Invoice Factoring 101 

With the emergence of alternative financing options for businesses, invoice factoring has gained more attention because of its convenient benefits to small enterprises, such as increased cash flow, improved profitability, and faster payment times, to name a few. 

For those who are not yet familiar with the concept, invoice factoring is a non-traditional type of financing wherein businesses sell their outstanding and unpaid invoices with terms to factoring companies (or the companies who provide the funds) for a discounted price.  Invoice factoring is ideal for immediate funding needs, especially for growing small businesses that are aggressively expanding and optimizing their operations.  

There are two types of invoice factoring: recourse and non-recourse factoring. Recourse factoring pertains to the agreement between the business and the factoring company where the business will be responsible for any unpaid purchased invoices that the customer does not pay. On the other hand, in non-recourse factoring, the factoring company is the one who incurs the risk; the business would not be liable anymore to the factoring company for any unpaid invoices. 

This is invoice factoring in a nutshell. Below we will explain the basic process and requirements for invoice factoring. 

How does online invoice factoring work? 

Invoice factoring online is unique from other lending products. There are a few things that a business owner should know about how it works. 

Factoring companies can provide approval to qualified businesses in as little as two-three business days upon receipt of an application.  Once a business is approved for funding and the funding documentation is submitted and approved by the factoring company, the business can usually be funded within 24 to 48 hours from approval. The businesses can then refocus on better serving their customers and avoid any payroll or other payables delays. 

It is true that invoice factoring companies do not have rigid credit score requirements. However, they still conduct credit checks on the potential client (business owner). Once they are satisfied, the factoring company can now initiate the negotiation of the terms. Including the factoring agreement with the business. Whether it is recourse or non-recourse factoring, the factoring company will send a notice of assignment to the business’ client to inform them that they will now be the ones who will collect payments on the invoices moving forward. 

As a business owner, you should engage a reputable factoring company with a history of good customer service skills. They should be able to work with and take care of the relationship that you have established with your clients. 

Applying online for invoice factoring requires little documentation and fast approvals.

How to apply for invoice factoring online 

For your business to experience the advantages of invoice factoring first-hand, you must first apply and qualify based on their requirements. 

Below is a quick guide on how to apply for invoice factoring online: 

1. Create an account on your chosen factoring company’s website and provide all the information requested. It is important to supply accurate information. 
2. Prepare a copy of the outstanding invoices you intend to factor and submit. 
3. When all the information requested is submitted, the factoring company will do its due diligence. It will evaluate all the documentation that you submitted and check the creditworthiness of your clients as well. 
4. When the due diligence is complete and you are prequalified, the terms of the factoring agreement will now be negotiated. Once both parties are amenable to the terms and conditions, the agreement will be signed. After a notice of assignment shall be issued to your clients to inform them of the new payment instructions. 
5. After the signing the agreement, and the initial factoring transaction is complete, the funds will be released to you. 

Qualifying online for invoice factoring 

You might ask: “How can I qualify for invoice factoring?” As an alternative financing option, qualifying for invoice factoring is not as strict compared to banks when it comes to requirements and the business’ credit score. Moreover, the release of funds is not dependent on collateral. What they do is collect a “fee” for assuming the risk and providing the funding upfront. The fee depends on many different factors. Such as the nature of your business’s industry, the volume and frequency of receivables for factoring, and the creditworthiness of your business clients, to name a few.  

CapFlow ensures its clients maximize all invoice factoring benefits. Reach out to us today for further information.