Invoice factoring is a type of financing that allows wholesale and distribution companies to get cash quickly. A wholesale/distribution company can sell its outstanding invoices to a third-party financial institution, called a factoring company.
Wholesale and distribution companies can sell their invoices to the factoring company at a discounted rate. Instead of waiting for their customers to pay the outstanding invoices. The factoring company will then advance a percentage of the total value of the invoices to the company. This advance is usually between 70-90%. Once the financing company receives payment from the customers, they will deduct the advance amount and their fees due at the time of payment, and the remaining amount will be paid to the wholesale and distribution company, also known as the reserve amount.
This financing option is particularly useful for wholesale and distribution companies because they often must wait for extended periods for their customers to pay their invoices, which can create cash flow problems. By selling their invoices to a factoring company, these companies can get immediate access to cash. This can be used to cover expenses such as payroll, inventory, and equipment purchases.
Invoice factoring can be a useful tool for wholesale and distribution companies looking to improve their cash flow, manage their credit risk, and streamline their collections process. Here are some of the advantages:
1. Improved cash flow: Invoice factoring provides immediate cash flow to the company. This allows them to cover expenses such as payroll, rent, and inventory purchases without waiting for their customers to pay their invoices.
2. No debt incurred: Invoice factoring is not a loan, so wholesale and distribution companies do not incur any debt. Instead, they are selling their outstanding invoices to a factoring company. Meaning, there are no monthly payments or interest charges.
3. Easy qualification: Invoice factoring is easier to qualify for than traditional bank loans because it is based on the creditworthiness of the company’s customers, not necessarily the company itself. This makes it an attractive option for companies that have a limited credit history or poor credit scores.
4. Flexible financing: Invoice factoring is a flexible financing option, allowing wholesale and distribution companies to sell as many or as few invoices as they need. This means they can adjust their financing based on their cash flow needs.
5. Outsourced collections: The factoring company takes over the responsibility of collecting payments from the company’s customers, freeing up time and resources for the company to focus on other areas of its business.
Invoice factoring can help wholesale and distribution companies cover expenses such as new technology and equipment.
There are certain necessary steps that wholesale and distribution companies should follow in order to apply for factoring services and potentially benefit from improved cash flow, flexible financing, and outsourced collections. To start, companies should research factoring companies that specialize in providing financing to wholesale and distribution companies. Look for companies that offer competitive rates and have a track record of working with similar companies in the industry. Once you have identified a few potential factoring companies, submit an application. The application typically requires information about your company, such as financial statements, accounts receivable aging reports, and customer information.
After this, the factoring company will provide you with a proposal that outlines the terms of the factoring agreement, including the fees and rates charged. If you agree to the terms, you will sign a factoring agreement. Once the agreement is in place, you can start submitting invoices to the factoring company for financing. The factoring company will advance a percentage of the invoice amount to you, typically within 24-48 hours.
Overall, the application process can vary depending on the factoring company and the specific needs of your business. However, by following these steps and working with a reputable factoring company, you can quickly access the financing you need to grow your wholesale or distribution business.
Invoice factoring has become one of the alternative financing options that businesses of all scales turn to for additional funding. May it be for an investment or budget augmentation, invoice factoring is a good option to raise any funds needed.
Import and export companies likewise turn to invoice factoring. In this article, we will learn more about import-export factoring, how it benefits these companies, how it works, and the process of application. Let us dive right in.
Import-export companies are generally large companies with transactions from all over the world. Given its magnitude, it is bound to need more funds for business expansions and unexpected finances to keep the company going. Here are the benefits of invoice factoring to import-export companies.
Import factoring offers to fund businesses situated abroad intending to do business in your local area. Others find this kind of funding risky, but as the adage goes: high risk equals high rewards. Import factoring generally begins on a higher beginning mark, from $200,000 to $300,000. By resorting to importing factoring, these companies can have additional capital without incurring any debt, and therefore, removing the need to open a line of credit with banks.
Export factoring helps to fund export companies without the need for any security instrument or collateral other than the outstanding invoices that the company has. It gives wide elbow room for working capital improvement and reduces the risk of bad debts. This way, you gain access to additional financing for the business and at the same time, take advantage of supplier discounts available.
The process of import-export factoring involves advancing the cost of outstanding or unpaid invoices of import and export companies. The companies turn over their unpaid invoices to factoring companies. In turn, these companies release the invoice amount minus a small portion of the processing fee. The factoring company now assumes the businesses’ role as the creditor of the customers whose invoices were sold.
They will now be the ones to collect the outstanding amounts for the businesses’ customers. In this funding scheme, import-export companies would not need to wait long for the release of funds. Unlike the lengthier process that traditional banking institutions take. The funds could then be used to support the needs of the company – from payroll payments to operation and other overhead expenses.
Different factoring companies have their own process when it comes to import-export factoring applications. Briefly, here is how it works:
1. The import-export company should have a reliable and established international client, with good credit history.
2. The business and the customer should iron out the details of the transaction. Once the details are threshed out, the company then issues an invoice for the transaction.
3. The company now fulfills its end of the transaction by shipping the goods and making sure that all the necessary paper works were taken care of.
4. The company now goes to the factoring company with the invoice together with the other documentation needed (insurance premium receipt, bill of lading, etc.). These documents will now be verified, and the customer’s credit history will now be checked. Since we are talking about international transactions here, it will take more time than usual for local factoring transactions; however, the turnaround time is still quick.
5. Once the approval comes through, the company can expect the release of the funds within 24 to 48 hours.
The process may vary slightly, depending upon the protocol of the factoring company. This is but an overview of what you can expect from your application. Invoice factoring alongside other alternative financing schemes is here to be maximized. Know your options and explore more to get the best for your business.
Companies who need additional capital to cover unforeseen expenses, day-to-day costs, or simply cover payroll, can turn to alternative financing. Such as invoice factoring, to secure the additional cash needed.
Invoice factoring is the process of selling a business’ outstanding invoices (or Accounts Receivable) to a specialized company or lender, and that company then buying them at a discounted rate. The business receives a certain percentage of the total amount of the invoice. The factoring company now becomes the authorized payee of the invoice and authorized to collect the amount from the customer named in the invoice. In the majority of scenarios, once the payor completes payment for the outstanding amount, the remaining balance is then sent to the business minus a small fee.
With a quick and straightforward process, it is no wonder that invoice factoring is becoming increasingly popular with businesses. However, some are still wary to try this alternative because a question comes to mind: “Can we qualify for the services of invoice factoring with fair or poor credit score?” Let’s find out.
Companies that specialize in providing funding for businesses have many criteria before they approve the release of funding. Traditional banks often rely on a business credit score – its performance when it comes to loan payments and the overall health of the business. However, this is not exactly the same case for invoice factoring.
A business can still choose the services of invoice factoring with a fair or poor credit score. It can be seen as normal for a business to have a poor credit score. It may take a lot of tries for some to achieve the level of success that their business has acquired. The majority of factoring companies look will place most of the criteria on the creditworthiness of your customers – those named in your invoices. It is therefore important to have clients with established businesses and good payment histories. Keep in mind that with invoice factoring, you are selling the invoices and no debt will be incurred; therefore, having poor credit will not bear as much weight as it does with traditional business lending or traditional banks.
Once your business passed the factoring company’s evaluation, next comes the release of the funds subject to certain conditions. The terms of factoring companies are based on several items.
First and probably the most important is your business clients. Factoring companies will look at the client’s profile to see how established the company is. As well as check on their credit, trade experience, and various similar variables to see if they have a suitable record or acceptable performance. Another is the number of invoices that you are applying for factoring. They may assess the volume and the total amount of the invoice. Along with the industry the business’ client are in or buy/sell to may play a vital role as to term and conditions. This is done to assess if the business is in an industry that is volatile, or if it is in a relatively stable industry.
These items are what may affect the terms of the factoring agreement. Depending on their assessment, factoring companies may impose a higher or lower service fee. They may also decide what percentage of the invoice amount shall be paid.
In short: no, invoice factoring will not affect your business credit score. What is involved in invoice factoring is the sale of your business’ outstanding or unpaid invoices. This does not involve any debts. Therefore, since no payment of debts is involved, the credit score of the business remains untouched.
Now that we got that out of the way, we hope to have answered the lingering question in your mind. Alternative financing options are offered so businesses can maximize them to their advantage. Take the step to give what is best for your business.
In order for a business to thrive it must have all available funding at its disposal for whenever an urgent need arises. Whether it be for regularly planned spending or unexpected expenditures. This is why alternative financing options are important: these lenders are the ones that businesses often turn to when they need quick funding to keep their business moving forward.
Invoice factoring is arguably one of the quickest and best funding options for businesses across various industries. Below we discuss how invoice factoring helps different industries get the funds they need to keep their cash flow healthy.
All industries can benefit from invoice factoring: the quick turn-around time, the debt-free funding, and the streamlined approval process make it one of the easiest funding options to turn to. Here are some of the most common industries that utilize invoice factoring.
The transportation industry is very dynamic. Because of the constant change within this industry, there are generally many unexpected expenses that the business requires funding for, i.e., oil and gas expenses, the toll payments, and of course, the emergency repairs. With invoice factoring, the business can quickly and easily utilize the factoring facility to meet all the current and urgent needs of the business.
During the COVID-19 pandemic, utilization of health insurance skyrocketed. The reality is that health insurance companies do not pay on time. Yet hospitals and other healthcare facilities need timely payments to continue to offer the best healthcare services and to keep the institution running in a stable manner; healthcare facilities cannot wait for insurance companies to pay them before continuing the services. Factoring companies can partner with healthcare institutions to provide funding for immediate needs, or for greater opportunities that would enhance the healthcare facilities’ services, and/or equipment.
The oil and gas industry is a massive enterprise. It is an enterprise that requires substantial funding, both for planned expansion and unexpected expenses. These businesses usually plan for expansion in the future, and invoice factoring for oil and gas companies could surely give a boost to companies in this industry. Normal business operations for these types of companies require funding for unexpected equipment issues in addition to plant maintenance which requires a significant amount of funding. Invoice factoring can provide the business with that funding in 24 hours.
The staffing industry is the backbone of all industries as they supply the manpower that other industries require. Staffing companies generally have an urgent need for cash. They specifically need to sustain their payroll on an ongoing basis to ensure that the business stays afloat. Invoice factoring for staffing companies assists all businesses in this industry.
If you think about manufacturing companies, the first thing that comes to mind is the volume of products or items being produced on a daily basis. Companies that produce a significant amount of products generally experience a shortage in their day-to-day funding, especially when there are unpaid invoices from their distributors. However, production should not be put to a halt because of that, especially when orders continue to come in. Invoice factoring can assist by providing the necessary funds through the sale of their invoicing.
Invoice factoring can help manufacturers purchase large equipment, pay employees, and more.
The telecommunication industry is one of the most costly industries in terms of daily overhead expenses. There is equipment maintenance and repair, payroll, and security, to name a few. If one or more of these needs cannot be met by the companies existing cash flow, it could cause complete chaos for the business. Invoice factoring provides the necessary cash flow for telecommunication businesses so they can continue to provide their services without interruption.
With invoice factoring’s versatility, government contractors can also benefit from this type of funding. As long as the contract with the government stipulates that the invoice could be assigned to a third party. Then, government contractors could benefit from invoice factoring. While government invoices are legitimate and verifiable, they usually have non-standard payment terms. In most cases the contractor cannot wait for those funds to come to term. Instead of waiting for the invoice to mature and pay, a factoring company can purchase those invoices upfront and wait for the payments to collect so the contractor can continue to conduct its business in a timely manner.
Invoice payments for landscaping enterprises usually have lengthy terms. Most landscaping businesses have more than one project going on at any given time so there will always be a need for consistent funding if they are going to expand the business at some point. While the landscaping enterprise can offer shorter payment terms, or simply require payment upfront, it could potentially lose their customer base which is also trying to manage their expenses by taking advantage of invoice payments with long terms. Invoice factoring can provide the landscaping enterprise with consistent funding so it can continue to offer extended terms to its customers.
Consulting firms are project-based businesses that rely on consistent income to keep the business running. However, payment is not always straightforward; sometimes it takes 30 days to 60 days upon completion of the project before payment is due to be made. However, payment to suppliers in the meantime cannot wait. Invoice factoring for consulting firms could help by providing the necessary funds needed to pay suppliers and allow the consulting firm to take on new clients and projects.
The agriculture sector is an essential part of the economy. A healthy agriculture industry is a sign of a developed nation. However, our farmers, especially small farmers, need to meet all of their obligations from many different suppliers at once: from fertilizer to seeds, to equipment, and many others. These expenses generally cannot wait for invoices to be paid. Invoice factoring can help farmers by providing the necessary funding so they can sustain their cash flow by providing timely payments to their suppliers.
As stated earlier, invoice factoring can assist almost all industries. Invoice factoring is a very versatile product, and with its quick turnaround time in funding businesses, every industry is sure to reap the benefits of it.
Most industries can quality for invoice factoring. All the business needs to do is complete and provide the necessary paperwork requested by the factoring company. It is important that the business provides all of the information requested and does not hide anything. Especially from a financial standpoint. The business will also be asked to provide a list of its current customers. It is extremely helpful if the business has credit-worthy customers and good payers that are already established. As it can assist in the application and approval process for funding the business. At CapFlow, we make sure that your business benefits from all aspects of invoice factoring. Through our extensive funding experience and our partnerships across many different industries, we can provide businesses in all industries the funding they need to achieve their organization’s success.
Businesses typically have urgent and unexpected needs that would require additional financing. When the need arises, it’s usual for companies to turn to traditional banks for the funding that they need. However, with the advent of alternative financing, more options are now available to businesses. One of the more popular alternative financings is invoice factoring.
To those not yet familiar, you might be thinking: “What is invoice factoring?” Invoice factoring is the process of “selling” a business’ invoice to a factoring company, which will then pay the amount of the invoice to the business less a small portion as a fee. Now, invoice factoring and bank loans are both used by businesses as a means to the same end: funding. Businesses need funds to keep their cash flow smooth and to keep abreast of all their dues and payments. In this article, we will get to know each of their advantages and understand what sets one apart from the other.
When it comes to accessibility, invoice factoring brings much to the table for businesses, especially for small and start-up businesses. It has a comparably quicker turn-around time from application to approval. After the factoring company confirms that your customers are creditworthy, the release of the funds would come next. Moreover, unlike traditional bank loans, you will not have to deal with high-interest rates or monthly payments. The factoring company releases the amount to you in bulk and then withholds a certain portion as their fee. This way, the factoring company becomes the new creditor of your customers as they will be the ones who will collect the outstanding amount from them.
Stability is the strength of traditional banks. Thus, while there are many alternative financing options these days, many businesses still rely on bank loans for their financing. Businesses that are looking for steady income streams in the future can take advantage of the installment schemes that banks have to offer. Moreover, the amount that you can loan can depend on your business assets and other factors. In the event your business encounters any unforeseen circumstance that would prevent it from paying the loan in the schedule agreed upon, you can have your account restructured in such a way that would be beneficial for you and the bank. This way, you will not have a bad record with them.
After we have explained the benefits of both financing options, we now look into the differences.
In invoice factoring, the application is easier. So long as you have outstanding invoices with customers that have good credit standing, factoring companies should not hesitate to do business with you. On the other hand, banks do not fund businesses as easily. Often, banks favor established businesses with good credit records over businesses that just started. Also, having assets that can be used as collateral could be a tremendous help in nudging the bank to approve the loan.
Invoice factoring is a streamlined process. Businesses would need to fill out the form and provide all the needed information, as well as attach the list of their customers for the background check. Banks, on the other hand, have a set of requirements that you need to comply with, such as bank statements, a list of creditors and customers, etc., after which a background check will be conducted to verify the business’ creditworthiness – all before the loan will be released.
Both fundings would inject much-needed funds into the business. However, with invoice factoring, you will not have to pay any interest and thus there are no additional costs to the business. Moreover, since the approval is quicker, it would be a major help in case the business need is immediate. We can now see why invoice factoring is used to improve cash flow by many small and starting businesses. On the other hand, funding from a bank would mean the business would now incur debt. Nevertheless, if the business has a sure stream of income in the future, then taking in the loan would not disturb the business’ cash flow.
CapFlow Funding can provide you with the invoice factoring service that you need. Not sure about invoice factoring and would like to explore other options? CapFlow offers other options as well. Reach out to us and let us have a conversation about what is best for your business.
With their stringent requirements and high-interest rates, small to medium-sized businesses are having a hard time securing a loan from traditional banks. Good thing that there are alternative financing options that businesses now can avail of to get the funding they needed.
What, then, is alternative financing? Alternative financing means obtaining funding from non-traditional funding or non-bank institutions. It has a different process of approving credit or funding, and the terms and conditions are different than those of a traditional bank. It caters to businesses of all magnitudes but small to medium-sized businesses could leverage the advantages that alternative financing brings.
While alternative financing has been around for quite some time already, there are still some misconceptions about it due to a lack of exposure to the products. Let us discuss here to dispel these misconceptions.
Small to medium-sized businesses are wary to try alternative financing because of the myth that they need to have high margins to be able to have access to these kinds of financing. This is definitely not the case. An alternative lender caters to businesses of all sizes, including small and medium-sized enterprises. Others even prefer small businesses as clients. Don’t let your current business margin faze you!
This myth is the one that stops small to medium-sized businesses in their tracks. But the truth is, alternative financing employs a more streamlined process. While traditional banks would require good credit standing, some alternative financing would not even look at credit scores in screening your business. Some would only require a list of your current customers, or even expected revenue streams. Seeing as these requirements are not difficult to provide, it’s easy to say that small to medium-sized businesses could opt for alternative financing easily.
Traditional banks usually have regulators that oversee their business. Seeing as these alternative financiers are not banking institutions, it’s easy to understand why many would think that they are unregulated. However, this is far from the truth. Transactions involving alternative financing involve contract and commercial laws and require adherence to federal and state laws regarding financial transaction disclosures and other regulatory issuance.
Credit scores pertain to your ability to meet your obligations to your creditors. A good credit score means that you were able to pay your dues on time and maintain a good record with your banks. Credit score entails your ability to pay your debts; alternative financing on the other hand is revenue-based financing, without the business incurring debts. Since there are no debts involved, transactions involving an alternative lender would not in any manner affect your credit score.
These alternative financing options fill the gap that traditional banks leave: they provide the much-needed funding for small to medium-sized businesses that are not qualified to avail loans from traditional banks, or even if qualified, are unable to do so due to a myriad of factors. It gives these businesses a lifeline that they can hold on to to be able to pursue their business goals, as well as access to additional funding for any immediate or urgent needs of the business. This is why these common misconceptions should be put to rest so more businesses would be encouraged to try and explore these alternative options.
There are already lots of alternative financing options out there that businesses can consider. Bearing in mind what’s best for the company. Here are some options:
Invoice financing – this alternative financing involves the sale of a business’s unpaid invoices to factoring companies. They pay a certain percentage of the invoice amount to the business.
Merchant cash advance – under this financing, the business owner receives a lump sum amount from the financier. In return, the business owner will pay the financier a certain portion of its revenue from credit card and debit card sales.
Credit card splits – in this financing, businesses can have a credit card split agreement where the financier will provide a lump sum amount for the business’ urgent funding needs. In return, the financier will have a portion, or “split,” on payments made to the business using a credit card.
These are but a few examples of alternative financing that are available for businesses. Moreover, it is not uncommon nowadays for banks to partner with alternative financing providers. This way, businesses need not navigate on their own to find the best funding that would suit their needs. For businesses, now is the best time to explore and get to know more about these alternative financing options.
Behind a successful business is good cash flow. However, this may not always be the case, especially if a business has many outstanding invoices. Invoices are normally payable in 30, 60, or 90-day terms. Sometimes even longer. These long waiting periods can disrupt a business’s cash flow, which, in turn, affects the business’ performance.
This is where invoice factoring comes in. Invoice factoring is the process of selling a business’s unpaid invoices to a factoring company (also known as the “factor”). In the process of selling a product or providing a service to a customer, a business issues an invoice. These invoices represent the amount payable by customers to the business. Instead of waiting for the invoice to mature and collecting the amount from the customer, the business sells the invoice to a factoring company. Once a business has sold its invoices to the factor, the latter sends a notice to the customer to inform them that all payments should now be directed to them.
A percentage of the invoice is paid by the factoring company as an upfront payment. Once the customer has paid the invoice, the factor releases the remaining amount and retains a small portion, which serves as their “fee” for advancing the amount and assuming the risk.
Invoice factoring can be a good alternative for small businesses or businesses that are just starting due to lower risk and lack of required collateral. Moreover, it does not have an impact on a business’ credit standing. This gives businesses the jump start that they need in terms of funds.
Funds are the lifeblood of any business; therefore, a good cash flow is crucial to ensure the business’ healthy finances. A healthy cash flow gives a business the capacity to better manage its present and future financial goals, as well as meet its current financial responsibilities, making the business more robust and profitable. Moreover, having a healthy cash flow means having enough working capital that the business can use. Here are a few tips to help businesses ensure that they have enough working capital for the whole year:
Planning ahead and staying on top of your finances can improve your cash flow.
Businesses should be proactive. They should not stand idly by and just wait for customers to pay off their invoice dues. Invoice factoring is one of the many ways that businesses can do this. Here are the ways invoice factoring can help improve the cash flow:
The business is no longer dependent on a customer’s payments since the invoices have been sold to the factoring company. As such, they need not wait for the invoice to mature since the factoring company will pay the business upfront and at the same time, assume the risk of collecting the amount due in the invoice during maturity.
Once the invoice “sale” is concluded, the factoring company will pay for the invoices. The amount that the business receives can serve as additional working capital to further improve the enterprise.
Cash flow pertains to the money that flows in and out of the business. When you say invoice factoring is used to improve cash flow, it only means that by using the proceeds of the sale of the invoice productively, the business can optimize its business potential by taking in more customers or even consider a business expansion.
We have discussed what invoice factoring is, how it works, and how it helps in a business’s cash flow. If you have a business, this is worth your consideration. At CapFlow Funding, we treat our clients’ businesses as our own. We have many different options for your funding needs and can help you decide what is most beneficial for your needs.
