Invoice Factoring And Why Your Business Requires It

Invoice Factoring
Free up cashflow!
Invoice factoring is a brilliant solution to traditional bank loans whereby you can free up working capital and raise cash for your business immediately.

Whatever business you may be a part of or running, having a good cash flow is always imperative. Anyone who is running a B2B operation will know that late payment of invoicing is a persistent and ever present problem and can build stress within the company, even when it is doing really well.

Invoice factoring is a form of accounts receivable financing which will help you get paid on time every time and will enable you to perform daily operations and payments normally. While invoice factoring as a  does have its pros and cons, the cons for the most part apply only if the process is used on a business model which does not need this type of financing.

What is Invoice Factoring?

Invoice factoring is a type of financial transaction where you, as a business owner will sell your accounts receivable to a third party, called a factor at 80% to 95% of their face value. The third party then goes around collecting payments for the invoices and forwards any balances that may be left less charges to you.

Here is a step by step illustration of how the process works:

Step 1: You contact a factoring company and sell your overdue invoices to them at a pre-determined rate which is typically 80% to 95% of the invoice’s value.

Step 2: The factoring company will provide you said value, usually within 24 hours thereby freeing up capital for your company.

Step 3:  The factoring company then collects the payment due on those invoices it just got from you.

Step 4: Your customers pay the factoring company instead of you and any residual balance which is left is immediately remitted to you.

This type of accounts receivable financing will help you free up locked capital quicker and also take care of a huge headache by allowing you to pursue your business goals rather than running after customers for payment.

What Types of Businesses is Invoice Factoring Good For?

 Invoice factoring is typically applicable when businesses are extending their customers a line of credit, or if they are a B2B operation selling to other companies. Also businesses which need cash now, rather than cash later can use invoice factoring to get the money they need in order to run their operations normally. By using Invoice factoring you will be able to plan out your cash flow better, pay bills and take care of payroll. Finally when you use invoice factoring, the factor will then take care of your sales ledger and do the running after for you.

Invoice factoring is a brilliant solution to traditional bank loans whereby you can free up working capital and raise cash for your business immediately. With this type of accounts receivable financing, your cash is in the bank, the funding is immediate and is primarily driven by your costumer’s demand for your products. Finally, another advantage of invoice factoring is that the service fee is only charged against advances that are not fulfilled by your customers. So every time a customer pays, the debt is automatically repaid.



Why Should I Use Factoring?

By: ChrisLanchech

There are a number of benefits that you can obtain by factoring your invoices. I’ve talked about one of them already.

It’s cash flow. It doesn’t matter how successful your business has been, if cash stops coming in, then a time will come when you don’t have any.

Think of it like this. If you have a basin filled with water and you pull the plug, you have to pour in the same amount as is flowing out of the bottom. Otherwise, there will come a time, perhaps sooner than you think, when there won’t be any left.

But instead of water, it could be cash.And it’s something that can take you by surprise, especially when everything else seems to be going as well as it should.

For example, you could be filling orders and shipping them to your customers. Your customers could be delighted with your prompt service.

Or, you’re employees could be the most productive they’ve ever been.

Or your suppliers could be giving you exactly what you need just-in-time.


But, if there’s a delay for any reason in the payment of your invoices, you could suddenly find that there’s no cash left in the company to do any of that.


How would you feel if that happened to you?


Factoring can do more than just keep your firm going. It can also help you to maintain your creditworthiness.

The news today is replete with examples of people who have been thrust from the homes they’ve lived in for 30 years, because when they started missing mortgage payments, the banks foreclosed on them.


What does that teach us about how much the banks trust the firms we own to help us when we need it? If nothing else, it demonstrates that when the chips are down, they won’t.


Whatever they were willing to do for us in the past, matters not a jot.


And so that means that we have to look for other options and have them in place before we need them. Because, as much as we dislike them, banks are still the place where we have to go, in most case, to get loans for capital expenses.

We can’t live with banks, and yet we can’t live without them. If your creditworthiness has been damaged, for any reason that you care to name, your bank simply will not loan you the money that you need when you need it.

If truth be told, they may not anyway. But, your chances are greatly diminished if your credit rating is poor.

And so, rather than waiting until the last little bit of cash is about to drip out of your company, my suggestion is that you make factoring a part of your firm’s strategy.

In today’s economy, you simply don’t know when you might need some extra money, just to tie you over. And you can’t afford to leave something as important as the survival of your business until the last minute.


The Necessity of Cash Flow

Banks are notorious for offering you money when you don’t need it, but demanding it back when you do.

If you add to that the growing propensity of customers to pay on the last day of the grace period . . . or later, then you’ll know that even the healthiest businesses can find themselves in dire straits before they know it.

 How did we get into this mess?
To a certain extent, it doesn’t matter.

But for the record, we can still remember when the banks were bailed out. Some thought they were too big to fail. (Pride goes before a fall.)

Others preached ethics, but went for big profits instead.And still others decided that the laws applied to everyone else, though not to them.

But probably the most frustrating thing to come out of the financial debacle is the fact that when the government handed over the billions of dollars required to keep them from going bankrupt, they made no attempt to hold these same companies accountable for the way they spent that money.

And so instead of providing financial support to businesses, they simply paid themselves the bonuses that they couldn’t have afforded beforehand.Whatever the causes were, it’s businesses like yours that have been left to suffer.

I remember someone telling me that he was property rich, but cash poor. And I imagine that you could be in the same situation. You have the plant and equipment, you have people with the skills you need, and you even have a relatively full order book. But, your cash flow could do with some help.

There’s just too much time between when you send out your invoices and when you get paid for them. Cash flow is an indispensable part of any successful business. And shutting it off in a firm can have the same effect as staunching the flow of blood in the body. Neither can survive for very long.

Factoring is one means that you have available to fight back. And I use the term “fight” for a reason. Business is something of a war.

Some will argue certainly it always has been and always will be. But I don’t think that’s the case at all. There is still a lot of collaboration and cooperation going on to this day, and social media may help to make it even more so.

But there is something of a fight involved, especially when it comes to getting the money you need to keep yourself going. The war, however, seems to be against the whims of your bank and economic pressures, rather than that of your customers.

In case you’re unfamiliar with the term, factoring is nothing more than a means through which you can obtain cash quickly via your invoices. It’s not a loan. It’s a sale.

You sell your invoices at a bit of a discount to another company. That company pays you cash for them, and then you’re able to put that money directly into your business.

And by doing so, you can keep your cash flow going.

Factoring Business vs Bank Loans

By: Chris Lanchech

The factoring business has been around for centuries, starting all the way back to the Renaissance era in Europe. To this date it is one of the key essentials that any growing business should utilize if they intend on staying afloat and to eventually expand. So what is invoice factoring and why is it essential for a business’s survival? In order to help you understand and get a firm grasp of how this process can indeed help your business, here is a quick dive at the definition and individual aspects of factoring business

Is It a Loan?

First and foremost, factoring invoices are not a type of loan. A loan is where an individual or business borrows money and then pay it back with interest. In factoring, the company is simply buying your assets; in this case, they purchased the amount listed in your invoice.


For example, a client gave you a project, which takes 6 months to complete and your current invoice indicates that the fee they’ll pay you at the end of the term is roughly $100,000. Unfortunately, since your business is not paid at the onset, you could possibly face financial setbacks until such time the project is completed. To solve this problem, you may approach a factoring company.


How Does It Work?

The factoring company will assess your invoice and this can usually take three to five days until they approve and deposit the amount to your bank account. What happens is that the company will buy your assets (invoices). Usually the company will pay you 80% first and then the remaining 20% when the client pays the full amount.


This means that you have roughly $80,000 right at the very beginning. This is money that you can use for raw materials and funding the project to its completion. By the end of the term you won’t be getting the full $100,000; the factoring company will charge you certain fees (usually no more than 2%) in return.


Collecting the Invoice

Now there are two options. You can either notify your client about the factoring agreement and then when the job is complete they will directly pay the factoring company instead of handing the payment to you. Most companies do not choose this route. Instead, they usually just let the client pay them and then hand the money over to the factoring company. This makes their agreement private and kept only between the two parties involved.


Bank Loans

A factoring company purchases your accounts receivable and will then collect the actual payment from your client later on. A loan, on the other hand, is where you borrow money from a lender with the intention to pay them back, usually with interest. The problem is that a loan can carry high interest rates, high penalties, and the process can take too long. A factoring business is like getting paid cash and it is really necessary in order for a business to be able to fund its daily operational costs.

Should You Choose Factoring Companies Over Banks?

By: Chris Lanchech

Factoring companies purchase accounts receivable from various businesses and will enable you to get immediate cash on-end to serve as resource for your day to day operations. Of course each time they lend you an amount it will depend mostly on the quality of your assets. However there have been accounts of people getting duped by fraudulent factoring companies and there have been factoring institutions cheated by fraudulent borrowers as well. With banks offering business loans and other credit options, why would factoring invoices be a better option?

Reason #1: Bigger Cash Out

The problem with getting financial assistance from a bank is that they normally give you only up to 60% upon payout. Some banks and credit institutions do purchase invoices and assets but they won’t pay you enough to get your cash flow back on track. With a factoring company, however, you can get as much as 75-80% right on day one. That is pretty much the same as saying you got paid for the job right on the same day you started working on it. It becomes even better if you factor multiple invoices at the same time.

Reason #2: Lower Costs

Credit unions and banks can charge a pretty hefty fee. You’ll see charges that can go all the way up from 4% to a whopping 12%. They can literally rob you of your profits. A factoring company will generally charge you less than 2%. This means you get to use your money and they still get to earn a little profit along the way. One of the best things about factoring invoices with dedicated companies is that they sometimes offer factor insurance. This means you won’t have to pay them the money in case your client defaults on his payment. Instead, they’ll give you the rest of the loan and will then chase after your client to get the money back.

Reason #3: Faster Processing
Your business may not be able to function until you get some funds to start with and the problem with banks is that the application and assessment procedures could last for weeks. The good thing about a factoring company is that the entire procedure only takes a few days. Usually it only takes three to five days and you’ll have the amount deposited to you. To make the process even faster, factoring invoices usually only requires you to fill out two pages of information. This is quite the opposite of applying for a business loan or factoring invoices with a credit union because that would require piles of paperwork and information.

The Verdict: Factoring Companies versus Banks and Credit Unions

Banks and credit unions can be an option especially if your business has good standing with them but remember what your company’s main focus is: profit. Profit is derived from steady cash flow and lower overhead costs. You can only attain these by having stable resources, less costs, and less time wasted. With all of these taken into consideration, your company can benefit more if you choose factoring companies instead of banks.

An Introduction to Factoring Invoices

By: Chris Lanchech

Factoring invoices is one of the things any business will need to continue operations and growth despite seeing financial instability caused by slow overturns and residual returns. It can be very difficult for your business to progress while you are still waiting for your clients to pay. Wouldn’t it be great if all your clients could pay you immediately? That might seem impossible but with factoring you can make it happen.


What is Factoring?

Factoring, also referred by some as invoice discounting, works much like a regular loan except in this case you are considering your invoice or accounts receivable as the ledger. The factoring company will consider your invoice and upon reaching an agreement will lend you the amount that you will be paid by your clients. Consider the example below:

An IT company was requested by a marketing company to develop a dynamic website and overall the payment was to be for $150,000. The IT company, needing resources to start with, factors the invoice with a factoring company. They lend the IT Company 80% of the accounts receivable (in this case it will be $120,000). They will only give the remaining 20% when the client pays the IT Company. The $150,000 that the IT company receives will then be paid to the factoring company, less the fees that the company will have to pay, such as interest fees and administration fees.

Is It Beneficial to You?

Every small or growing business requires liquid cash if they desire to move forward. A business cannot rely solely on their own minimal funds while working towards their accounts receivable, lest they fall into stale debt.

First of all, one has to consider the fact that factoring invoices yield more immediate cash. Most factoring companies lend up to 80% up-front. Banks will usually only agree to give you 50-60%. This means that you can get more resources to get cash flow back in order.


Secure Your Business’s Finances

You might be wondering about the likelihood that your client turns bad and does not fulfill the agreement and your invoice is left unpaid. In this case most companies have insurance offer that remedies the problem. They will still give you the full amount of the loan and they will be the ones to chase after the client to get the payment owed.


If you are still starting with your business or if you are in need of steady cash flow to finance your company’s expansion then factoring or invoice discounting may be your best solution yet. The process yields higher immediate cash-payback than what banks offer and you can get approved in 3-5 business days.

Processing fees, interest rates, and miscellaneous fees are much lower than what you’d expect and you can even avail of insurance to protect you in case your client defaults on the payment. Getting your cash flow in a steady rate is crucial for your business’ growth and factoring invoices is a much better, faster, and efficient means of achieving this.

Factoring Invoices Is A Solution To Get Your Business Out Of Trouble

It is okay to admit your business was affected by the ‘great’ recession. If are still in business after taking a hit in the Factoring Invoices Is A Solution To Get Your Business Out Of Troublerecession you can pat yourself on the back. This blog is about the financial strategy businesses are using called ‘factoring.’

Have you ever considered selling your outstanding invoices? Well if you have then you have thought about factoring. Factoring allows you to establish a monthly credit facility anywhere from $10k to $10 million monthly. This allows you to have a pool of capital you can pull from by selling your invoices as soon as they come in.

Quite a few invoice factoring companies focus on buying outstanding invoices from businesses. You can be sure that you can establish a credit facility offering your business help in a financial crisis. If you want to need cash on had and you have outstanding invoices we recommended you visit Neebo Capital.

Invoice factoring is a great solution to get your business out of cash flow problems.

Remember the fact that the knowledge of the invoice factoring company you select is very important. Financial specialists even advise business owners to avoid working with inexperienced factoring companies. Because inexperienced factoring companies do not have experience in working with business owners.


For example: maybe there is a regulation in your industry that a younger/inexperieced factoring company might not be aware of, and this mistake can cost you big money in the long run. Trust me we have seen it. We get prospects from time to time come to us looking to leave their current factoring relationship.

It is recommended to sell your outstanding invoices or your accounts receivable to an experienced invoice factoring company.

Factoring Is Faster Than Small Business Loans

Well for starters, if you have ever received a small business loan then you know small business loans require a lFactoring Is Fasterot of paper work. Small business loans also require you to submit paperwork out the wazooo…

This is why many business owners are turning to factoring invoices as a stronger solution. Simply put there is not as much red tape, and the contracts for lending can be as short as 30 days.

Factoring Invoices has always been a financial method to raise capital.  Cash on hand allows businesses to expand, market, put on new employees, take advantage of supplier discounts, or just manage overhead better.

Additionally, credit is becoming more difficult to get for small businesses without years of financials or vendor references. Therefore factoring is a way to quickly raise cash for working capital needs.

As mentioned above, getting a bank loan can be difficult and take months. As opposed to factoring in which you can have funds within 2-3 days.

Approval for bank loans for small businesses is difficult to come by, as loan requirements get stiffer and stiffer in the post- credit crisis world.  Bank loans also require application fees, lengthy application procedures, and lots of paperwork and preparation. And don’t forget the interest on a bank loan.


That’s right, a large benefit of factoring vs. a bank loan is that with factoring you do not add debt to your company. Factoring established a credit line against your incoming sales. A bank line establishes a credit line against you, your business and its assets.

Invoice factoring gets your business cash fast, without the paperwork and debt, this is why it is a growing finical tool for small business.

Credit Insurance Policies on Receivables

So you have a business and you sell to clients on credit terms. Maybe you should consider credit insurance policies on your receivables. Why?
Credit Insurance Policies on Receivables
The simple answer is to reduce risk, and strengthen your businesses financially in order to establish a stronger bankline in the future.

However the deeper answer has to do with your business and its potential loss. The saddest stories in the factoring world come from businesses who lose their largest accounts overnight.

These accounts can be large fortune 500 companies with sound financials.However one bad press release or shock to the economy can have a trickle effect and bring their business to a halt. A perfect example of one of these unforeseen chain reactions, was the filing of bankruptcy of one of the largest food processing companies in the industry.

All it took was one massive press release about the “pink slime” found in processed hamburger meat and The King of Prussia,  a PA-based food processor was devastated. Prior to the release the company processed about 500 million pounds of beef annually!

Now imagine if you are a suppler for this company with over $50,000 or $100,000+ in outstanding A/R. Prior to the pink slime press release you may have not been worried. The King of Prussia may have been one of your largest and secure accounts. However you now can see how quickly things can change in today business environment.

why should you buy credit insurance?

Had suppliers had credit insurance policies for their large customer “the king of Prussia” they would have recovered $0.80 to $0.90 cents for every dollar they were owed.

Sometimes – and this is the reason for credit insurance – there are unforeseen factors that influence the performance and survival of your customers.  Whether those are the court of public opinion, mismanagement, or a bad acquisition, companies go bankrupt, leaving you and your company paddling up shits creek.

Visit Neebo Capital for Credit Insurance Policies on Receivables