Invoice Factoring – The Answer to Your Working Capital Needs

A generous credit policy may be a proven strategy to attract more business, however the downside of this strategy is that most of the earnings generated get tied up in invoices and accounts receivable. This lowers the company’s financial liquidity which means the business may not have adequate working capital to fund and invest in new growth opportunities.

Applying for a bank loan may be an option for established companies, but not for startups and small businesses. This is typically because banks across the country have been tightening their loan approval policies, making it difficult for businesses to qualify for loans.

This is where startups and small businesses can benefit from Invoice factoring. Invoice factoring provides the answer to all your urgent cash flow and working capital needs. It can be defined as a business funding or financial transaction method where a company sells its’ invoices and accounts receivable to a factor at a discounted rate for immediate cash transfers. Simply put, invoice factoring helps a company stabilize its cash flow and meet urgent working capital needs by converting earnings in outstanding invoices (that are due in either thirty (30), sixty (60) or ninety (90) days) to cash.

Qualification Requirements

Qualifying for invoice factoring is comparatively easier than bank loans. Though qualification requirements may vary from factor to factor, nonetheless here are some basic qualification requirements that are common to all:

1. B2B or B2G (Business to Government) business with creditworthy invoice clients
2. Invoices/accounts receivable must be due or payable within 90 days
3. Applicant should not have any tax or legal problems

How does it Work?

Let’s take a closer look to see how this business funding method actually works. Here we’ll use a 90 percent advance rate and 1 percent fee.

Suppose that Company A fulfilled a $50,000 order from its Customer Y. Company A generates a $50,000 bill which is sent to both the factor and customer Y. The factor verifies with Y in 24 hours to see if the work was properly completed. After the verification, the factor advances Company A $45,000 at 90 percent of gross value of the invoice. The factor then waits for Y to make full payment of the invoice. When the factor receives the payment of $50,000 from Y, it then deducts $500 as fee at 1 percent and releases 4 percent reserve back to Company A.

During the time when the factor waits for the payment from Y, Company A can use $45,000 that it initially received for purposes like payroll payments, or project investments.

Advantages of Invoice Factoring

• It’s not a loan- therefore it doesn’t add to your business liability or debt
• Offers quick cash flow to meet urgent working capital needs
• Has no credit limit, contracts, minimums or maximums
• Does not require the applicant to have a great credit history
• Provides instant capital for business expansion and growth
• Improves credit rating
• Improves liquidity that is much needed to meet payroll deadlines, lower the risk of bankruptcy, and pay off tax obligations.
• Your factoring Line of Credit with CFC is only limited by the credit worthiness of YOUR customers!

For more information on invoice factoring or to get service assistance, get in touch with us today!

Questions about factoring financing? Call us now! We would love to hear from you and answer any questions you might have regarding invoice factoring.  You can also learn more about funding your small business,logistics invoice factoring, accounts receivable factoring advantages and disadvantages,invoice factoring bad credit,invoice factoring articles and more.