The Ultimate Invoice Factoring Guide

Chapter 3: Invoice Factoring as a Working Capital Solution

Why use invoice factoring?

As invoice factoring has evolved and become more affordable, more and more companies are using it to solve gaps in cash flow, raise working capital, and fund the growth of their business. Invoice factoring is a great way to fund new equipment, talent or contracts using money you’ve already earned, rather than taking on new debt.

Advantages of Invoice Factoring

Is invoice factoring a good idea?

That depends on the unique needs of your business. Compared to the costs, complexity, and risks of financing solutions like bank loans and venture capitalism, and the relatively low success rate of crowdfunding, invoice factoring can offer a simple, straightforward solution to funding your business using money you’ve already earned.

Is invoice factoring worth it?

This is a common concern, as in years past the transaction fees and service charges of factoring made it cost-prohibitive for many. Today, innovative technology and our straightforward price structure make invoice factoring a logical funding solution for new and small businesses in all sectors. In fact, you can view our pricing how much invoice factoring at FundThrough costs and whether it’s worth it for you.

What are the advantages to invoice factoring?

Invoice factoring empowers you to put money you’ve already earned to work in your business right away. Gone are the days of waiting 4, 8, or even 12 weeks to collect payment. Invoice factoring puts revenue in your pocket immediately so you can pay your team, invest in new inventory and equipment, take on new and larger contracts, and otherwise build your business on your terms.

What are some invoice factoring pros and cons?

The pros of invoice factoring include:

  • Improving your company’s cash flow so you can make payroll, pay your suppliers, and meet other financial obligations.
  • Empowering you to take control of your cash flow and proactively plan to avoid cash flow gaps and crises.
  • Generating investment capital so you can buy new equipment, build inventory, take on new and larger contracts, and otherwise grow your business using revenue you’ve already earned.
  • Giving you access to cash when it’s needed, without having to jump through the hoops of traditional lending or take on new debt.

 

Historically, invoice factoring had a few major cons:

  • Like payday loans, the fees were so cost-prohibitive that it was really only viable for occasional use as a stop-gap for cash flow emergencies.
  • Traditional invoice factors typically purchased the invoices and handled collections, so clients and customers knew you had used an invoice factor.
  • Until you established a trust relationship with an invoice factor, you needed to have invoices verified for each new round of funding.

 

FundThrough has revolutionized invoice factoring by integrating directly with a wide range of invoice software programs and applications. It takes just minutes to set up an account, and there’s no credit check or income verification required. Once approved, you receive funds in your account within one business day each time you factor your invoices. Best of all, the manual legwork and redundant administration has been eliminated, so service fees are incredibly low–just 0.5%.

Invoice factoring vs invoice financing: Is there a difference?

With invoice financing, your invoices are essentially used as proof that you can pay back a short-term advance on those funds. Invoice factoring, on the other hand, traditionally meant that you sold your invoices to a third-party, who advanced you a percentage of the funds and collected payment from the client.

Today, FundThrough’s innovative technology allows us to factor invoices through seamless integration with your invoicing software, so you can generate working capital as soon as you invoice without customers ever knowing you’re using the service.

Factoring vs invoice trading: Is there a difference?

In invoice trading, companies sell their invoices to the highest bidder in an online auction. That entity then becomes responsible for collecting the balance of the invoice in order to be compensated. It allows the company selling the invoice to free up cash, but typically not at a favorable rate.  

Invoice factoring vs discounting: Which is better?

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

Invoice factoring with FundThrough, on the other hand, advances 100% of the value of your invoice(s) via a direct bank deposit, typically within one business day of the funding request for approved accounts. You pay only a 0.5% fee on the amount funded and have the option to waive fees with early repayment. You can see the cost of invoice factoring with FundThrough on our pricing page.

Invoice factoring vs bank loans: Which is better?

Bank loans typically require a lengthy application and approval process. New and small businesses often lack the personal and business credit history, collateral assets, or other prerequisites banks seek when evaluating loan applications.

When you create an invoice factoring account with FundThrough, on the other hand, your application is evaluated via our platform’s integration with your invoicing software. There’s no lengthy application, business plan presentation, or credit check to complete. Once you’re approved, funding invoices is as simple as an online request. The fee structure is simple and straightforward, with no interest charges and the ability to waive a portion of the 0.5% transaction fee with early repayment.

You can read reviews from real customers and see why small business owners choose FundThrough over bank loans.

Invoice factoring vs overdraft: Which is better?

Invoice factoring is preferable to a business loan or overdraft because it allows you to generate capital without creating new debt. Both business loans and overdraft are a form of lending, whereas invoice factoring is an advance on revenue you’ve already earned. Rather than waiting 30, 60, or 90 days (or more) for your customers to pay, you can unlock that working capital immediately and put it to work building your business, without generating hefty interest payments or financing charges.

The Future of Invoice Factoring

What is an invoice factoring company?

An invoice factoring company advances funds that you’ve already earned, based on your outstanding invoices. Traditionally, this meant selling your invoices to a third-party called a “factor” at a discounted rate, so they could collect the payments later. Today, you can retain ownership of your invoices and have 100% advanced while tapping into the power of invoice factoring, with FundThrough.

Is using invoice factoring considered a negative by a company's clients?

FundThrough Express works in the background, so your clients and 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.

Do invoice factoring companies need to be local?

Absolutely not! In fact, choosing an online solution gives you 24/7, hassle-free access to fund your invoices when and where you need to, on whatever device is convenient for you.

Why do factoring companies or banks finance only 80-85% of an invoice presented to them?

Historically, banks and finance companies purchased unpaid invoices and collected the debts themselves. This required some investment on their part, as they needed to pay for the labour and infrastructure of the system. FundThrough Express is an agile, innovative solution that automates the process of invoice factoring. This reinvention of invoice funding means you’re able to access more of the money you’ve already earned when you need it to pay suppliers, make payroll, or invest in new inventory and equipment.

How long does it take to factor invoices?

Once your FundThrough account is set up and your invoicing app integration complete, you’ll receive cash in as little 24 hours of each new invoice factoring request. The money you need to cover gaps in your cash flow is literally at your fingertips.

Can you factor invoices online?

You bet. This is what makes FundThrough Express the cash flow solution of choice for so many small to medium-sized businesses. Our software integrates seamlessly with accounting platforms and invoicing apps including Quickbooks, FreshBooks, Excel, Jobber and Cortex. Support for Sage One, Sage 50, Wave and Xero is coming soon.

Is invoice factoring fast?

It is with FundThrough. Setting up your account takes just a couple of minutes, and we’ll let you know your initial limit within 24 hours of integration with your invoicing app.

How much does a factoring company charge for their services?

Traditionally, invoice factoring companies bought your invoices at a discounted rate. That meant you would receive 80-85% of the value as payment for the work you’d done. Thankfully, you can do so much better than that now. The efficiencies created with FundThrough’s innovative invoice factoring app mean you retain ownership of your invoices and can advance the full value, while paying a single, transparent 0.5% fee.

Who are the largest invoice factors?

For many years, banks and traditional factors were the largest providers of invoice factoring, and they made a great deal of revenue at it, too. After all, they were keeping 15-20% of your invoice value for themselves. Alternative finance solutions like FundThrough have shaken up cash flow solutions and today, we’re the top factoring app in Canada and the U.S.

Is invoice factoring regulated?

Invoice factoring works differently than traditional methods of lending and funding, and as such is not regulated under the same legislation traditional lenders follow in the U.S. and Canada. With invoice factoring, you’re not trading a share of ownership in your company in exchange for funds. You aren’t taking out a loan, either. Invoice factoring gives you access to funds you’ve already earned by advancing your accounts receivable. This helps bridge gaps in cash flow that occur naturally in many different types and sizes of businesses.

Who are the best invoice factoring companies?

The best invoice factoring company gives you quick, convenient access to funding when you need it, with a transparent fee structure that’s easy to understand. See what real business owners have to say about choosing FundThrough as their invoice factoring company of choice.

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