Invoice Factoring FAQs

The process is simple:

1. Provide your goods or services to your customers and send them invoices.

2. Submit your unpaid invoices to the factoring company.

3. The factoring company pays you an advance on your invoices, typically 80-90% of the invoice amount.

4. The factoring company handles collecting payment on the invoice from your customers.

5. When your customer pays the invoice, the factoring company pays you the remaining balance, minus their fees.

Unlike a loan where you borrow money from a bank and repay with interest, factoring involves selling your outstanding invoices to a company (the factor) at a discount. You get immediate cash but forgo some of the invoice value, while the factor collects directly from your customers and assumes the credit risk. It’s faster and less credit-dependent than a loan, but the cost is the discounted value of your invoices.    

Invoice factoring can be a good option for businesses that:

• Have long payment terms from their customers.
• Need to improve their cash flow quickly.
• Don’t qualify for traditional bank loans.
• Have a high volume of invoices.

No, invoice factoring is not debt, so it will not hurt your credit score. In fact, it can actually help your credit score by improving your cash flow and making it easier to pay your bills on time.

A typical business that sells or provides services to other businesses’ and extends credit will have ten to twenty percent of its annual sales tied up in accounts receivable at any given time.  Just think for a moment about how much money is tied up in 60 days’ worth of receivables, and then think about what a business could do with that cash if it were on hand.  You can’t pay the power bill or this week’s payroll with a customer’s invoice; but you can sell that invoice for the cash to meet those obligations.  A company needs consistent and dependable cash flow.  Any company, whether starting out, experiencing a growth phase, or is mature in years, needs good cash flow. Factoring can be one of the best ways to get it.  These industries below benefit greatly from the use of factoring services:

Businesses that cannot utilize factoring are those that provide retail services to the public or receive immediate payment by cash or credit card. As a general rule, retail establishments such as restaurants, stores and gas stations do not qualify for factoring.

The cost to the Seller for Factoring their invoices is generally a percentage of the gross amount of the invoice that can be structured in a variety of ways.  As calculated monthly, that percentage is generally between 1.5% to 6.0%, depending upon the volume and number of the invoices being factored, the creditworthiness of the Debtors and the amount of time that the invoices remain outstanding.

There are many benefits of factoring, some of which are:

Improved cash flow: Factoring provides immediate cash flow, which helps businesses meet their short-term financial needs, pay bills, invest in growth, and seize new opportunities.

No debt incurred: Unlike traditional loans, factoring does not involve taking on additional debt.

Flexible financing: Factoring is scalable, meaning you can factor as many or as few invoices as needed, depending on your cash flow requirements. This flexibility can be especially valuable for seasonal businesses.

Easier to qualify: Factoring is typically easier to qualify for than traditional loans, such as bank loans. This is because factors focus on the creditworthiness of the business’s customers, rather than the business itself.

Reduced administration burden: Factoring companies take on the task of collecting payments from your clients, saving you time and resources that can be allocated to other aspects of your business.

There are many resources available online that can teach you more about invoice factoring. You can also talk to a factoring company representative to get more information. Here are some additional invoice factoring resources:

• Invoice Factoring Guide
• Freight Factoring Guide
• The International Factoring Association

Ask for recommendations from other businesses, do your research online, and compare rates and fees from different companies. Make sure the company is licensed and bonded, and read the contract carefully before you sign. Finding the best invoice factoring company for your needs requires research and careful selection. Look for established players with proven track records and transparent pricing, like Quickpay Funding. We cater to a variety of industries and prioritize customer focus, offering cutting-edge technology and dedicated support. Don’t gamble with your cash flow.

Quickpay Funding was founded to provide small and medium-sized businesses with the funds they need for success. Our driving mission is to offer best-in-class customer service and timely credit decisions. We can help you secure the capital needed to expand your business, make critical tax payments, meet payroll obligations, and shorten the turnaround of your accounts payable and take advantage of supplier discounts.