Invoice Factoring: An Alternative Business Financing Solution

invoice factoring

Many business owners look to a bank to fund their businesses. A loan or line of credit might seem like the best option. But what if you don’t have time to wait? What if you’re not approved? What if you need more capital than they can give you? An invoice factoring company could be your solution.

Factoring companies provide working capital through accounts receivable financing programs, also known as invoice factoring. The process works by selling your open receivables to the factoring company for immediate cash.

 

Invoice factoring is pretty simple. Here’s how it works.

  1. You provide your product or service and complete your invoice as usual.
  2. Instead of sending the invoice to your customer, send the invoice to your factoring company.
  3. The factoring company advances you a percentage of the invoice total immediately, typically 80-90 percent.
  4. The factoring company sends the invoice to your customer.
  5. Once your customer pays the invoice on the agreed terms, the factoring company remits the remaining balance back to you, less a fee.

 

What types of companies use invoice factoring?

A variety of businesses can benefit from invoice factoring, but the common denominator of why businesses use a factoring company is to obtain a steady cash flow. Factoring companies eliminate the wait on customer payment and pay you immediately on your invoices. You’ll no longer wonder when you’ll get paid. Factoring gives you the cash you need to pay your bills, meet payroll, and invest in new resources.

Businesses that do not qualify for bank financing or can’t obtain sufficient funding from a bank also use factoring as they can easily qualify. Factoring is based on your customers’ credit history rather than yours.

From start-ups to well established, growing businesses, invoice factoring can provide the cash your company needs to succeed.

 

RELATED ARTICLE: 5 TIPS FOR FINANCING YOUR NEW BUSINESS

 

FAQs About Invoice Factoring and Factoring Companies

Q: How much does factoring cost?
A: Factoring companies charge a fee for their services. This fee varies based on how long it takes your customer to pay, your invoicing volume, and your industry. Most factoring fees range from one to five percent.

Q: How do I qualify?
A: If you invoice other businesses on net terms, you can easily qualify for factoring.

Q: Does factoring add debt?
A: Unlike a loan or line of credit, factoring does not create additional debt.

Q: Is invoice factoring right for my business?
A: If you answer yes to any of the following questions, invoice factoring can provide you the working capital your business needs.

  • Are you waiting to get paid?
  • Could you use the working capital that is tied up in your open receivables?
  • Are you passing up on new work because you don’t have the cash to grow?
  • Is your credit less than perfect or maxed?
  • Did the bank turn you down?

 

 

About the Author: TCI Business Capital

Since 1994, TCI Business Capital has provided invoice factoring and accounts receivable financing solutions to companies across North America. We specialize in a variety of industries, including oilfield, trucking, staffing, renewable energy, telecom, and more. Our month-to-month financing programs range from $50,000 to $20,000,000, giving businesses the ability to grow.


Featured Opportunities

Related Stories