What is invoice financing?
Invoice financing, also known as invoice factoring and accounts receivable financing, is the process of a factoring company purchasing your businesses unpaid invoices to advance you cash upfront, improving your cash flow. An invoice financing company provides you with access to working capital to expand and grow your business. This is an excellent solution for businesses across multiple industries who cannot wait for customers to pay the invoice. Invoice factoring is especially beneficial for small businesses.
How do businesses benefit from invoice financing?
One of the main benefits of working with a factoring company is your business receives access to cash flow immediately, instead of waiting for a customer to pay the outstanding invoices. Regardless of why your customer is slow to pay (not enough access to cash, going out of business, or seasonal lows), invoice factoring provides your business with cash advances to stay on top of your expenses. You usually obtain between 80 to 95% of your invoice amount upfront, while the rest if held in reserve until the customer pays.
When you factor your invoices, you avoid getting a credit line or business loan with traditional lending companies. Instead, you get the fast access to working capital your business needs to pay employees, expand and grow your business, buy new equipment, or stay on top of expenses. Companies that are experiencing growth at a rapid pace or want to expand but need a little extra working capital, turn to invoice financing to meet their goals.
Business owners that do not qualify for traditional bank loans or don’t have time to wait for the lengthy approval period also benefit from invoice financing. A business will typically be approved by an invoice financing company in as little as one business day, with a lot less paperwork to fill out. This financing option is debt-free and doesn’t affect your business’s credit score.
There are two different types of invoice factoring agreements: recourse and non-recourse factoring. When you factor your accounts receivables in a recourse factoring agreement, your business is responsible for paying the factor back if the customer does not pay the invoices on time or at all. Since there is less risk on the factors side, the factoring fee is typically slightly less than a non-recourse agreement. In a non-recourse factoring agreement, the factor incurs all the risk for a late or missed customer payment.
How do I get started with invoice financing?
Reach out and do your research before you sign up with anyone. Getting quotes and information from multiple invoice financing companies makes it easier to decide which one will best fit your company. When researching factors, it’s essential to look beyond just the factoring rate. You need to make sure all services will meet your business needs. Traditionally, an invoice factoring company will provide assistance in accounting work for their clients, provide credit checks on their customers, and generate reports to understand where you stand.
Once you have decided and the factor works to get you approved, you’ll set up an account with the invoice factoring company. When you are ready to get funded, you will submit your accounts receivables and the factor will advance you 80% to 95% of your total invoice amount upfront to your preferred bank account. A portion of your invoice amount will be held in a reserve account until the customer settles their payment with the invoice factoring company. Once the customer pays, you will receive the rest of your funding, minus the agreed-upon factoring fee.
Overall, the invoice factoring process is simple and provides smooth access to your working capital. The flow of predictable cash flow you receive through factoring your accounts receivables allows you to fund future growth, expand your business opportunities, or just stay on top of expenses for a low-hassle business structure.
Benefits of working with Porter Capital for your invoice factoring needs
When you factor your invoices with Porter Capital, your business gets the funding it needs to expand and grow, hassle-free. We can approve your business quickly (typically in as little as 24 hours) and fund you fast as we offer advances on your accounts receivables. We offer some of the industry’s most competitive rates, offering up to a 95% advance rate on all accounts receivables you want to factor.
If you do not qualify for traditional funding, we can help you out. Porter offers flexible financing solutions for its clients. If you are experiencing rapid growth, looking to expand your business, or have dealt with past or current bankruptcy, you may be the perfect fit for us.
Contact Porter Capital today for more information on how we can improve your working capital.