Invoice Factoring Quickly: How to Get Started
When a cash flow crunch hits your business, you need access to funding – and fast! You don’t have time to wait around on slow paying customers or chase down accounts receivable, you need an immediate cash flow boost. While bank financing such as a business line of credit or traditional bank loan are popular options, the application and approval process can take months. One alternative to get fast business funding is invoice factoring. Invoice factoring quickly gets you the cash you need without the hassles of a traditional source of funding. Here’s what you need to know about invoice factoring, including how quickly you can get cash in the bank.
What Is Invoice Factoring?
Invoice factoring is a type of financing where a business owner sells unpaid invoices to a factoring company for fast access to funds. The business owner receives cash for the invoice amount, usually less any fees, ahead of the invoice payment terms. The business owner’s customer, who is responsible for paying the invoice, instead pays the invoice amount to the factoring company according to the original invoice payment terms.
Invoice factoring is also known as accounts receivable financing, asset-based lending, or accounts receivable factoring. It is different from invoice financing, which is where a factoring company still gives a business owner quick access to cash for their invoice, but the business owner pays back the invoice amount themselves, plus a fee. Find out how to choose between invoice factoring vs invoice financing.
How does invoice factoring work?
Every invoice factoring company, business, and their customers are different, so these steps are generalized accordingly. This is more or less what you can expect when you factor an invoice quickly:
- Sign up for a free account online. The first step of invoice factoring quickly is to sign up for an account on the factoring company’s website. You’ll need to submit some basic information about your business as well as your banking information (for deposits).
- Submit outstanding invoices for funding. Traditional invoice factoring companies often require a business to factor all their invoices for the duration of a contract. With many newer, online companies, you can choose which invoices you want to fund. With FundThrough, you pick which invoices to fund with no maximum amounts, and no long-term contracts.
- Factoring company does due diligence. Oftentimes this will include checking that a business is legally established, is up-to-date on taxes, and doesn’t have liens on their accounts receivable and/or the specific invoice. (Many invoice financing companies will find ways to work with businesses if they have these issues.) During this step, the factoring company will also verify that the invoice is real.
- The business’ customer is asked to sign an NOA. Having the customer owing the invoice sign a Notice of Assignment means they understand that the factoring company now owns the invoice so they can redirect payment. While a lot of business owners get concerned about their customers being involved, many large companies are used to this process. See: How We Work With Your Customers for more information.
- The business owner gets funded. The business owner receives cash in their bank account, less a fee (aka the invoice factoring cost or discount rate). They can now have peace of mind that they have cash available to grow their business, cover any other cash flow gaps, or pay for unexpected business expenses.
- The customer pays the factoring company according to the invoice terms. When the invoice is due, the customer payment is sent directly to the factoring company, and the funding process is complete.
Invoice Factoring Quickly: How Soon Can Factoring Companies Provide Funding?
While we can’t speak for the time frame of other invoice factoring service providers, we can share the FundThrough experience. With FundThrough, you can create a free account in just a matter of minutes. After that, our team does due diligence on your account and customer(s) to ensure a good fit. If everything goes well, you’ll be approved to start turning unpaid invoices into cash as quickly as a few days.
What slows down first fundings?
First fundings tend to be delayed a bit more than periodic fundings. That’s because a factor needs to verify a few things from your factoring application before they can start funding your outstanding invoices, including:
- The business details and business history
- Tax status of the business
- Bank information is correct
- Credit checks to ensure customers are creditworthy
- Invoices are valid
- If there are any liens against the business
Additionally, Notice of Assignment (NOA) and invoice approval from your customers can tie up the setup process if a factoring company doesn’t get those back in a timely manner. The NOA just means your customer understands that the factoring company now owns the invoice so they can redirect payment. While a lot of business owners get concerned about their customers being involved, many large companies are used to the process for invoice factoring.
What slows down periodic fundings?
The source of delays for periodic fundings, aka spot factoring, are often for a few different reasons. They include:
- Invoice verification issues
- Invoice eligibility
- Customer verification and NOAs (for first-time fundings)
Keep in mind that once approved, your cash is deposited into your account the next business day.
Types of Invoice Funding
There are a couple of different ways invoice factoring services are classified, depending on the type of arrangement you have and the type of service you’re using. The first is based on how you use factoring:
1. Whole turnover: You sell your invoices to a third-party that advances you a percentage (typically 70-80%) and pays you the rest, minus their service charge, when they collect from your client.
2. Selective: You have an ongoing relationship with the third-party factoring company that allows you to choose which invoices to fund and when.
3. Spot factoring: You need to access funds from an invoice factor infrequently but as quickly as possible to cover any business cash flow challenges.
The second way an invoice factoring arrangement is classified refers to the structure of your invoice factoring agreement with the factoring company:
1. Factoring with recourse: When you factor with recourse, you are responsible for paying back the cash advance even if the invoice remains unpaid to the factoring company.
2. Factoring without recourse: With non-recourse factoring, the liability of an unpaid invoice transfers to the factoring company. This means you are not responsible for unpaid invoices.
Invoice Funding Rates
Invoice factoring advance rates will vary from company to company. At FundThrough, we believe in full transparency – what you see is what you get. Our invoice factoring rate is 2.5% per 30 days. This fee is also sometimes referred to as the discount rate or factoring fee. We’re also proud to say we don’t have any hidden costs like account set up or application fees, transaction fees, ACH fees, or processing fees. There’s also no minimum number of invoices required to factor with us on a monthly basis, no maximum to the amount of funding you can access, and no long-term commitments after the invoice is paid.
It’s important to do your research when comparing invoice factoring companies. You should understand overall total costs, and be aware of any additional charges beyond the advance rate or factor fee. At FundThrough, our AI-driven technology allows us to offer invoice factoring quickly, at highly competitive invoice factoring rates.
Pros and Cons of Invoice Factoring
As with all things in business, there are pros and cons associated with invoice factoring. Knowing the upside and downside will help you make an informed decision about whether invoice factoring quickly is right for your business.
Advantages of invoice factoring
There are a wide variety of benefits of invoice factoring, including:
- Debt-free funding (invoice factoring is not a loan!)
- Non-dilutive capital.
- Unlimited access to capital.
- Much faster turnaround time than business bank financing.
- Save time without having to manage late payments and chase accounts receivable.
- Business credit score is less important (approval is based on your customers’ creditworthiness.)
- Even those with a bad credit rating can qualify.
- Time in business requirements are less strict than traditional loans or other bank financing.
Disadvantages of invoice factoring
Like any financing method, factoring isn’t perfect. Here are the main perceived disadvantages of factoring invoices:
- Invoices need to be verified, so customer contact is sometimes required. (See how we work to maintain your customer relationships if this worries you.)
- Can be complicated to account for in bookkeeping. (Here’s how to record factoring transactions, step by step.)
- Some factoring companies charge hidden fees, such as a service fee or minimum volume fee. At FundThrough, we don’t charge any hidden fees. See our pricing page for more on what you can expect to pay for invoice funding.
Get more info on invoice factoring advantages and disadvantages.
Is Invoice Factoring Quickly Right for Your Business?
An invoice factoring arrangement is a viable option for businesses of all kinds and sizes wanting to take advantage of invoice factoring quickly. It’s not reserved for one specific industry. In fact, invoice factoring quickly is a common practice in the staffing industry, oil and gas industry, trucking industry, and other industries. Various kinds of businesses use invoice factoring. Factoring outstanding receivables can help businesses cover everyday expenses such as payroll, purchase supplies to take on large projects, or simply cover any funding gaps or unexpected expenses. Small businesses use invoice factoring, as well as larger corporations.
If you want to unlock consistent cash flow for work you’ve already done that’s tied up in slow receivables, invoice factoring quickly is likely a good fit for your business.
Need Invoice Factoring Quickly? How to Choose the Best Invoice Factoring Company
The best invoice factoring companies give you access to quick, convenient funding when you need it, with a transparent fee structure that’s easy to understand. There are a number of invoice factoring companies to choose from, so it’s important to compare your options to ensure you’re getting the right fit for your unique situation, and that your factoring experience is seamless. Obviously you want to work with a factor who can onboard you and process your invoices quickly. Many factoring companies can provide same-day funding or next-day funding on approval.
You’ll also want to look for a partner that can scale with you as you grow your business, with the necessary capital, staff, and infrastructure in place. Also consider if they have experience in your specific industry. Different verticals sometimes require different approaches, and it can be smart to partner with someone who “gets” the nuances of your niche. Customer service is also an important factor when it comes to choosing the right factor for your business goals.
Finally, consider an invoice factoring company that integrates with your accounting software for ease of pulling in eligible invoices. At FundThrough, our online portal is compatible with a wide range of accounting software including QuickBooks, OpenInvoice, and others.
Get Started With Invoice Factoring Quickly
If you’re ready to factor an invoice quickly, or just want to have the option in your back pocket, see if you qualify for FundThrough’s flexible and speedy invoice factoring solution for businesses today. Enjoy complete control over your balance sheet and gain financial stability with a fast and flexible financial solution.