Even when they perform excellently and record-high sales, small businesses can struggle for cash to refill their stocks and deal with other expenses. One of the biggest problems that business owners have, especially startups, is unpaid invoices from clients.
The reality is unpaid invoices are a part of the risk of running a business. Take it out completely, and you will do more hurt than good to your business. It is frustrating to have lots of unpaid invoices, but that is the reality of doing business.
When unpaid invoices pile up, it can affect the business operations, especially when you need vital cash to pay for due expenses.
How can you solve this problem and get access to cash without piling up pressure on your clients? The best way to escape this hole is to factor in your invoices. This exercise helps you maintain a steady cash inflow for your business needs.
You can get fast cash business financing services with factoring companies, even when you have unpaid invoices.
Let’s get started.
Best Invoice Factoring Companies for Business Financing
Best Invoice Factoring Company for Small to Medium Sized Business (SMBs)
American Receivable is one of the best invoice factoring companies available in the market. With the company, you get quick turnarounds. The company has a reputable business history and lots of experience, having come to the fore in 1979.
There are no monthly minimums or stringent eligibility requirements needed before you can open an account. Applying for an account is easy and takes a few minutes to complete the registration.
The factoring company eligibility requirement does not factor in your business operation years, revenue, and credit score. Instead, it uses your clients’ creditworthiness that is yet to fulfill your invoice obligation to your business.
Business.com rated it as one of the best factoring companies in the industry. Business News Daily ranked it as the number one factoring company in the United States of America (USA).
Do you have clients owing you unpaid invoices, but you need working capital for expedient projects? You can get between $10,000 – $5 million in advances from the company.
American Receivable has a rock-solid reputation. With over 41+ years in business, the company has been a great help for businesses in need of invoice advances; over $3 billion+ in funds delivered to both startups and established businesses.
The factoring company has supported over 70,000+ businesses in need of funds due to delayed invoice payments. On the Better Business Bureau (BBB), it has an A+ rating!
With the service, there are no additional charges such as up-front and due diligence fees. There are also no monthly minimums or maximums. You enjoy fast approval within 24 hours instead of waiting for prolonged periods.
The company has one of the best invoice factoring plans. Invoices that are over 120 days overdue can still get funding from it. This policy is above the industry’s average – 60 to 90 days.
The customer support is outstanding, consisting of experienced, tenured staff to handle customer complaints. You can reach them via phone support, live chat, and email support.
American Receivable charges an affordable fee for its services. The minimum it sets is 0.8% of the invoice. However, the rate varies depending on the size of the invoice, circumstances, contract terms, and other factors.
Customers can receive up to 95% of their unpaid invoices as advanced payments. There is no fee charged for application or set up.
American Receivable does not have a fixed payment plan; you have to apply for a quote on its website.
- Fast Approval (under 48 hours)
- Easy application process
- Simple eligibility requirement
- Factoring up to $3 million
- Quick and friendly customer support
Quickest Factoring Company
BlueVine is not just a factoring company; it offers loads of banking services for your business, such as lines of credit and business term loans.
If you need cash in hand for your business, BlueVine is a viable option to consider. Expect a quick turnaround in less than 24 hours once you meet their requirements.
To receive funding, you must have a FICO score of at least 530, run a B2B business model, 3+ months in operation, and generate at least $10,000 monthly. Applicants that want more than $250,000 in funding may have to provide more information.
The better banking platform for businesses in need of cash integrates with accounting software like Xero, Freshbooks, QuickBooks, or QuickBooks alternatives. If you are using this software, you can sync it for quicker unpaid invoice handling and processing.
BlueVine offers unpaid invoicing loans ranging from $5,000 to $5 million. The company has delivered $9 billion+ in funds to over 200,000+ customers to help their business operations. According to the Better Business Bureau (BBB), it has an A+ rating.
The best advantage of using BlueVine is that it has a flexible invoice factoring policy. Other companies may insist you factor all your unpaid invoices through them, but BlueVine allows you to pick the invoices you want to factor.
A transparent fees scheme is what you get with the factoring company. You enjoy a starting rate of 0.25% per week on the invoice advances you get, which is only due when the invoice gets paid.
BlueVine pays you between 85-90% of the unpaid invoice instantly on approval. Once the invoice gets paid, it extracts its fees accumulated (0.25% per week) and gives you the balance.
The customer support is responsive and ready to help you through the whole process, from the application to the final stage, the repayment of invoice advances.
BlueVine charges a low rate of 0.25% per week on the advances it supplies to you for unpaid income. The rate is cheap if your client meets their invoice obligation on time. However, if they delay in payment, it can compound and amount to a sizable chunk.
You enjoy better charges if you are a regular customer or have are factoring invoices worth $30,000 or more. The loan term ranges from 1 to 13 weeks. You can also attract an additional fee of $15 for crediting via wire transfer.
- Low credit score requirement
- Easy processing
- Quick disbursement of funds
- Up to $5 million in credit
- Prompt customer service
Best Factoring Company with Competitive Rates
altLine is one of the oldest lending companies on our list. Since opening in 1936 as an arm of The Southern Bank Company, it has retained a strong authority position due to its affiliation with a reputable and long-lasting bank.
The company offers one of the best factoring services, with highly competitive rates and funding options. With over 83 years of experience, it has issued out $600 million in funded invoices. According to the BBB rating, it has an A+ score.
altLine offers advances on unpaid invoices ranging from $30,000 to $5 million. You will not get 100% of your outstanding invoice, in line with the industry’s standard practice. Instead, it will advance between 80 to 90 percent.
The application process with the factoring company is easy. All applications are online through its website. After meeting its minimum qualifications for funding, it takes less than 24 hours for you to receive the funds.
One massive advantage of using altLine is that it is a community bank and has access to direct funds. It saves you additional costs you may incur when using other go-betweens factoring companies.
altLine serves a broad category of distribution, staffing, manufacturing, janitorial services, wholesale, facility services, professional services, consulting, food and beverage, textile and apparel, and oil and gas.
Buying your unpaid invoices helps businesses get the cash they need to grow their business and solve peculiar problems. It is ideal for startups who need the money stuck in unpaid invoices urgently.
The factoring company helps grow businesses that require a steady cash flow to operate successfully. Businesses that need emergency funding and seasonal boom periods can also use their services for the much-needed cash.
altLine does not use your personal or business credit score to determine if you qualify for its credit or not. Since it is the customer paying up, it checks your customers’ creditworthiness before issuing the advance.
Its customer support is top-notch. You get assigned a loan specialist once you sign up for its services. The role of this specialist is to offer you advice on which package is best for your business. altLine also offers invoice factoring, A/R financing, and asset-based lending.
The altLine company charges are as low as 0.75% or as high as 3.5% for its invoice factoring services. The rate charged by the factoring company is competitive with its other competitors, who charge between 1% to 5%.
The percentage it charges depends on numerous factors such as industry, business, and needs. There are no hidden charges; they are transparent with their fees and terms of service.
To get a rate, you have to request a quote.
- Low charges
- Fast disbursement of cash
- Transparent terms and pricing schemes
- Easy application
Best Factoring Company for Startups
Fundbox is one of the best invoice factoring companies for startups. Its requirements are set at a bare minimum to allow startups with little experience and funding to gain access to it.
Its mode of operation is slightly different from its competitors. While other invoice financing services will only advance 80 to 90 percent of your invoice’s value, Fundbox advances the 100 percent value. For this reason, many people view it as a loan company.
The company has friendly requirements for startups. Instead of considering your credit profile or that of your business, they use that of your clients owing the unpaid invoice to determine if they should grant the loans or not.
The business must have a base in the U.S and run a business checking account to qualify for its financing service. Another requirement is that the company has to earn a minimum of $50,000 in a year.
Fundbox integrates with accounting software like Xero, QuickBooks, and FreshBooks. Connecting supported accounting software or business bank accounts with a transaction record for a minimum of three months is another requirement.
The popularity of Fundbox as a financing service is due to its willingness to provide its services for industries. There is no need for collaterals or personal guarantees before you can enjoy its benefits.
Opening an account with the factoring company is easy. All you need to do is visit its website and click on the apply button. You do not need to talk to a customer care representative to approve your request.
Fill out the form with your necessary information, such as business email, phone number, and a password, and your account is ready to go. Fundbox will not ask you to provide your tax receipts or any other legal documents before it issues your loans.
Fundbox customer support is available from 8 a.m. to 8 p.m. EST on weekdays via phone support. Another alternative is to use its email support and get a response within 24 hours. There are an FAQs page and a blog with useful information about its services.
Fundbox has a transparent pricing structure that lets you know the exact fee for its invoice advancement service. The pricing starts at 4.66% of the invoice value in its 12 weeks term. Also, it has an 8.99% starting pricing rate for its 24-week period. Fees may vary from one customer to another.
Fundbox only provides funding from a minimum of $100 to a height of $100,000.
- Transparent pricing
- Easy requirements for startups
- Easy application process
- No early repayment penalties
Best Non-Recourse Invoice Factoring Company
Paragon Financial is a famous factoring company for its non-recourse plan. It simply means that businesses that the company funds do not bear the liability in the event of unpaid invoices. Many other companies do not offer such a plan and hold you liable for the outstanding invoices.
Although one of the smallest companies in our review, it has a sustainable working experience of over 25 years. The company has so far worked with 2,200+ businesses and released over $2 billion in funding.
Paragon Financial invoicing factoring financial service covers a lot of industries. They include aerospace/aircraft, automotive supply, construction supply, distribution, cable/telecoms, food/agriculture, furniture, manufacturing, janitorial services, government contractors, importers and exporters, oil and gas, technology, textiles, and apparel, and more.
The profile of companies that the factoring company works with include startups, entrepreneurs, and businesses. It is an ideal option for companies with tax issues.
The company does not require your credit score before it can grant you access to its funding. Instead, it focuses on the creditworthiness of the clients that are to pay the invoice.
Since it works with many government contractors, the company offers additional services apart from invoice factoring. You can conveniently purchase order financing and get access to working capital on government contracts.
Paragon Financial does not have strict requirements; it specializes in working with tax issues, making it a good fit for startups. A minimum of $30,000 in monthly sales or a maximum of $10 million per month is necessary to qualify for its non-recourse invoice factoring program.
The online application process makes it easy for interested businesses to get access to its invoice factoring service. After application, it takes less than 24 hours before it gets approval. Getting the initial advance (up to 90% of your invoices) may take between 3 to 10 days after signing the agreement form.
Customer support is available via phone, live chat, and email.
Paragon Financial charges between 1.25% to 2% monthly as its starting rate. There is no fixed rate; charges differ depending on the client’s creditworthiness to pay the invoice and other factors.
In less than 24 hours, Paragon Financial funds you up to 90% of your invoices after agreeing to its rates. After your client pays the invoice, it extracts its rate and gives you the remaining.
However, the company does not accept unpaid invoices for more than 60 days because of its insurance coverage nature.
- Quick disbursement of invoice advances
- Accepts application from businesses with task issues
6. RTS Financial.
Best Factoring Service for Freight and Trucking Companies
RTS Financial is a famous factoring company known for its specialization in the freight and trucking industries. It also offers its services to non-trucking sectors, such as distribution, staffing, oilfield services, textiles, and manufacturing.
The company offers a lot of benefits and tailored plans for businesses in the freight and trucking industries. With RTS Financial, you enjoy a credit line of up to $2,500 per truck weekly. You can also utilize the fuel card program it has with over 2,000 fuel stations to help you save money on fuel for your trucks (approximately 18 cents per gallon).
Easily manage and track every detail of your freight and trucking business with its trucking and freight-related software. The company also leaves room for equipment leasing.
RTS Financial helps business owners in the trucking industry find discounted fuel prices through its website or mobile app. The app helps truck drivers plan their trips and do a lot more.
With 35 years of experience working with trucking companies, RTS Financials has a track record of helping trucking companies enhance their profitability. The trucking factoring service it provides is simple and utilizes a transparent pricing scheme. There are no hidden, ACH, or processing fees attached.
RTS Financial has one of the most extensive unpaid invoice advances; it can offer businesses up to 97% of the total invoice owed. The best part of its invoice factoring services is that they are non-recourse, which means you are not liable to pay the full advance if the customer fails to meet their obligation.
There are many recommendations for RTS Financials from trusted authorities. According to Business.com, it is the best factoring service for trucking companies.
With over 400+ reviews on Google, it has a high rating of 4.7 out of 5. Kansas City Business Journal voted it five times in a row as the best place to work.
The customer support is responsive and available via phone, email, and live chatbox on its website.
RTS Financial pricing varies depending on the customer and the size of the invoice the company wants to factor. You get custom rates when you sign up for its services.
The company keeps its pricing scheme is not available on its website; you have to contact its customer representatives to get a quote.
As a standard package, it gives you 97 percent of the value of the factored invoice. Only a few factories companies offer as high.
- Transparent pricing
- Extra services for trucking and freight companies
- Mobile App
Best Factoring Company with Recourse and Non-Recourse Options
Triumph Business Capital is a top invoice factoring company that supplies businesses with the needed cash to deal with urgent expenses. Like other factoring companies, it provides advances on unpaid invoices.
The company provides invoice factoring services for trucking companies, freight brokers, staffing companies, government contracts, and small to medium-sized businesses.
So far, Triumph Business Capital has helped over seven thousand small and medium-sized businesses with invoice advances.
The company is trustworthy and reliable, backed by Triumph Bancorp, Inc. Apart from specializing in factoring financial services, it also offers solutions such as equipment financing, asset-based lending, fuel advances, discounts, etc.
Triumph Business Capital offers both the recourse and non-recourse factoring options. The recourse option is cheaper and makes your business liable when your clients fail to meet their invoice obligations. Alternatively, the non-recourse factoring option is more expensive, with the perk of not making you susceptible when customers default in their invoice payment.
Triumph Business Capital does the payment collection on behalf of your business and gives you a platform to track the process online via its website.
The minimum requirements needed to qualify for its invoice advances are low enough for both new businesses and those with poor credit scores to use. Eligibility for its invoice factoring services includes a year in business, at least $100,000 in annual revenue, and a credit score of 500.
Unlike many factoring companies, Triumph Business Capital gives you that freedom to decide which invoices you what to factor. However, to avoid confusion with payments, if you want to factor in an invoice belonging to a client that has multiple unpaid invoices with you, it is compulsory to factor them all.
Applying for invoice factoring financing is easy. All you need is to register and use its web portal. The dashboard is user-friendly and provides beautiful insights into your activities. Everything you need to know about the progress of the unpaid invoice is on the dashboard.
The customer support team consists of trained professionals. There are over 100+ customer care preventatives available to provide support for customers.
Triumph Business Capital has a maximum factoring amount of up to $5 million. The terms of the contract are simple; you accumulate a certain percentage until your customers pay their invoices.
The company determines your fees by looking at various variables such as your type of invoice factoring – recourse or non-recourse, your clients’ creditworthiness, and others. There is a $300 origination fee.
- Flexible requirements
- Responsive and straightforward web portal
- Up to $5 million unpaid invoice factoring
8. TBS Factoring.
Exclusive Freight and Trucking Factoring Company
TBS Factoring is one of the best factoring companies specializing in offering recourse and non-recourse factoring to freight companies. The full meaning of the acronym TBS means Truckers Bookkeeping Services. TBS is an old family-owned company founded in 1968 and the TBS Factoring Service LLC parent company, which came to the fore in 2004.
The company only works with trucking and freight companies. Unlike its competitors, such as BlueVine in the freight factoring industry, it does not offer any secondary plans for non-trucker companies.
The strategic move to only prioritize the trucking and freight companies gives it an air of authority in the sector. With its recourse and non-recourse factoring offers, customers get to choose which plan they want.
TBS Factoring offers both the recourse and non-recourse factoring options gives its customers a wide range of options.
Unlike other factoring companies, TBS does not give you a percentage of your unpaid invoice but the 100% value. With your full money in hand, you can run your business smoothly without worrying about balancing the books.
The requirements to qualify for TBS invoice factoring financing is easy. Unlike other companies, it does not take into account your credit score. New businesses and existing businesses (with low credit scores) can apply for either the recourse or non-recourse option. There is no monthly factoring minimum.
With specialization in trucking and freight companies, TBS Factoring offers some industry-specific perks. Some of these benefits, including fuel cards and free credit checks on customers.
TBS Factoring is active in the collection process of unpaid invoices that it advances for you. They do the necessary follow-up to help ensure your customers pay their invoices as at when due. You can request the factoring company to refrain from such a service if you have reservations about it.
TBS Factoring has two types of invoicing factoring plans – the recourse and non-recourse. Both plans have a starting rate of 1.25% per week. Pricing for the non-recourse factoring option is more expensive than the recourse option.
There is no fixed rate on the TBS website. You have to request a quote on the site to get a special rate. Usually, the rate takes into account the creditworthiness of your customers and other factors.
TBS Factory runs a transparent pricing scheme. There are no sign-up fees, no long-term contracts, and no termination fee. Customers also enjoy a $100 referral reward when the referred company uses its service.
- Easy switching between recourse and non-recourse plans
- Low flat rates
- Dedicated offers for trucking and freight companies
9. Apex Capital.
Factoring Company for Truck and Freight Businesses
Apex Capital is one of the best factoring companies specializing in offering invoice factoring services for trucking companies. The company’s target audience is small and medium-sized trucking businesses. One-person owner-operators can also apply to use services.
With over 20 years of experience, the factoring service provides legitimacy and a solid reputation for providing excellent services. Thousands of trucking businesses have, in one way or the other, benefited from it.
Apex Capital deals with different types of freight businesses, whether big or small. They include General Freight, Step-deck Trucks, Oil & Gas, Tanker, Intermodal Trucking, Sand Hauling, Water Hauling, Auto and Car Hauling, Large Equipment, Liquids, and more.
The factory company offers both recourse and non-recourse factoring. As it is the standard industry practice, the non-recourse factoring costs more than the recourse option.
Apex Capital offers fast invoice advancement services; when you apply and get approved, you get your advance within 24 to 48 hours. With its new blynk™ digital payment system, payment is more straightforward and faster (get it within minutes).
Apex Capital offers exclusive benefits for truck owners such as fuel cards, startup programs, and freeload boards as a truck factoring company.
To qualify for its invoice factoring service, you do not need to request a minimum credit amount or worry about how long your business has been in operation.
With A+ accredited business ratings from BBB and five-star reviews from Google and Facebook, the company knows how to keep its customers happy and satisfied with its dedicated customer services.
Apex Capital has a starting rate of 2% per week for the duration of the agreement. At 2% per week, it is one of the most costly factoring companies.
There is no fixed price available on its website. Depending on your plan (recourse or non-recourse factoring) and your customer creditworthiness, you will get custom pricing.
The truck factoring company does not have any monthly minimum volume requirement. There are no long-term contracts; you get affordable and straightforward weekly rates to fulfill their invoice obligation.
- Quick funding
- Tailored benefits for truck and freight companies
- Dedicated customer service
- Soft collection approach
10. TCI Business Capital.
Simple Invoice Factoring Company
TCI Capital is a simple invoice factoring company that helps needy businesses to turn their pending unpaid invoices into cash. The company allows companies to get access to the crucial cash flow they need to run their business.
With over 20+ years of offering invoice factoring services, the company is an authority in the factoring industry. Thousands of businesses have profited from the company’s invoice factoring financing.
The company provides invoice factoring services for as low as $50,000 and as high as $10 million. It has one of the largest maximum invoice factoring funding caps in the industry, making it suitable for many medium-sized businesses.
TCI Business Capital offers its services to the following categories: government contractors, trucking and freight, staffing, renewable energy, manufacturing, telecom and wireless, oilfield services, heavy construction, utility and pipeline contractors, and environmental services.
The invoice factory company has a simple application process. There are three simple steps you have to do to get its funding.
First, talk to one of its professional and friendly customer support representatives to get a quote. Here, the TCI Capital representative will discuss your needs to help you find the best solution.
Second, set up your account online. This process is simple; you get fast approval, easy onboarding, and friendly month-to-month terms.
The last step is where you get your funding. You enjoy high advances on your unpaid invoices and quick disbursement (less than 24 hours time frame).
TCI Business Capital does not have a fixed pricing rate. Like its other competitors, it uses various factors such as the volume of requests, advance rate, payment terms, and customer creditworthiness to fix preferred rates and fees.
Higher volume invoice requests tend to have cheaper rates than lower volumes. There is a handy calculator on the TCI Business Capital website that helps you calculate the factoring rate.
How does the calculator work? It collects your advance rate, average monthly sales, and customer repayment terms to arrive at a fee.
TCI Capital makes its advance rate flexible to allow businesses a wealth of choices. You can pick an advance rate of 70%, 80%, and 90%. The customer repayment terms include 30 days, 60 days, 90 days, and 120 days.
- Flexible advance rates
- Quick disbursement
- Easy application process
- Responsive customer support
11. Riviera Finance.
Best Non-Recourse Factoring Company
Riviera Finance is one of the top invoicing factoring companies in the industry, with more than 50+ years of experience (founded in 1969). The company provides non-recourse invoice factoring services to companies that need help with their cash flow.
The company currently has over 1,400 clients. It is an excellent option for businesses that need access to quick cash. You get funding in less than 24 hours of disbursement after the application approval.
Apart from offering non-recourse invoice factoring, it also provides alternative financing, fast credit, and online account and inventory management services. The company offers its services for the following industries: transportation, temporary staffing, energy, telecom, and others.
As a non-recourse factoring company, it takes on full responsibility for collecting unpaid invoices for its customers. In situations where the client defaults in paying the invoice, the company bears the risk.
With Rivera Finance, businesses do not become debtors to the company due to an unpaid invoice. The factoring company monitors all stages of invoice payments, from automating the invoice uploads to the posting of actual invoice payments.
Rivera has over 125+ employees that provide top-notch customer service for its clients. You get real-time alerts at all stages, including when there are payment issues or disputes. On the Riviera Finance site, you can log in to check the status of your outstanding invoices.
Rivera Finance offers non-recourse invoice factoring services for up to 95% of unpaid invoices. There is no pricing information available on its site; you have to request a quote to get one.
The invoice factoring company gives out as low as $5 and as high as $2 million worth of unpaid invoices to qualified businesses. It is only available for companies in the U.S and Canada and only accepts invoices from clients based in these two countries.
Rivera Finance offers 2% as the starting rate, with a contract length usually of six months (adjustable according to business needs). You can terminate early, but it will attract an early termination fee.
- No credit score requirement
- No minimum business age requirement
- Easy application process
- Bears the risk for unpaid invoices
What is a Factoring Company?
A factoring company buys invoices from businesses and establishments whose customers don’t pay early enough. These businesses engage in invoice factoring for cash flow. They can access cash immediately after they issue an invoice.
Whenever the customers are ready to pay, they credit the factoring company directly. This way, the business doesn’t have to wait until the customers pay. It is like a payment done on behalf of the customers to help struggling businesses.
It is not the same as corporations that lend money; it is a purchase of substance (invoices). Unlike when they collect a direct loan from a bank or corporation, the business does not deal with debts.
When the factoring company confirms your invoice’s validity, they don’t pay you the full amount of the invoice. They pay you about 85-90% of the invoice’s value first (to fulfill your cash flow need). After the customer has paid in full, the company pays you the remaining percentage of the invoice’s amount (after subtracting their fee).
The service of the factoring company is a good idea for businesses that need money urgently. The company ensures you get the first and most of the payment in 24 hours.
Benefits of Factoring Your Invoices
1. Financial Balance
Most times, the reason businesses engage in invoice factoring is financial strength. The dire need for cash flow will not favor the growth of the company.
Factoring makes it easy for businesses to fund other operations by purchasing invoices and making necessary payments after confirmation of validity.
Immediate financing helps deal with important pending projects at hand. The company does not have to wait for customers to pay before you execute other tasks.
2. Avoidance of Time Wastage
There is a famous saying, ‘Time is Money.’ While a business is running, you need to be conscious of what you spend time on. Evaluation of due payments, monitoring of customer’s creditworthiness, management of credits are all essential but time-consuming practices.
The company can save itself from this stress by factoring in its invoices. The factoring company helps you to undergo all these tasks. This way, you have more time to focus on new strategies and plans for business growth.
3. Guaranteed Payments
Working with a factoring company saves you the risk of defaulting customers. Despite struggling with cash flow, some customers will still default when the payment time is due. That is why you need to deal with a reliable factoring company; it will guarantee payments on the buyer’s side.
4. More Friendly Than Loans
Loans come with interests. Interests depend on the duration spent before pay up. It can show up as debts on the financial statements of companies. Loans can also come with terms and conditions that are not comfortable to accept.
The services of factoring companies are not the same as microfinance banks. The financing is not the same as a loan. On the financial records of the business, the services wouldn’t show up as debts.
The business can be free from thoughts or worries about the incurrence of debts.
5. Limitless Financing
The more the business sales, the more the factoring company financing. When customers patronize a business very well, they get more funds from factoring companies.
On the side of the business owners, there is more cash available for other uses. Various demands, like the implementation of decisions and execution of tasks, are meetable.
6. Flexible Agreements
Unlike loans, the terms and conditions associated with the deals in factoring are flexible.
As the business owner, you are at liberty to customize the contracts, choose when to factor in your invoice, how often you want your invoices to be, etc. You can use billing and invoice software to make your job easier.
Despite the financial aid, you are still in full control of your business. Factoring companies don’t act bossy. Factoring companies don’t tell you how to spend the funds they give you. No dictatorship!
7. Relief from Stress
Businesses don’t have to wait for clients to make payments before carrying out essential duties. Funds from factoring companies can meet the payroll of workers.
It can pay the necessary bills and pay taxes at the appropriate time—no worries about customers’ late payments.
Disadvantages of Using Factoring Companies
Although invoices are an excellent solution to some problems, some demerits are attached to them on the business side.
1. Profit Reduction
Factoring companies deduct a certain amount from the required payment. It is called the factoring fee. In exchange for quick cash flow, you don’t receive the invoice’s full payment at the end of the day.
A percentage gets removed as the factoring fee from the total amounts of the invoices.
2. Possibility of Liable Debts
The factoring company does not delete the possibilities of debts. The seller can still be responsible for the default of the customer in the future.
If the buyer fails to pay the expected amount due time, the factoring company can recover its funds from the business owner (seller).
This step can halt every business project carried out using the factoring company’s funds. It can also affect the trust relationship between the seller and the buyer.
3. Disinterest in Partnership
Most buyers don’t want to deal with a third party (factoring company) when purchasing goods and services. It can be due to the rigorous methods and conditions of payments.
Some factoring companies even go far as sending notes to customers, reminding them of the debts they owe.
Most buyers feel displeased with that and even create a negative impression about the factoring company. It can initiate an unhealthy relationship between the buyer and the seller, thereby resulting in vendors’ change.
4. High Charges
Most factoring companies usually subtract 1-5% of the total amount of the invoices as the factor fees for a specific number of days. Businesses and establishments find it too expensive to pay.
When you calculate the percentage annually, the cost would be 18-30%, which is very high, leaving little or no profit for the business.
5. Unilateral Solution
The financing offered by factoring companies only solves one part of the company’s problems.
Majorly, the services help tackle the delayed cash flow caused by customers’ late payments.
Factoring companies will not cover that expense if they need money to purchase equipment for a particular use.
6. Fear of Losing Customers
The factoring agreement can destroy the relationships between businesses and clients.
Small scale business should maintain a healthy relationship; strict terms can hinder the customer’s patronage.
What Types of Businesses Use Factoring Companies?
It can be infuriating when your business experiences cash-flow flux. The payment methods of the customers cause this flux. It is where the service of the factoring company is needed.
However, factoring is not for everyone and every business. There are specific businesses that need the service. Others need to maintain a two-party relationship with their clients. For clarity, I will discuss some companies that need factoring below.
1. Manufacturing Business
Big manufacturing companies develop cash flow flux. In times like these, the company is low on finance because they experience delayed payments from invoices. The company can quickly get a loan from banks to pay for necessary expenses, but it can drive the company into debt.
No company would want to go into debt for any reason. The company can consider the factoring of invoices. It will help you avoid unnecessary obligations and also help you implement pending projects on time. The company can meet the payroll on time because there won’t be excuses for delayed salary and wages payments.
2. Technology Industry
The tech industry is one of the industries getting broader every day. The competition keeps increasing, and everyone is working on upgrading its services.
This competition requires quick and timely updates on each of their products, both the hardware and the software. The industry needs sufficient capital for these updates.
Invoice factoring helps the company to avoid payroll problems and keep the team working selflessly. Without the team, the company would go down drastically.
Bank loans often come with high-interest rates that keep increasing over time if there are no payments. No company will like the stress that comes with the incurrence of debts.
3. The Clothing Industry
The clothing industry is another competitive industry that requires a healthy cash flow. As a clothing brand owner, you are not only competing with apparel industries like you; you are also competing with online fabric stores.
These fabric stores operate on pay before delivery or pay on delivery service. You need a steady cash flow to remain relevant.
You need to meet other needs like rents, payment of staff, upkeep, etc. You can’t be waiting for customers to make payments. With invoice factoring, you can settle these pressing needs at the appropriate time.
Requesting for bank loans may cause more problems for you. You will have to run the business with a mind that you have some debts to settle. The more you waste time before paying the debts, the more the interest rates increase.
4. The Staffing Industry
The problem cash-flow flux causes in the staffing industry are quite different from others. Some industries employ contract-based workers, i.e., the workers get paid when the client makes payments.
Companies will find it challenging to run a business like this because if you don’t make payments, contracts do not get executed. The clients’ work will also get delayed in turn.
Invoice factoring can solve all of these problems for the industry and even give the company room to execute other plans.
How to Choose the Best Factoring Company for Your Business?
After ascertaining that your business needs a factoring company’s services, you need to look out for the best factoring company to meet your needs. The market is full of factoring companies with different terms and conditions.
It might be difficult for you to find the best company to select as a client. However, there are things you need to consider before choosing a factoring company for your business.
1. The Factoring Options
You need to check for the options the factoring company has to offer. We have recourse factoring and non-recourse factoring. The difference between both of them is who takes responsibility for the failure of payments from the customer.
For recourse factoring, the company (seller) is responsible for the non-payment of invoices. When buyers don’t pay for the invoices, they will have to repurchase the factoring company’s invoices.
For the non-recourse factoring, the factoring company handles the customers’ non-payment; the risk is all on the factoring company. Some companies operate on the former option, while some work on the latter. Some other companies even use the two options; the choice depends on their business partners.
2. Duration of Operation
When considering a good factoring company, you need to confirm the length of operation of a factoring company. It can infer a credibility status. A company with lots of operation years must have partnered with various big industries around the country.
This length of operation can insinuate a good management experience. It must have dealt with businesses under different situations like recessions, advancements, etc. It might be challenging to be a pro in something that you just got introduced to.
3. Factoring Rates Available
Another point you need to consider is factoring rates. The rates some companies have to offer might not be convenient for businesses to pay.
A good factoring company should be able to provide their rates before you agree. Most companies’ rates range from 1.5% to 3.5% per week.
When determining a factoring company, make sure the rates are not too expensive for you to pay. At the same time, ensure the rates are affordable but not suspicious.
There is a tendency for super cheap factoring rates to contain hidden costs that do not get revealed until the partnership deal is signed.
4. Swiftness in Account Set-up
It takes an average factoring company 4 to 5 working days to set-up an account. Even larger accounts take more business days for set-up because of the additional logistics and other reasons.
This factor is not a compulsory one for every business to consider. Except you need the cash urgently, you can skip this consideration.
5. Customer Service
Customer satisfaction is the utmost pride in every business set-up. Every business should ensure the relationship between them and the clients gets healthier. No matter the condition, a third party (factoring company) should not ruin the relationship.
If the need for a factoring company arises, choose the one whose terms are okay by you and your clients. All factoring companies always advertise themselves as the ones who offer the best customer service.
But how many do you know that fulfill this practically?
A way to grasp if a factoring company provides good service is to request client references in your business. Carefully study it.
6. Factor’s Source of Funds
It is essential to know how the factoring company is funded. You might be wondering why this knowledge is crucial to your business. Many factoring companies are not well supported, and it has affected the various business and industries they have worked with.
Periods when there are economic recessions, poorly funded factors can’t support your business. It will make them put an abrupt end to financing your invoices unexpectedly. Establishments have suffered from this in previous years.
The best factoring companies would finance invoices from their earnings, especially those dealing with numerous industries.
7. Factor’s Specialty
In advertisements, most factors claim that they can work with any industry. This claim is relatively valid, but some factoring companies have who they work with.
The best factoring companies tend to work with a few industries. They have built a relationship with the industry and its clients, and they also have some years of experience.
When choosing a factoring company, select the one that has worked with your type of industry for years. They will offer the best services to you, and even to your customers. The reason is that they have mastered your client’s payment habits and creditworthiness.
When choosing a factoring company, pick the flexible ones. Some businesses might want to sign-up for a short-term contract, while others want a long-term contract. Choose the ones that allow you to switch plans when the need arises.
Sometimes, you might not want to factor in some invoices again. The best factoring companies can allow you to carry out your decision.
How to Factor an Invoice?
Starting a business may be difficult. Running a company, on the other hand, is an entirely different ball game.
The availability and financial responsiveness of customers are what keeps a business afloat. Often, customers delay payment for goods, creating challenges to the smooth running of a business.
Inconsistent cash flow is one major hitch business owners try to avoid, and It is why they do all they can to regulate it. Bank loans are sought after to help the cause of their business. However, this often creates more problems than a solution.
Interest rates are high, there are never safety nets provided by the banks, and failure to repay leads to increased loss. Fortunately, business owners have been provided with a safer, simpler alternative to maintain this treasured cashflow.
Business owners can cash their unpaid invoices and avoid the long, extensive wait for customers to pay for goods. It is the principle around which Invoice Factoring works. Business owners “sell” their unpaid invoices to a willing third party for a discounted value of the invoice cashed.
The company that offers to factor invoices gets paid a percentage of the entire invoice as a reward for helping to maintain the seller’s cash flow. The whole process involves careful principles and contract examinations. These would get broken down for a complete understanding.
So how does the whole process work, and how do businesses go about factoring invoices?
1. Valid Invoice Generation
Before thinking of submitting invoices to be factored in, they need to be created. The whole idea of factoring rests on credit-based invoices. These are invoices about goods sold on credit with a contractual deadline for full payment.
Bills for goods are sent to delaying customers, and these customers agree to the variables and terms for payment. Through this, an invoice is formed. However, invoice factoring companies do not usually accept invoices with payment deadlines exceeding 90 days.
Invoices should be generated according to this to be valid. Of course, the factoring company chosen would greatly determine all specifics of a proper invoice.
2. Choosing An Invoice Factoring Company
To generate a specifically valid invoice, this can be done before creating an invoice. Choosing a company to factor in your invoice is one of the essential steps in the factoring process.
The company chosen will present its terms of engagement, and these terms would determine the whole structure of the transaction. Therefore, any business owner should understand the usual operations of their chosen invoice factoring company.
The expected duration between submitting an invoice and receiving funds common to the company’s practices should be adequately acknowledged.
Knowing the contractual terms tabled by a company is also essential. While most companies choose not to take a majority of the risk involved, some advertise their non-recourse policy, which serves as a safety net for clients. It may be done for a higher discount percentage.
Recognizing a company’s stance on this would help you weigh your options and know which company would best suit your urgent financial needs.
3. Agreeing on Contractual Terms
After choosing a factoring company and submitting your invoices for consideration, contractual terms are tabled and agreed upon. Contractual negotiations are subject to specific prerequisite reviews, though.
The company checks the validity and duration of credit on the invoices and the client’s industry. They may also check the delaying customers’ credit reliability to determine how the whole scenario may eventually play out. All these affect the terms presented by the factoring company; after all, the risk has been appropriately evaluated.
When the factoring company is done with all necessary reviews, the contractual terms and conditions are negotiated. The negotiation process may involve bulky legal terms and conditions, so a lawyer may be needed to thread safely.
The terms discussed include the advance rate on the invoice paid initially to the client (usually between 65-95%), extra fees, payment plans, the factoring agreement’s nature, and other specific details.
After agreeing to the terms, the contract takes on full effect, and all terms are then expected to be followed. The whole negotiation phase typically takes between 3-7 working days.
4. Payment Proceedings Begin
Once there is an agreement, payment plans take center stage. Invoice factoring involves payment of a discounted monetary value of an invoice to the business owner offering it. As mentioned earlier, this is usually between 65-95% of the invoice’s full value.
This rate is generally determined by the various factors reviewed by the factoring company. Again, the factors include customer credit reliability, industry type, deadline on the invoice, among others. This advance is also paid within 1-3 days after both parties agree on terms.
The service of a notice to the delaying customer by either party, as agreed, is also initiated by an agreement. This notice intends to inform the customer of the existence of an invoice factoring relationship.
The affected customer is then instructed on how to direct future payments to settle the invoice in question.
5. Final Payments
The whole transaction gets settled with the settlement of every outstanding balance. The factoring company moves to collect all the due payments from the customers within the invoice’s deadline.
Suppose the customers make all payments to the factoring company by or before the due date. In that case, the factoring company pays up any remaining balance to the original invoice owner provided for by the contract.
A service fee (rebate) would be deducted from this balance before given to the business owner. This balance paid by an invoice factoring company is commonly known as a reverse amount.
A scenario may also exist where no further payment is made to the original invoice owner. It is most visible in cases involving a non-recourse policy.
However, where there is a balance, it is usually paid as soon as the customer completes payment. The rebates are deducted.
In essence, factoring an invoice involves:
- Selecting a preferred invoice factoring company,
- Creating a valid invoice and submitting it to the factoring company,
- Agreeing on contractual terms,
- Payment of an initial deposit to the invoice owner( usually 80%),
- Collection of the balance from customers before the invoice deadline
- Deducting the rebate and sending the outstanding balance (reverse amount) back to the original invoice owner where necessary.
Factoring invoices involves a bulky but straightforward procedure and may just be what a small business needs to avoid being drowned by financial challenges.
Factoring and Business Financing FAQ
Factoring Companies typically charge between 2-5% of the full invoice value. However, like every other business transaction, invoice factoring involves a certain amount of risk for both parties.
The rates charged as service fees highly depend on which party has the most to lose. High risk to the factoring company results in increased rates, and low-risk results in low rates. By this, low risk for the factoring company means a higher risk for the business owner.
Several factors affect the risk involved in any factoring relationship.
The Business Owner’s Industry: Certain industries, like the transport industry, are deemed less risky. The low risk associated with these industries usually attract lower service rates. Some others considered it risky, as the medical industry attracts higher service rates.
The customer’s known credit reliability: Factoring companies check the creditworthiness of the customers to pay the invoice. An unreliable customer will a bad credit history will attract higher cost or no deal.
The deadline on an invoice: The farther the deadline set on an invoice, the higher the factoring rate.
The amount of time it takes customers to complete each invoice’s payment: This factor is vital where variable rates are agreed upon. For example, the two parties could agree that the service rate or rebate is set at 2% of the invoice value. This rate could then go up when the customer fails to balance the invoice within a given period. For instance, this could be after 30 days.
The practice of increasing service rates with time aims at reducing the risk born by the factoring company. In the case of a flat fee structure, the factoring company doesn’t put this into consideration.
The number of invoices factored: The more valid invoices submitted, the lower the service rate.
The monetary value of each invoice factored: The higher the economic value of an invoice, the lower the service rate.
The nature of the factoring contract: Compared to a recourse factoring contract, a non-recourse deal attracts higher rates. The considerable burden shouldered by the factoring company induces this difference.
All these factors affect both the service fees and initial deposit rates in any invoice factoring contract.
The term ‘load factoring’ is an uncommon terminology used in the invoice factoring business. Freight factoring is the common term used as a general name for invoice factoring contracts in the trucking business.
After a load gets delivered to a client, a trucking company can submit this transaction to a factoring company. The factoring company then approves the invoice, and a first deposit is paid to the trucking company. This initial payment is a percentage of the monetary value of the invoice.
Freight factoring relations follow the general principles of invoice factoring. While approving an invoice, a bill of lading or any ample proof of delivery may also be required.
By law, using two companies to factor a single invoice is not authorized. The legal framework around invoice factoring helps create an air of clarity around the first rights to an invoice. First rights, in this instance, means the special right to factor any invoice.
The Uniform Commercial Code (UCC) existence helps to factor companies solidify their claims to an invoice. A factoring company specifies it’s first right on a business owner’s invoices when it files an appropriate UCC-1 form covering it.
Nonetheless, business owners can send separate or new invoices to a new factoring company. This move is subject to the contractual terms agreed upon with the old factoring company. If a factoring company has contractual rights to invoices within a particular period, dealing with a new factoring company within that timeframe gets a whole lot complicated.
Although this is legal, switching from one factoring company to another isn’t a walk in the park. Outstanding contractual commitments to a factoring company makes this switch even more difficult.
Invoice factoring is built around contractual agreements, and a strict legal system guides these agreements. This legal system protects the interest of all the parties to a contractual agreement.
Switching an invoice factoring company involves the total settlement of the old factor. Contractual terms determine the value of the settlement of an old factor. These terms include the service fee and any other fee and benefits as dictated by the contract.
Business owners should study these factors and understand the financial implications they bring. For example, if a factoring company receives $1000 as a service fee at the end of the month, it must receive the timely payment of this fee even if invoices are not directed to it.
The payment of this fee is also funded by the invoices factored by the new company. The UCC-1 filing would also get changed to suit the new factor.
Changing between factoring companies is a very complicated process, and business owners are advised to thoroughly weigh their options and settle for the scenario with the most benefits.
Invoice Factoring is only a form of invoice financing. Invoice financing refers to all processes involved in funding a business based on unpaid invoices. The process consists of a bank or company lending money to a business with unpaid invoices used as collateral.
There are two forms of invoice financing- invoice discounting and invoice factoring. These two practices make up the whole invoice financing system. The difference between the two methods is who collects money from customers and pays the other party.
In invoice factoring, the lender collects the balance from owing customers and pays the business owner after removing extra fees.
On the other hand, in invoice discounting, the business collects the customer’s balance and repays the loan and extra charges to the lender.
These two terms determine the nature of an invoice factoring contract. Recourse factoring is the most common form of factoring that companies offer.
Recourse factoring means that the burden of unpaid invoices is on the business owner if customers fail to pay before the deadline ends. The business owner pays the factoring company the value of outstanding invoices at the end of the contract.
Non-recourse factoring means that the factoring company takes all the responsibility for all unpaid invoices. All initial deposits are paid, and rebates are usually not involved in non-recourse factoring.
Factoring companies that provide non-recourse factoring services charge more service fees. This high service fee is due to the amount of risk the factoring company takes on. The responsiveness of customers is the problem of only the factoring company.
Business and law are two areas of human society that go hand-in-hand. A lot of rules exist to regulate commercial relations among different individuals.
Yet, unlike other financial sectors in the U.S, invoice factoring activities are not wholly regulated under any legislation.
Factoring companies come together to form associations and regulate themselves on principles of fair-practice. The Uniform Commercial Code is the only form of regulation protecting all parties to a factoring agreement.
Generally, factoring companies offer credit services based on the unpaid invoices of their clients.
Factoring companies help business owners maintain adequate cash flow with these clients’ unpaid invoices used as collateral.
Ready to Convert Your Trade Receivables into Cash Fast?
Many small businesses struggle with maintaining a cash flow because of unpaid customer invoices. An ideal option is taking a loan, but it comes with high rates and strict requirements that many small to medium-sized businesses can’t meet.
Regardless of whether you want recourse or non-recourse invoice factoring, or both, one of the 11 factoring companies should meet your fast cash business financing needs.
Although each factoring company has its features, payment rates, requirements, and structures, they all offer the same services.
Riviera Finance and Paragon Financial are the best non-recourse factoring companies. For startups,
These factoring companies will provide more affordable services with friendlier requirements than the loan structures you get from banks and other financial institutions.