What does Receivable Factoring Mean in Business?
Don’t Wait for Customers to Pay their Invoices. Use Invoice Factoring.
Table of contents
- What does Receivable Factoring Mean in Business?
- Is factoring invoices good for my business?
- The accounts receivable (A/R) factoring process is simple:
- What is invoice factoring, and how does it work?
- Should I factor my invoices?
- How much does it cost to factor invoices?
- Advantages and Disadvantages of Invoice Factoring
- The pros and cons of invoice factoring are worth considering carefully.
Is factoring invoices good for my business?
Invoice factoring means what it sounds like: you get money for your invoices or accounts receivables (AR). This allows your business to access cash without waiting for customer payments. Nevertheless, what exactly does this mean? How does it work? And is it right for your business? Let us look at invoice factoring and how it can help grow your business.
The accounts receivable (A/R) factoring process is simple:
- You sell your invoices to Bankers Factoring, who pays you immediately (within 24 hours) instead of waiting for your client to pay you.
- We buy your invoices at a slight discount starting at .9% to 1.5%, and provide 80-93% cash advances.
- Once your customers pay us, we pay you the open invoice balance less our factoring discount fee.
Factoring ARs is the right solution for businesses struggling with cash flow management. Factor financing is easier to obtain with quick approval and funding than traditional financing.
Bankers Factoring includes bad debt protection with our Best Non-Recourse Factoring Company program. Submit an Online Funding Application to receive fast cash today and let Bankers provide credit protection for bad debt expenses.
What is invoice factoring, and how does it work?
Invoice factoring allows businesses to get cash from their unpaid invoices. It is a process where you sell your invoices to Bankers Factoring. We then pay you 80%-93% of the invoice value each month until they are paid in full. Once paid in full, we pay you the remaining A/R balance, less our factoring fee.
The five steps of invoice factoring
- Your business delivers goods or services to customers
- You apply to sell your unpaid invoices to Bankers Factoring
- Bankers Factoring approves an application in 3 to 5 days
- You set up your factoring account and, on the same day, receive up to 93% cash advance
- Bankers Factoring collects customer payment, releases your open balance, and charges a factoring fee
It is not like selling off your business. Factoring allows you to sell an asset that has value (your invoices) to another business and obtain financing. It provides working capital for companies that need additional money. Still, you must take on debt and keep ownership of the company.
Related article: What is invoice factoring, and how does it work?
Should I factor my invoices?
If you are considering invoice factoring, ask yourself the following questions:
- Do I need a cash infusion?
- Can my business afford to wait for payment on invoices?
- Have I been denied loans or credit lines from the bank?
- Is my credit bruised?
- Can I consistently meet payroll funding requirements?
If the answer to these questions is yes, invoice factoring could be a smart move for your business.
Factoring invoices benefits your business by:
- Providing working capital within five days of your application
- Qualifying your funding based on your customer’s creditworthiness
- No hidden fees or costs
- Injecting reliable and consistent cash flow into your business
Related article: Why Sell Your Accounts Receivable?
How much does it cost to factor invoices?
Factoring fees are typically between 1.5% and 2.5% of the invoice amount. Bankers Factoring fees start from .9% to 1.5% helping business owners free up more capital. The factoring fee is also called the discount or factoring rate.
Factoring fees relate to the receivable amount and credit risk, not your company’s value or performance. Discount rates are independent of your company’s financial condition or credit rating.
There are a few ways factoring rates are structured:
- Flat fee: a one-time fee when your customer makes an invoice payment
- Split fee: different factoring rates based on daily, weekly, or monthly accrual schedules. For example, a 2% discount rate for the first 30 days and 1% per additional week after.
- Daily fee: factoring rate charged daily upon funding
Related article: How Much Does Invoice Factoring Cost?
Advantages and Disadvantages of Invoice Factoring
- Quick cash funding source
- Factoring is a mainstream financial tool used by businesses in all industries.
- Does not require strong credit scores – poor credit businesses and owners qualify.
- Bankers Factoring Non-recourse Factoring offers credit protection. We cover bad debt expenses if your customers declare bankruptcy or cannot pay their bills.
- Factoring funds are available for all business expenses, including payroll, taxes, rent/lease, and vendor bills.
- Greater flexibility to make payments on time and access more capital when you need it
- Financing line to help you offer extended payment terms
- People who do not understand factoring give it a bad reputation
- If you can access bank lines of credit or loans, your long-term cost of factoring could be more expensive
- Relying on your customer’s creditworthiness only to find out they do not qualify
- Factoring fixes your cash flow issues, but there could flaw in your business model
The pros and cons of invoice factoring are worth considering carefully.
If you are considering this financing solution, it is essential to consider the pros and cons of this option. While it can be a good way for your business to access capital, it has some drawbacks.
- Businesses use invoice factoring mainly because they need cash more quickly than traditional financing options can provide.
- Using this form of funding allows companies to get paid earlier to get their money back from sales on credit terms quickly.
- Companies can use factoring finance to fund growth plans
Bankers Factoring Invoice Factoring
Invoice factoring is an excellent financing option for small businesses. It can provide credit for your business and increase cash flow when needed. With easy-to-understand factoring rates and fees, the Bankers Factoring process is simple, easy, and fast, which makes it an excellent choice for many people looking for funding options today.