What Does Factoring Invoices or Invoice Financing Mean?
An In-Depth Look at Invoice Factoring for Your Business for Unpaid Invoices
A Guide to Receivable Factoring or Invoice Discounting for Business Owners
Table of contents
- What Does Factoring Invoices or Invoice Financing Mean?
- A Comprehensive Guide to A/R Financing through Non-Recourse Invoice Factoring
- Understanding the Role of Invoice Factoring Companies
- Invoice Factoring vs PO Funding
- Invoice Factoring Benefits
- Choosing the Right Invoice Factoring Company
- Invoice Factoring FAQ
- Start-Up Business Factoring Friendly
A Comprehensive Guide to A/R Financing through Non-Recourse Invoice Factoring
How Does Invoice Factoring Work? Same-Day Working Capital
Understanding the Role of Invoice Factoring Companies
Selling your unpaid invoices to invoice factoring companies is a quick way to get paid for your completed work or delivered goods. This helps you access cash faster, boosting your business growth. In this guide, we’ll answer your questions about invoice factoring so you can decide if it’s a good fit for your company instead of going for a bank loan. You trade your invoices for immediate cash in your business bank account.
A small business owner can factor all their invoices or pick and choose which invoices to factor with Bankers Factoring. You will like how small-business invoice factoring works to get you same-day working capital.
Bankers Factoring (Bankers) also has an Invoice Factoring FAQ for all factoring terminology and definitions. Small businesses use invoice factoring to quickly get money for their work, manage their accounts receivable, and protect their credit. Sometimes, people use the words “invoice factoring” and “invoice financing” to mean the same thing, but they’re a bit different. Invoice financing is like getting a loan from a bank or a lender based on your invoices. Invoice factoring is when you sell your individual invoices to a factoring company instead of borrowing money based on a group of invoices. Read more to get invoice factoring explained.
Businesses Sell Their Invoices for Cash Flow and Bad Debt Protection
Small business owners can boost their cash flow by selling their unpaid invoices to a factoring company. This helps with daily expenses, paying employees, and growing the business. Factoring is like a bank alternative for businesses. It closes the money gaps, boosts your credit, and attracts more customers. Keeping an eye on cash flow is crucial when you offer credit to your customers.
Non-recourse factoring with the best company, Bankers Factoring, protects businesses by taking the credit risk when extending customer payment terms. Bad debt protection is possible with non-recourse factoring, allowing companies to sell A/R confidently. Non-recourse invoice factoring works best for small businesses that want to turn outstanding invoices into same-day working capital.
Contact Bankers Factoring today to develop a customized cash flow management plan that supports your sales and growth plans. Learn about invoice factoring vs invoice financing.
Outstanding invoices can be stressful. Use invoice factoring to give you same-day access to cash for a small invoice factoring fee.
Related article: credit terms through invoice financing and customers about using invoice factoring
What is Invoice Factoring?
Invoice factoring allows companies to get paid faster and in advance when their invoices are due. Once your company sells and delivers goods or services, it can receive up to 93% of the invoice amount by selling it to Bankers Factoring. The process of selling invoices to Bankers (a factoring company) is called invoice factoring or A/R factoring. Factoring invoices is a way to speed up your receivable cycle and get paid the same day.
A/R invoice factoring is a commercial form of financing that allows companies to avoid costly borrowing fees from banks. Invoice factoring is available to any industry that extends credit terms to its customers.
Related article: What is Invoice Factoring, and How is Invoice Factoring Cheaper than Swiping a Credit Card versus a Factoring Fee?
Invoice Factoring vs PO Funding
Invoice Factoring Example: Selling pet toys to Walmart is your big business. You ship the toys, and Walmart loves them but pays you 90(!) days later. You can’t wait 90 days for your money (no monies for more products, payroll, rent, marketing, food), so you sell your Walmart invoices to Bankers Factoring on an ongoing basis. This is an example of Invoice Factoring.
PO Funding example: Dollar General gives you a big purchase order for pet toys, but you don’t have enough money to fulfill the order and buy the product from your Chinese or Vietnamese manufacturer. Bankers Factoring buys the toys for you or uses our credit to arrange terms with your supplier. Since you also plan to factor the invoices with Bankers Factoring, we are happy to offer you purchase order financing. That is an example of Purchase Order (PO) Funding or Bankers Trade Import Financing with Invoice Factoring.
Factoring is funding the invoice after you deliver the goods or services. PO Funding or Purchase Order Financing is when you need money to buy finished goods so you can then create a fundable invoice. A PO Funding is a difficult type of business loans to qualify for, while if you are a good invoice factoring client for Bankers Factoring, we can help with PO funding. PO funding can get you up to 80% of the invoice value.
Should I use Invoice Financing or My Business Factor Invoices?
It is one of the most common questions we get asked at bankersfactoring.com, and it is a good question.
- If you have a lot of unpaid invoices and need cash quickly, then factoring can help your current situation.
- Factoring will mitigate these risks if your customers continually pay slowly or pays short, causing unpredictable cash flow cycles.
- If your business has been around for a while and has plenty of cash flow but is looking for more liquidity to grow or a special project, then factoring may also make sense.
- If your business lacks the minimum credit score or credit profile to obtain a business loan or traditional financing sources, factoring allows you to finance your business with your customer’s credit.
- If your business extends Net 30, 60, or 90-day terms and processes weekly payroll, selling invoices can provide payroll funding to cover cash requirements.
Related Article: Why Do Companies Use A/R Factoring?
The Factoring Service Agreement with the Factoring Company
The factoring service agreement is the essential document in the entire factoring process. It outlines the guidelines and rules of your relationship with your factoring company, outlining how they will work with you weekly and monthly.
Bankers customize each client agreement to fit your business needs and industry standards. For instance, if you are a staffing agency with Net 30-day payment terms, while a big box wholesale vendor has Net 90-day terms and payment issues, each factoring agreement will consider your unique situation.
How Does Factoring Invoices Work?
Once you have entered into an agreement with your Bankers Factoring, we will purchase your invoices and collect them from your customers on your behalf. We cash advance up to 93% of these funds and payout the balance once your customers pays the lockbox. Stop stressing over your invoice’s due date.
The invoice factoring process is quick, easy, and efficient. The factoring invoices steps include:
- Sell and deliver products and services to your customers on extended credit terms.
- Submit your completed invoices to Bankers Factoring for your funding amount.
- Within 3 to 5 days of your application, we approve your funding request and advance up to 93% of your A/R value.
- Receive direct deposit into your business checking account on the same day of account setup.
- Once your customer pays its invoices, we release your remaining balance less our low factoring rate.
- All future fundings, after funding number one, are wired on the same day as the invoice verification.
- Keep sending us your outstanding invoices for same-day funding into your business bank account.
See our related article: How Invoice Factoring Works and why factoring company collects payment.
Invoice Factoring Benefits
Invoice factoring benefits companies in several ways. Here are some of the main advantages:
The ability to sell invoices for fast funding to Bankers Factoring Company.
Bankers Factoring buys your invoices at a slight discount and provides an initial cash advance of up to 93% of your Accounts Receivable’s value. Selling invoices prevents your business from waiting for customers to pay on their extended credit terms. This is a key benefit of Invoice Factoring for US Companies.
A growing guaranteed line of credit.
At Bankers, we fund your business based on your customer credit history, not yours! When applying for bank financing, there is no guarantee that you will get approved for whatever amount of money you need. The bank decides who gets loans and how much those loans are worth based on factors like your credit history and financial status.
No hidden factoring fees.
Factoring agreements clearly state the rate to acquire capital and any associated costs. Your business knows exactly how much money it can expect each time with no surprises like a factor fee plus an add-on annual percentage rate (APR). Understand your true factoring cost and make sure there are no hidden fees.
Improved cash flow management.
Selling invoices can make your cash flow pattern more predictable. Factoring allows business owners to allocate free cash to payroll funding, sales, and business development. We handle all payments, so you can avoid cash flow problems. Additionally, we conduct credit checks and due diligence on your potential customers.
Ability to grow your business.
Your business can execute sales and marketing campaigns with consistent cash flow from invoice factoring. The cash available supports advertising spending, increased staffing, and other resources to grow top-line sales.
Please read our related article: The Pros and Cons of Invoice Factoring and why use accounts receivable factoring.
Choosing the Right Invoice Factoring Company
When choosing a factoring company, you want to select a company with an established financing history. Knowing that your factoring company is dependable, professional, and trustworthy is essential. When choosing a factoring company, it’s crucial to consider what is your best choice.
When finding and choosing the best factoring company, our clients at Bankers Factoring Company can enjoy the following benefits:
- Length of time in the factoring business with great customer support and service.
- Offers both invoice factoring and PO Funding for wholesalers.
- Offers bad debt protection on unpaid invoices with free credit checks as part of our invoicing factoring.
- High advance rate with a low discount rate to fund your growth opportunities.
- Fast funding within 3 to 5 days for the first funding. It is then 24-hour funding thereafter.
- High advance rates/low factoring fee with the best factoring company customer service.
- Experience in specific industries like staffing, transportation, trucking, manufacturing, oil/gas, and wine/spirits.
- Value-added services such as non-recourse factoring, bad debt protection, and outsourced small business accounting support.
- Low cost to factored invoices with access to fast working capital.
- Real-time alerts on when the funding hits your bank accounts receivable management.
- Factoring Company offers reports and online access that are well-designed and extremely helpful with small businesses in mind.
- No unresolved or negative Better Business Bureau reviews.
- No long-term contracts, hidden fees, and an early termination fee are minimal.
- Understands your business plan and vision and sees the great company into which you will grow.
Related Article: Factoring Company: What it is and Your Best Choice, and Fast Funding Now
Invoice Factoring FAQ
How Much Does Invoice Factoring Cost?
Banker Factoring discount rates lead the industry starting at .9%. Invoice factoring fees are typically 1.6%-2.9% of the invoice amount from other factoring companies throughout the industry. The cost of factoring depends on your company’s particular situation. Key factors in your cost of selling invoices:
- The dollar amount of your receivables
- Monthly average receivables volume
- Customer credit rating or credit score requirements (not your credit score)
- Risk for your specific industry
- Invoice dilution rates, spoilage, and chargebacks
Related Article: Understanding Factoring Fees and Rates and the cost of invoice factoring.
Do You Qualify for Invoice Factoring?
Most B2B companies are great candidates for factoring. To qualify for invoice factoring, your business must meet the following criteria:
- Have verifiable invoices from B2B or Government customers with an accounts receivable aging report.
- Have no liens or UCC filings against your factored invoices, also called unencumbered invoices. If another creditor has the primary position on your business assets, most factors cannot help. Bankers Factoring offers subordination services to get your business the funding it needs.
- Credit worthy B2B customers.
- Good standing with IRS: quarterly payroll taxes (form 941), annual corporate taxes (form 1120), and personal taxes. However, we can still help if you have tax issues.
- Gross margins above 20% with your clients.
Related Article: 8 Requirements to Qualify for Invoice Factoring Services from an Invoice Factoring Company.
Recourse vs. Non-Recourse Invoice Factoring (What is Best for Your Business?)
Factoring is a standard business financing strategy. It can fund working capital, pay down debt, and provide much-needed cash flow to your company. There are two major types of factoring: recourse and non-recourse.
Recourse factoring is the most utilized form, but non-recourse factoring may be a better choice for some businesses. Bankers Factoring, the Best Non-Recourse Factoring Company, protects its clients with bad debt protection. Many factoring companies let you take the credit risk. Do you have a credit department? Probably not. That’s why we think non-recourse factoring is the best for fast-growing businesses.
In non-recourse factoring, Bankers Factoring takes on the credit risk when buying your A/R. We take on the bad debt if your customer defaults on its receivables from bankruptcy, insolvency, or protracted slow pay. Non-recourse factoring covers clients from future cash flow issues related to uncollected A/R because of bankruptcy, insolvency, and protracted slow pay.
Recourse factoring is an agreement where the client selling its invoices is responsible for bad debt expenses. This means that the recourse factor will charge you back all unpaid invoices in 60-90 days.
Nonrecourse factoring leads to excellent customer service, as no one is harassing your customers because their credit is pre-approved. It leads to better accounts receivable management and faster invoice processing.
Read our related article: The Best Non-recourse Factoring Company to sell your invoices to.
Why is Bankers Factoring one of The Best Factoring Companies for Invoice Funding?
Bankers Factoring helps grow businesses through innovative cash flow management solutions and consistent capital funding. Our no-credit risk Invoice Funding services provide the cash you need to take advantage of market opportunities.
Furthermore, you also read which is better, recourse or non-recourse factoring where Bankers Factoring takes the credit risk on your invoice funding.
Start-Up Business Factoring Friendly
Startups and fast-growing companies pick us repeatedly to make their business grow. Our tiered pricing equates to reasonable rates as you grow, as pricing is based on your client’s credit risk. Immediate cash flow will help growing companies survive and thrive no matter your business situation.
In addition, you can also read what are invoice factoring services and how it is a solid B2B or B2G funding option to improve cash flow with a low factoring fee.
Simple Factoring Invoices Application Process for Small Business
Our simple application process, fast approval, and fast first funding, coupled with great customer service, are the reasons we have received so many positive reviews in the factoring industry and for our accounts receivable financing. Additionally, the funding experience at Bankers is second to none when it comes to invoice factoring services. Moreover, A/R factoring makes even more sense in this high-interest rate environment.
The less time business owners spend chasing down checks or securing financing, the more time they have to grow their businesses. Unlike most factoring companies, we think this makes us the best factoring company. We hope this guide to invoice factoring will help you make the best decision when it comes to non-recourse invoice factoring companies in California, Washington, Local Detroit, Local Cincinnati, Local Seattle and Local Minnesota.
We fund throughout the United States, from Hawaii to New York, from Alaska to Florida. Bankers Factoring Company wants to fund your entrepreneurial dreams via invoice financing.