Invoice factor loans are easy for both new and well-established businesses to get. The requirements to qualify are minimal and easy to meet.
Apply Now Instant QuoteInstead of carrying unpaid invoices on a balance sheet, invoice factoring transforms credit-worthy invoices into valuable working capital. Businesses that use invoice factoring can extend payment terms to their customers but still get paid today for completed work. This puts the business owner in charge of when they get their working capital.
If your cash flow challenges are catching-up, turn to an old proven product where you, in a sense, borrow money but make no monthly payments - that's invoice factoring or account receivables financing.
Factoring can be very flexible and if done right can be very helpful in managing lagging invoices. Predictable invoices are great in allowing you to manage your operating capital to help pay for bills, meet payroll, and handle unexpected repairs and maintenance.
Do you have strong account receivables? You might qualify for the traditional factoring.
This is best for small business that are in B2B or that work with the government. However, today most invoice factoring companies are working with B2C businesses. If you do not invoice your customers, start invoicing them from now going forward, as you can see that someday you could sell pending invoices for instant cash to fund the operations of your business. Any business that invoices its customers can get invoice factor funding. However, this is just a short-term fund source for your business. This is best when you are going through the slow season. Any business, whether it is small, big, new or well-established, can get financing from invoice factor companies as long as the factor establishes that indeed the customers are able to pay. Even when you have barely been in business for a year, you can still apply for this advance and get it because the invoices are practically the collaterals.
Firstly, you must issue an invoice to your B2B, B2G or B2C customers with the requirement being that payment must be settled in 90 days. 90 days is the basic requirement for invoice factor loans, so anything lesser than that will just not be considered.
Secondly, you will find an invoice factoring company and sell them the invoice. To do this, you will have to submit an application to the factoring company. Sometimes they will be willing to advance you the money, but sometimes you may have to apply to a few different companies before you get accepted. Applying also means submitting your invoice, and then the factoring company will decide whether you are worthy of getting the loan.
One of the things that the company considers is just how likely your customers are to honor their commitments. If they decide that the customers are diligent, then you (the borrower) and the factor will sign an agreement in regard of how much money you will be advanced.
The borrower or the factor will then have to send notices to the customers that the invoices have been assigned and that the factor is going to receive the payments due from the invoices. The factor then sets up lockbox accounts where all the payments for the factored invoices will be going.
Invoice financing is slightly different from invoice factoring. With the former, a business will borrow money with the collateral being the payments that are expected from the customers
Instead of waiting for customers to pay outstanding invoices, which could take a while, a business gets this loan to carry on with other operations of the business.
With invoice factoring, a business sells its invoice at a discount to the invoice factoring company in two installments, that is, 80% upfront and 20% later.
Firstly, you must issue an invoice to your B2B, B2G or B2C customers with the requirement being that payment must be settled in 90 days. 90 days is the basic requirement for invoice factor loans, so anything lesser than that will just not be considered.
Secondly, you will find an invoice factoring company and sell them the invoice. To do this, you will have to submit an application to the factoring company. Sometimes they will be willing to advance you the money, but sometimes you may have to apply to a few different companies before you get accepted. Applying also means submitting your invoice, and then the factoring company will decide whether you are worthy of getting the loan.
One of the things that the company considers is just how likely your customers are to honor their commitments. If they decide that the customers are diligent, then you (the borrower) and the factor will sign an agreement in regard of how much money you will be advanced.
The borrower or the factor will then have to send notices to the customers that the invoices have been assigned and that the factor is going to receive the payments due from the invoices. The factor then sets up lockbox accounts where all the payments for the factored invoices will be going.
A few things could prevent the invoice factoring deal from going through. If the factor finds out that there is a charge back or that disputes could arise from the invoice, well, they are not going to advance the loan to you. If the customers who are expected to honor the invoices are creditworthy, then you should have no problem qualifying for the loan.
The time to qualify differs from one company to another. However, generally you will know whether the application has been accepted or rejected within a day or two. The fees are not high because the discount rate is usually anywhere between 0.5% to 5% and you are allowed to borrow more than $10,000 a month.
Just as it is with other types of business loans, there is no rule of thumb even with the invoice-factoring loan as requirements can differ from provider to provider. However, the most important thing to note is that this is the most accessible type of loan for startups, business owners with bad personal credit and so on.