for small businesses can be the perfect solution. Not only do you get the satisfaction of helping your clients get the funding they need but participating in a referral program can provide you with a few other benefits as well.
For business professionals outside of the banking industry, helping clients obtain funding may be outside of their normal services. However, going the extra mile can go a long way in cultivating customer loyalty. Customers that feel you are truly interested in their success will not only continue to do business with you but they can become your biggest advocates. Positive word of mouth and online referrals can increase your customer base and boost your brand awareness. By participating in referral programs, you are investing in growing your own business as well as your client’s business.
One of the most obvious benefits of taking part in an alternative finance referral program is getting paid. Commission structures may vary depending on the provider but commission on referrals to alternative finance companies can provide additional income. Even though the Idea of earning a commission on referral sounds appealing, some business owners are leery of partnering with an alternative financing provider, fearing it might become too involved and take time away from their own business.
The truth is that with most referral programs for small businesses, you can choose the level of involvement you’re comfortable with. There are three basic types of referral partnerships. The first is simply making referrals. This can be the best option for those business owners who want to help their clients get funding without having to take time away from their own business.
The next level of referral program would be an ISO (Independent Sales Organization) program. With this type of program, you work with the alternative finance provider to sell your client the appropriate funding solution and deliver the completed funding agreement to them. While this is a bit more involved, it pays a larger commission.
The third and most involved type of referral plan is platform partnerships. These programs are primarily aimed at banks and allow them access to the alternative finance provider’s application processing software. If the application doesn’t meet the bank’s criteria for approval but does satisfy the provider’s requirements, they pay a fee to the bank and silently provide the funding. The client gets the funding they need, the bank retains the client, and both the bank and the alternative funding provider generate revenue for their respective businesses.
Now that you understand the different types of referral programs for small business and their benefits, all that’s left is to choose the right alternative funding provider to partner with.
Capflow Funding Group is an alternative finance company specializing in factoring. Our referral program is open to businesses or professional individuals as well as banks. If you have business customers who require financing that falls outside of your services and think we could help, contact us today. Let’s work together to get your clients the small business financing they need.
Do you have clients in need of small business funding that you can’t provide? If you’re a bank loan officer, accountant, business consultant, financial advisor, lawyer or similar type of professional, you’ve probably found yourself in this situation. When searching for client funding solutions, you may want to consider forming a partnership with an alternative finance company.
Although the economy is on the rebound and the demand for small business funding on the rise, the financial crisis of 2008 has caused traditional funding options to be in short supply. The typical small business loan is around $500,000. Processing these smaller loans costs just as much to process and yield less profit than larger loans. For this reason, many traditional financial institutions have scaled back on the number of smaller loans they approve.
As a result, there has been an increase in alternative finance providers and the funding options they provide. Many also offer referral programs and partnerships. These enable professionals to connect clients with a provider that is much more likely to be able to approve their funding.
Partnering with an alternative finance provider is beneficial for everyone involved. Your client receives the necessary funding, the provider gains new business and you not only receive financial compensation but you create a stronger relationship with your client. Most alternative financing companies offer a variety of options that allow you to provide beneficial client funding solutions. Depending on your profession and the level of commitment you want to make, you can choose the option that works best for you.
Referrals are a great way to start working with an alternative finance company and involve the least amount of time and commitment on your part. If you have a client who has been struggling to get small business funding, you would simply refer them to the company you are working with and your work is done. If funding for your client is approved, you will receive a referral fee. Fee amounts and payment procedures vary from provider to provider.
Once they experience the benefits of being able to offer client funding solutions, some professionals choose to become an ISO (Independent Sales Organization). With an ISO program, you would actually help your client choose the appropriate funding options and guide them through the application process. Working in conjunction with the alternative finance company, you would complete the funding agreement and deliver it to your client. More work – yes, but with a bigger reward. As an ISO you would receive a commission that would be more than a referral fee.
The previously mentioned programs would work for most professionals but platform partnerships are better suited for banks and other traditional financial institutions. The alternative finance company would work with the bank as a “white label” provider which is like being a silent partner. They would process the application using their digital software. but it would be done as a service of the bank.
The application is evaluated by both the bank and the finance company’s criteria. The bank will provide the loan if the application meets their criteria. If it fails to satisfy the bank’s criteria but meets the finance company’s requirements, they will provide the funding. The financing company receives the income generated by providing the funding while paying the bank an incremental fee. In addition to that fee, the bank retains the relationship with a client that they normally wouldn’t have been able to fund.
Alternative finance partnerships can help you gain more clients, create long-term relationships, increased customer satisfaction, and a new ongoing residual stream. CapFlow Funding Group offers programs that range from simple referral relationships to fully integrated programs in which you choose your level of involvement. Contact us and let’s talk about working together to provide client funding solutions.
When looking to obtain small business financing, the first place a business usually goes is to their bank. While most business owners would prefer to work with their own bank, the odds of being approved for a traditional bank loan are not always the most favorable option. In addition, a traditional loan may not be the most effective type of financing for your specific business needs. In an effort to serve customers that don’t qualify under the bank’s underwriting criteria or whose financial needs fall outside of traditional service options, some banks have formed partnerships with alternative finance companies. JPMorgan Chase & Co. and WSFS Bank of Delaware Valley are just a couple of the traditional lending institutions venturing into this new territory and more banks are evaluating the benefits of partnering with alternative finance companies, especially for small business financing.
When banks and other traditional lending institutions partner with alternative finance companies, all parties benefit. Banks are able to expand their offerings, alternative finance companies expand their customer base and small business financing becomes more accessible.
Banks
In general, small business loans are not the most profitable instruments for banks. In fact, many banks lose money on these types of loans, either from one-time costs such as origination and underwriting or ongoing expenses like loan operations, review, compliance, and monitoring. However, small business represents a segment of the customer base that provides a high level of deposits and a consistent income from both the business and the business owner. Not retaining this segment of the customer base would be a lost opportunity.
Partnerships with alternative finance companies enable banks to provide alternative small business financing options while improving operating expense ratios, increasing revenue and enhancing the customer experience. They also allow the bank to take advantage of financial technology, commonly known as fintech, without the huge upfront expense of building their own technology platform. Fintech offers a swift, more in-depth analysis of creditworthiness, giving banks the ability to make better financing determinations in significantly less time than traditional methods.
Small Businesses
By partnering with alternative finance companies and leveraging the power of fintech, banks can provide their customers with more small business financing options and a faster application process. The expanded and accelerated access to financing provides business owners with working capital when they need it most. This not only enables the businesses themselves to take advantage of growth opportunities as they arise – business growth benefits and strengthens the community as well.
Alternative Finance Companies
As previously mentioned, forming partnerships with banks and other traditional financial institutions offers alternative finance companies access to a larger customer base. Although alternative financing has existed for quite some time, the gap in small business financing caused by the recession of 2008 created a surge of alternative lenders and financiers. Not all of these were trustworthy, and some sullied the reputation of the industry, making business owners leary its services. Today’s partnerships help restore that reputation as those seeking financing feel confident working with an alternative financing company via their bank or trusted financial institution.
There are a few different ways to partner with alternative finance companies. Banks can take advantage of fintech as a third-party software-as-a-service, typically referred to a SaaS, or they can purchase assets originated by an alternative financier. One of the most common ways is to engage in a referral program. These programs offer additional revenue from referral fees, little up-front investment and the ability to build and retain a lasting relationship with your customers.
Capflow Funding Group is an alternative finance company specializing in factoring. Our referral program is open to businesses or professional individuals as well as banks. If you have business customers who require financing that falls outside of your services and think we could help, contact us today. Let’s work together to get your customers the small business financing they need.
