Invoice Factoring for Wholesale and Distribution companies

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.

What are the benefits of factoring services for wholesale & distribution companies?

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 for wholesale and distribution companies

Invoice factoring can help wholesale and distribution companies cover expenses such as new technology and equipment.

How to apply for factoring services

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.

How invoice factoring is beneficial for businesses 

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. 

 

Industries that commonly use invoice factoring 

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. 

Transportation 

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.  

Healthcare 

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. 

Oil and Gas 

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. 

Staffing 

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. 

Manufacturing 

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.

Telecommunication 

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. 

Government Contractors 

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. 

Landscaping 

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 

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. 

Agriculture 

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.  

More industries 

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. 

 

How your industry can qualify for invoice factoring 

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.

Two types of business financing: invoice factoring and bank loans 

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. 

 

What are the benefits of invoice factoring? 

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. 

 

What are the benefits of bank loans? 

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. 

 

The difference between a traditional bank loan and invoice factoring 

After we have explained the benefits of both financing options, we now look into the differences 

Eligibility 

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.  

The application process 

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.  

Improving business cash flow 

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. 

 

Invoice factoring with CapFlow Funding 

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. 

What is alternative financing for small-medium sized businesses? 

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.  

 

Common misconceptions of alternative financing 

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. 

You need high margins to receive alternative financing 

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! 

It is harder to qualify for alternative financing over traditional bank loans 

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. 

Alternative lending is unregulated 

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.  

Borrowing from an alternative lender will hurt your credit score 

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. 

 

Why alternative financing options are needed by businesses 

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. 

 

Types of alternative financing you may want to explore 

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. 

What is a cash reserve for businesses? 

It is important to have a contingency plan for any eventuality in your business. As the adage goes, nothing beats preparedness. If anything, this is what the onslaught of the COVID-19 pandemic taught us. One of the many ways that you could protect your business is by putting up a cash reserve. 

This pertains to the funds allocated for any emergency. Cash reserve for businesses is made specifically to prepare for any financial crisis that the company may face. Having one is important if you want your business to thrive.  

Why is a cash reserve necessary for businesses? 

Your business may face an unexpected event that would disrupt its cash flow. If that event is of a significant scale, it might have a negative impact on your payables such as your suppliers, employees (if any), and other fixed operating expenses. If you have no cash fund already set aside, your profits could be affected, or worse, might put your business in deficit already. This is why a reserve is important: these emergencies can be ironed out by the funds that it will provide, making it possible for your business to continue its operations without disruption. 

How to build a cash reserve 

A cash reserve for small businesses is something that does not materialize overnight. There is a process for building it up so you can maximize it and help your business with it. 

The process of building a cash reserve 

Building cash reserve begins with determining how much you need to save. However, it is important to keep in mind that there is no one correct amount when it comes to putting up a secured reserve. The basic practice is to add up all the necessary and fixed expenses in a month and keep a total of two to four times that amount as a reserve. These expenses can include employees’ payouts if you have any, taxes, rent, and more.

 

Evaluate your finances in order to create a cash reserve that is suitable for you.

 

Determining the size of the cash fund 

We cannot over-emphasize that there is no exact amount of cash a business needs to reserve. It depends on many factors such as the needs, nature of the business, and others.  

Here are a few things that you should be on the lookout for to determine the size of the cash reserve: 

Determine the stage your business is at:

Is your business just beginning to gain traction, or is it already established? Start-ups and established businesses have different benchmarks for reserves. Start-ups are usually conservative given that they are only beginning to gain momentum in the business and need all the resources that they could get to optimize the business operations. 

Look at your monthly cash flow

Note how much your business expenses are. It is important to factor in the expenses first before you decide on how much to allocate for a cash reserve. 

Know how much you intend to spend in the immediate future.

Keep in mind purchases of equipment, business expansion, operating expenses, and more. This will help you map out where your business is financially.  

After taking note of these things, you can now better decide how much you can and must put away for a cash reserve. 

How to maximize the use of a reserve 

They say, “The weapon is only as powerful as its wielder.” A cash reserve can only do so much if you know how to maximize it. So, here are a few tips on building a reserve: 

1. Make a habit of putting aside a certain amount every end of the week to stash in the reserve account.  

2. If there is a windfall in your business, make it a point that you also put a certain percentage of it in the reserve fund. 

3. As much as possible, avoid unnecessary expenses while building your reserve.  

4. If you have lots of business debts to pay, it may not be ideal for you to put up a large cash reserve, or anything at all. Make sure that if you have debts, it should be the one that gets paid first. Then, if the profits permit, add to the reserve. 

What is staffing factoring?

The staffing industry is responsible for supplying much-needed resources to different businesses of varying industries. This could be in the form of permanent, contractual, or temporary employees. The industry plays a crucial role as it provides businesses with the right candidates with the right skills for the right position.

The staffing industry relies heavily on a healthy cash flow for its smooth operations. Due to having many employees to take care of. However, like any other business, it needs to wait to collect its receivables from business customers for the business to move. In certain cases, it takes a week or more, or even months, before payment comes in, jeopardizing the cash flow. As a business owner, you don’t wait for this to happen – this is where staffing factoring plays in.

Staffing factoring is the process where staffing companies sell their outstanding invoice (also called “payroll funding”) to have cash in hand to deliver essential business needs and even improvement projects.

Requirements for staffing factoring

Not all industries and businesses are eligible for staffing factoring. There are certain requisites to be able to qualify, such as:

1. A proper record-keeping of invoices to demonstrate good file organization.

2. Having customers with good credit scores to show that you have good-paying clients who can meet their obligation in the invoice.

  1. 3. Good customer support system that is responsive to queries. Not only from the factoring company during credit check but to queries of customers regarding their accounts.

These are but a few of the basic requirements. Different factoring companies have different policies, so it is best to check on them first to be able to be fully compliant.

 

Advantages invoice factoring brings your staffing agency

There are many advantages of invoice factoring for staffing companies. To help convince you, here are a few of the benefits of using invoice factoring:

Increase working capital to meet expenses

Availing the service of a factoring company gives your business additional budget that provides more elbowroom for your business. The additional budget can be used as an additional working capital to pursue other plans for the business.

Business growth opportunities

As funding increases, so does the opportunity for the business to grow and expand. Having a good cash flow can give your business the security that the expansion that you have in mind can be executed. May it be in the form of new equipment, another line of product or service, or the opening of another branch.

Getting your invoices paid in days

Instead of waiting for the duration of your invoice, which usually lasts 30 to 90 days, you can get paid sooner. Once the factoring company that you applied to approves your application, you can be paid in the next few days.

What is the process of obtaining staffing factoring services?

Factoring companies pre-qualify businesses that apply for staffing factoring by assessing certain documents. These documents will help you secure the much-needed approval, so it is best if you prepare them. Accomplish the factoring company’s application form. Properly fill in the application form and provide the details requested. Remember to be truthful and as detailed as possible with the information that you will provide to make the credit check much easier.

Additionally, be prepared to provide a copy of your customers list if it is requested. Once you passed the screening, invoice factoring takes place. The factoring company then pays the business the percentage of the face value of the invoice. Upon full payment of the invoice, the factoring company releases the remaining amount. Then, deducts a certain portion as their fee for advancing the amount.

CapFlow has an experience working with different industries and believes in the benefits that invoice factoring brings to your business: a more robust and solid cash flow.

The alternative financing industry 

Like any aspect of society, the financing industry experiences fast-paced changes. Before, businesses turned to traditional financing institutions such as major banks to fund their capital expansions. However, many businesses still were unable to access this kind of financing. As such, in the past few decades, new and non-traditional financing industries emerged to address this gap. While alternative financing has been around for quite some time, it’s stepping into the spotlight nowadays because of the more stringent requirements and higher interest rates that banks are imposing. This is expected to continue for quite some time, considering that the economy has been experiencing some contractions recently, and these contractions are expected to pervade at least for the time being due to different factors. What, then, is alternative financing? What are the different funding options that businesses can consider? And lastly, what’s new with the alternative financing industry this year? Let us dive in. 

 

What is alternative financing? 

Alternative financing pertains to funding sourced from non-traditional financial institutions like a bank. Unlike traditional funding institutions, alternative financing companies have more relaxed requirements, shorter or more variable tenors, and are purpose specific.  

The realm of alternative finance offers lots of advantages, especially to small businesses. It serviced the segments that traditional funders are unable to cater to due to certain restrictions, such as requirements for collateral, credit scoring, and interest impositions.  

There are different funding options that businesses can explore. Each has a different offering and can suit a wide array of business needs. Here are a few examples: 

These are just some examples. Innovative financing options emerge in a quick fashion, driven by the need of businesses. 

 

alternative finance industry

Equipment financing offers businesses the ability to acquire necessary equipment without having to bear the financial burden of paying for it upfront. 

 

What is changing this new year in the industry? 

While it’s true that alternative financing has been around for quite some time, we will find that this new year still has a lot in store for businesses to look forward to, may it be in the line of service improvement, or use of advanced technology. 

Finance industry leaders agree that the alternative finance industry will see growth this year. With more businesses looking for alternatives to banks to fund their ventures, alternative financing will be their next option.  

On the part of the funders, technology shall play a bigger role in optimizing their operations and further improving service. While there is a predicted dip in the tech industry this year, odds are optimistic that it will be overcome this year. Nevertheless, the alternative industry’s use of technology will bring more benefits to businesses and the industry.