Invoice Factoring: How to Decide If It Is the Right Move for Your Business
Updated: Sep 14
Invoice factoring or account receivable financing allows businesses to sell their invoices to a factoring firm to gain quick access to capital funds. The financing product has become a common phenomenon for many businesses, especially those companies wanting to avoid waiting days, weeks, or even months to receive payments against the invoices they generated. As a result of invoice factoring from Porter Capital companies can get advance payments and immediate access to the working capital needed to hit payroll, purchase more inventory, or just continue expanding operations without giving up equity. Thanks to factoring companies now have a solution to get working capital for their business expenses, such as salaries and inventory purchasing.
For example, if you are a small business, by factoring your invoices, you can manage your day-to-day expenses, purchase supplies, cover payrolls, and repair equipment. The money to cover these costs might face hurdles getting to you, as your debtors take time to honor their invoices. The funds from account receivables financing enable companies to avail of progressive business opportunities. They can pursue the demands and contract of new leads and potential clients. They can make new business deals, as they do not have to wait for their old business clients to pay invoices. They can have access to funds or finance to accept new orders.
In short, with invoice factoring, you can turn your unpaid voices into easy working capital. However, it is not always the best possible solution to access funds if your customers are not comfortable with the option. Hence, you need to evaluate your business scenario to make the most of this financing solution. If you are pondering over the option of invoice factoring, the article may help you decide whether it is the right option for your business or not. However, before that, let us briefly go through how invoice factoring or account receivables work.
How Invoice Factoring Works for a Business
The invoice factoring process involves three parties:
The business or company that issues invoices
An account debtor or customer who has to pay the invoice
The factoring company that offers cash or funds against the unpaid invoices
When your business provides services or delivers products to the customers, they issue invoices. You need to sell these invoices to a factoring company. In return, the factoring firm gives you an advance payment on the unpaid invoices, which is typically 70% to 95% of the invoice value. After your debtors pay back the outstanding invoices, your business receives the remainder of those funds. The amount you receive is a subtracted fee based on the value and terms of the invoices. Finally, all three factoring parties benefit from their arrangements. The customers get their cash up front, businesses get favorable payment terms, and the factoring company or financer collects fees; in this case, apply right now.
When Should Your Business Consider Invoice Factoring?
As mentioned earlier, the nature of your business determines whether or not factoring is a suitable option. For instance, if you operate a business in any of the following industries, invoice factoring may be the right option for you:
Tech & IT companies
Import and Export Companies
Wholesalers and Product Makers
Oil and Gas Services
If your business falls under one of the above-mentioned categories (as well as a number of other industries not mentioned, basically as long as you have B2B invoices and the transactions take place within the United States, you meet the requirements for account receivable-based payment, also known as factoring. If you are not sure about the decision, consider the following reasons to understand why invoice factoring may benefit you:
Your business does not have good credit. Invoice factoring can be one of the options for small businesses looking for options for establishing credit.
Your business has seasonal shifts that often results in a protracted cash-flow
Your business needs funds but does not have collateral, such as property, automobiles, or property, to secure financing.
Your business is growing and requires additional funds and working capital to manage business needs like supplies and inventory
That is to say, if your business is looking for fast access to funds and capital, invoice factoring is undeniably worth considering and probably one of the most viable options to quickly obtain working capital. In addition, the finance alternative has an application process that is straightforward and simple. The approval rates are relatively lower than traditional bank loans. The application process does not include significant hurdles that many small businesses have to encounter when they apply for bank loans. Even if the bank declines your request for financing, your business can easily qualify for invoice factoring. Most importantly, your business gains easy access to funds faster than any other financing option. You can quickly address or deal with long-term business requirements.
How Can Porter Capital Help You Finance Your Business?
Porter Capital provides reliable and long-term financing solutions to businesses looking for quick working capital. The company caters to the needs of businesses in a diverse range of industries. Businesses from different industries, such as marketing, staffing, public relations, professional services, and many manufacturing firms, benefit from Porter Capital’s excellent factoring solutions. The technology-enabled factoring company understands the needs of small and growing businesses. Briefly, invoice factoring can be tremendously advantageous for small businesses and startups if they have significant cash flow problems. The easy funding saves waiting time while allowing businesses access to simple and fast cash.