The Ultimate Invoice Factoring Guide

Chapter 2: Use Cases and Invoice Factoring Options

Introduction

Who uses invoice factoring?

Entrepreneurs and businesses of all sizes use invoice funding to help cover gaps in cash flow and generate financing without giving up equity or committing to long term loans. Hundreds of owners across all sectors use FundThrough for invoice financing, and you can hear about their experiences here.

Invoice Factoring Use Cases​

What percentage of companies use invoice factoring?

In Canada, 34% of small businesses requested external financing in 2016 (ISED) and in the U.S., a recent survey found that 50% of small business owners had applied for business financing in 2017. What was remarkable about those survey respondents was that by all measures, they were successful and often established businesses; 60% had been in business for five years or more, and 80% had a personal credit score of 650 or above.

Can small businesses use invoice factoring?

Absolutely. Businesses of all sizes use invoice factoring for a number of reasons: to raise working capital, improve cash flow, expand their product or service offerings, purchase equipment, increase the size or quality of their workforce, buy out a partner, and more.

Can startup companies use invoice factoring?

Definitely. Invoice factoring is unique in that owners are not required to jump through the income verification and credit history hoops traditional banks require for loan applications. FundThrough understands that you’re just getting started, so your available funding is based on income you’ve already generated via our integration with your invoicing or bookkeeping software.

Can contractors use invoice factoring?

Contractors are more susceptible to cash flow issues than most, due to the many working parts of each contract. Invoice factoring helps contractors cover payroll, pay suppliers and invest in equipment while still taking on new jobs, even when client payments may be slow coming in. The ability to collect on your outstanding invoices instantly frees up funds you’ve already earned, so there’s no need to take on new debt or give up equity in order to raise financing for that next project.

Can construction companies use invoice factoring?

Yes, and more construction companies are turning to alternative finance solutions like FundThrough for its ease of use and low financing charges. Typically, construction factoring companies advance only 20 to 30% of your invoice value and keep the rest once they are able to collect. FundThrough is an app that integrates with your bookkeeping software and offers a completely transparent cost structure, with flexible repayment.

Can staffing companies use invoice factoring?

Invoice factoring is a popular financing method for forward-thinking staffing companies. Gone are the massive finance charges that traditional factors took when they knew you were desperate to cover gaps in cash flow and waiting for payments. Today, online invoice factoring is used as a proactive cash flow planning and business growth financing solution, thanks to the ease of use and low financing fee (just 0.5% at FundThrough).

Can freelancers use invoice factoring?

For sure, and many do! FundThrough introduced integration with FreshBooks early on, to better serve clients who use the bookkeeping software popular with freelancers and entrepreneurs. Invoice factoring empowers freelancers to take control of their cash flow and stay in good standing with suppliers, subcontractors, and other expenses even when customers are late in making payment.

Can you factor government invoices?

You can factor any type of invoice. FundThrough works in the background, so customers won’t even know you’re using it. The invoice factoring software integrates seamlessly with your invoicing software, enabling you to receive advances on invoices without any change in the ownership of the invoice itself. You have 12 weeks to pay back the advance and pay a simple, transparent fee that diminishes with early repayment.

What is freight invoice factoring?

Freight invoice factoring is a common way for trucking companies and independent truckers to manage their cash flow. Traditional invoice factors purchase your outstanding invoices and advance you 20% to 30% of the invoice value, then keep the rest as their fee. Next generation invoice factoring like FundThrough, on the other hand, integrates with your invoicing software and advances you the entire value of the invoice. You pay only a 0.5% transaction fee and have 12 weeks for repayment.

What is a factoring company in trucking?

There are plenty of factoring companies out there willing to discount your invoices in exchange for advancing 70% to 80% of the outstanding funds. But you have an alternative. FundThrough is an innovative solution that lets you keep more of the money you’ve already earned, while getting access to it as it’s earned.

Can I read an invoice factoring case study?

Invoice factoring with FundThrough is so quick and easy that customers are sharing all kinds of experiences online. You can read real customer stories on our Reviews page, and in the Intuit Quickbooks App Center.

Types of Invoice Factoring

What are the different types of factoring?

There are a couple of different ways invoice factoring is classified. The first is based on how you use invoice factoring as a financing tool:

  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 invoice factor that allows you to choose which invoices to finance and when.
  3. Spot factoring: You need to access funds from an invoice factor infrequently but as quickly as possible to cover a cash flow emergency.

The second way invoice factoring is classified refers to the structure of your agreement with the factor:

  1. Factoring with recourse
  2. Factoring without recourse
  3. Maturity factoring


We’ll take a look at each of these in detail below.

What is factoring with recourse?

Factoring with recourse, or recourse factoring, means that you sell your invoice(s) to a factoring company, which then releases an advance payment to you (typically 70-80%). They are responsible for debt collection and release the remainder of the invoice, less their transaction fee, to you once they are able to collect the debt. With recourse factoring, you are responsible for paying back the advance even if the invoice remains unpaid to the factor.

What is non-recourse invoice factoring?

Non-recourse invoice factoring, or factoring without recourse, works in much the same way as factoring with recourse. The key difference is that with non-recourse factoring, the liability of an unpaid invoice transfers to the factor, so you are not responsible for unpaid invoices.

What is maturity factoring?

In maturity factoring, you do not receive an advance on the amount invoiced. The invoice factor pays out the invoiced amount less their financing fee on the invoice due date, or some other date you’ve agreed upon in advance.

What is invoice discounting?

Invoice discounting means that your invoices are used as collateral for a loan. Invoice discounting companies usually advance only 80% of the value of your invoice(s). You will pay an interest rate above prime, plus a monthly fee to maintain the loan as long as its takes you to pay it back.

What is disclosed factoring?

When a third-party purchases your invoices and begins debt collection, your clients receive communications from that party. The relationship is then disclosed; it’s evident that you’ve used an invoice factor, as they are either collecting on your behalf or are now the owner of the debt and collecting on their own behalf.

What is cross-border factoring?

Cross-border factoring simply means that a US company might use a Canadian invoice factor, or vice versa. Online invoice factoring has made it possible for you to choose the best solution for your business’s unique needs, regardless of geography.

What type of invoice factor is FundThrough?

Our technology has enabled us to offer clients the best of all worlds:

  • Undisclosed factoring. Our app integrates with your invoicing software and works in the background, so your clients will never know you’re using a factoring solution.
  • Cross-border factoring. Companies in the U.S. and Canada alike can use FundThrough. Setting up an account takes just two minutes online and once you’re approved, requesting new funds is a snap.
  • Selective factoring. Relationship management is simple with FundThrough. Our software periodically evaluates your account and adjusts your invoice factoring limit depending on the volume of invoices you’re producing, so your funding solution can grow alongside your business. This makes invoice factoring a proactive business financing tool, as well as a reliable source of emergency funding.
  • Online factoring. Instead of waiting 30, 60, or 90 days for customers to pay, we deposit the amount you’ve decided to fund right into your bank account, usually within 24 hours.  

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