How to Choose the Right Factoring Company
What Does Factoring Invoices or Invoice Financing Mean?
An In-Depth Look at Invoice Factoring for Your Business
A Guide about Receivable Factoring or Invoice Discounting for Business Owners
Table of contents
- How to Choose the Right Factoring Company
- What Does Factoring Invoices or Invoice Financing Mean?
- An In-Depth Look at Invoice Factoring for Your Business
- A Guide about Receivable Factoring or Invoice Discounting for Business Owners
- Summary: A Factoring Invoices Guide
- Businesses Sell Their Invoices for Cash Flow and Bad Debt Protection
- What is Invoice Factoring?
- Should My Business Factor Invoices?
- The Factoring Service Agreement with the Factoring Company
- How Does Factoring Work?
- Invoice Factoring Benefits
- Choosing the Right Factoring Company
- How Much Does Invoice Factoring Cost?
- Do You Qualify for Invoice Factoring?
- Recourse vs. Non-Recourse Factoring (What is Best for Your Business?)
- Why is Bankers Factoring one of The Best Factoring Companies?
A Comprehensive Guide to A/R Financing through Non-Recourse Invoice Factoring
Summary: A Factoring Invoices Guide
Factoring invoices or selling your accounts receivable (A/R) to invoice factoring companies is a form of financing that allows business owners to get paid faster for the invoices on completed services or delivered products. This means you get cash in hand much sooner into your bank account, which can help your business expand and succeed. In this guide, we will answer all your questions about invoice factoring so you can decide if this business financing suits your company’s needs versus a bank loan.
Bankers Factoring (Bankers) also has an Invoice Factoring FAQ for all factoring terminology and definitions.
Businesses Sell Their Invoices for Cash Flow and Bad Debt Protection
Small Business Owners sell their outstanding invoices to a factoring company to finance operations, payroll funding, and expansion projects. It is a standard commercial financing service for businesses without using a bank. Factoring removes cash gaps, allowing your business credit to improve and acquire more customers. Cash flow management is essential when you extend credit terms to your customers.
Non-recourse factoring with the best company, Bankers Factoring, protects businesses by taking the credit risk when you are extending customer payment terms. Bad debt protection is possible with non-recourse factoring, allowing companies to sell A/R confidently. We think non-recourse invoice factoring works the best for small business,
Contact Bankers Factoring today to develop a customized cash flow management plan that supports your sales and growth plans.
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 allowing 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?
Should 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 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 lays out the guidelines and rules of your relationship with your factoring company, outlining how they will work with you weekly and monthly.
Bankers customizes each client agreement to fit your business needs and industry standards. For example, if you are a staffing agency with Net 30-day terms versus a big box wholesale vendor with Net 90-day terms and payment issues, there will be considerations for your unique situation in each factoring agreement.
How Does Factoring 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.
The factoring process is quick, easy, and efficient. The 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 verification.
See related article: How Invoice Factoring Works
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.
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.
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).
Improved cash flow management.
Selling invoices makes your cash flow pattern more predictable. Factoring helps business owners allocate free cash to payroll funding, sales, and business development. We collect all payments.
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
Choosing the Right Factoring Company
When choosing a factoring company, you want to select a company with an established financing history. It is essential to know that your factoring company is dependable, professional, and trustworthy.
When finding and choosing the best factoring company, Bankers Factoring, our clients enjoy the following:
- Length of time in the factoring business
- Offers bad debt protection with free credit checks
- 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 factor 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 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
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
Do You Qualify for Invoice 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 against your 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.
- 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%.
Related Article: 8 Requires to Qualify for Invoice Factoring Services
Recourse vs. Non-Recourse 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.
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
Why is Bankers Factoring one of The Best Factoring Companies?
Bankers Factoring helps grow businesses through innovative cash flow management solutions and consistent capital funding. Our non-recourse services provide the cash you need to take advantage of market opportunities.
You also read which is better, recourse or non-recourse factoring.
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.
You can also read what are invoice factoring services.
Our simple application process, fast approval, fast first funding, and great customer service are the reasons we have so many positive reviews in the factoring industry and our accounts receivable financing. The funding experience at Bankers is second to none when it comes to invoice factoring services. In this high-interest rate environment, A/R factoring makes even more sense.
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,