Invoice factoring – also called accounts receivable factoring – is a popular funding choice for businesses of all sizes. The process is simple: business owners sell their invoices to a factoring company in exchange for an immediate advance on the value of the invoices. The business can use those funds to stay current with bills and invest in growing their business and increasing their profitability.
With today’s longer payment cycles, getting paid upfront for work that has been completed opens the doors for business owners to gain competitive advantages and take on larger customers regardless of those customers’ payment terms. Factoring your invoices lets you take advantage of profitable opportunities while ensuring that you have the cash on hand to cover payroll, keep up with fixed expenses, and set aside working capital for growth and expansion.
Accelerating Payment through Invoice Factoring
In our fast-paced economy, time is money and cash flow is king. Without adequate funds to take on new customers and new projects, business owners have less money coming in and significantly risk their financial future. Think of invoice factoring as a way to speed up your cash flow:
|Slow Invoice Payment||Fast Invoice Factoring|
|After your business completes a job or delivers a product, you send your invoice to your customer, who pays you in 30, 45, 60 or even 90 days, based on the customer’s negotiated payment terms.||After your business completes a job or delivers a product, you send your invoice to your factoring company, which pays you a large advance on the invoice right away. You can have your cash in hand now.|
How fast can you expect payment? Some factoring companies will advance you the funds (typically 70 to 95% of the invoice) on the same day they receive your invoice. With invoice factoring, you can easily work with customers with long payment terms. In addition, your customers will know that you have the resources needed to complete and deliver the services or products you have promised.
Invoice factoring is a tried-and-true way to turn the funds that are sitting in your stack of accounts receivable into cash in your pocket now. The factoring company waits for the customer’s payment instead of you and you have the working capital when you need it.
Because invoice factoring companies base their funding decisions on the creditworthiness of their clients’ customers, rather than their clients’ credit scores and payment histories, business owners with low credit scores still qualify for this debt-free cash flow solution. As an added business advantage, invoice factoring helps you build your own credit score. With cash in hand to pay bills on time – and even early to take advantage of vendors’ early payment discounts, your credit ranking and business payment history will significantly improve.
Bridging the Cash Flow Gap with Invoice Factoring
Ask a business owner about the most stressful times in their work cycle and inevitably they will bring up the wait between finishing a job and getting paid for it. Those weeks or months without revenue from that job can leave you strapped for cash. Think of invoice factoring as a bridge to close that financial gap between completing work and receiving payment:
|Waiting weeks or months for payment||Getting paid now with factoring|
|You have spent money to earn money – salaries, leases, office space, suppliers, equipment, taxes, insurance and more. Yet you can’t recover these expenses and record a profit until your customers pay at some time in the future.||Factoring synchronizes your cash flow with your spending: the gap between expenses and income is closed. With upfront working capital to stay current on bills, you can focus on building your business now for a brighter future.|
In businesses with narrow profit margins, low reserves of cash, and financial challenges, this gap between completing work and receiving payment can jeopardize their operations to the point of closing their doors. Invoice factoring cuts the time between “money out and money in,” allowing business owners to turn a perennially stressful time into a productive time for planning ahead and taking on new jobs.
Unlike a loan from a bank or an online lender, you incur no debt with invoice factoring. You are simply receiving early payment for completed work rather than waiting for your customers to pay their bills. You have no payments to make each month and no money is deducted from your bank account or credit card.
In exchange for the convenience of upfront payment, the factoring company charges a small factoring fee, typically 1% to 5% of the invoice value. When the customer pays the invoice in full to the factoring company, the factoring company sends you the remainder of the amount, minus the factoring fee. Invoice factoring is a risk-free, hassle-free way to get the money that is due to you on time, every time. Many businesses, new and old, choose invoice factoring because it helps them maintain a steady cash flow.
Advantages of Invoice Factoring with Interstate Capital
When you factor your invoices with a top-tier factoring company like Interstate Capital, a leader in the industry since 1993, you can enjoy the convenience of upfront payment along with value-added benefits.
- High advance rates and low factoring fees
- Free direct deposits and one free wire transfer a week
- Approval as fast as 24 hours after your completed application
- Dedicated account manager to expedite your funding
- Easy access to your invoice payments and other records
- In-house credit and collections teams
- Expertise in a wide variety of industries
To learn more about how you can use invoice factoring to speed up your cash flow and close the gap between completing a job and getting paid for it, contact the friendly experts at Interstate Capital.