Invoice Factoring Explained
Invoice factoring is a quick, cost-effective way for business-to-business (B2B) companies to improve cash flow by receiving faster payment of their invoices. It’s a great alternative to bank loans or high-rate loans such as merchant cash advances. The information contained in this guide explains what invoice factoring is, how it works, how it compares to other forms of financing and how your company can use it to improve cash flow and grow your business. The graphic below provides a visual representation of how this works.
Invoice Factoring is Great for Your Business If:
- You are unable to obtain or are struggling to increase an existing line of credit
- You or your business issues invoices with up to 90-day payment terms and cash flow strains could be eased with an expedited payment turnaround
- Your business is susceptible to seasonal fluctuations in cash flow
- Payroll is a stressful time of the month, especially with working capital being tight
- You are an established business with plans for expansion in new markets
Is Invoice Factoring Right for Your Company?
Invoice factoring is a great way to improve cash flow without incurring additional debt. But how do you determine if factoring is right for your business? There are 4 main considerations when determining if invoice factoring is a good fit; 1) customer type, 2) how you bill your customers, 3) how your customers pay, 4) how long it typically takes for your customers to pay. Our blog post, Is Invoice Factoring Right for Your Business, provides all the details make an informed decision.
The Benefits of Invoice Factoring
- Improved Cash Flow
- Factoring is Fast and Easy
- No Debt to Repay
- Factoring Helps Build Business Credit
- Your Customer’s Credit is Important
- Your Access to Cash Grows with Your Company
What to Know Before You Start
When selecting an invoice factoring partner, there are some critical things to consider – industry expertise, dedicated account management, services, fee structure.
Work with Commercial Funding and Conquer Your Capital
Commercial Funding has a great deal of experience working with various industries, including transportation, staffing, oil and gas, manufacturing, construction, waste disposal, information technology (IT) and engineering services, and more.
When working with CFI, you will always have a dedicated individual who serves as your personal Account Manager (AM). When you need information or assistance, a simple direct phone call is all you need. CFI maintains a customer portal you can access 24/7 to get a complete view of your account and the factoring relationship.
Lastly, CFI never surprises customers with hidden or unexpected fees. Upon signing your invoice factoring contract, you’ll always know what to expect.
Managing the Factoring Relationship
Once you have been onboarded, you will be assigned your own Account Manager (AM) that has expertise in your industry and is available with a direct phone call or email. At CFI, our team is filled with experts that will dedicate themselves to serving your every need and who understand your business and the industry in which you operate!
Prepare Your Invoices
Once your account has been set up, the next step is to prepare your invoices.
For some industries, the invoice itself is only a part of the paperwork required to verify invoices. Some examples of required supporting documentation include:
- For Staffing Companies
- Timesheets, often signed off by your customer
- For Trucking Companies
- All pages of the bill-of-landing (BOL)
- Lumper/Detention receipts
- For Oil and Gas Companies
- Weight tickets
Your dedicated account manager will work closely with you and your business to outline the exact expectations and coordinate a consistent funding schedule along with the submission of appropriate documentation so you may receive payment for your invoices as quickly as possible.
Evaluate the Results and Track Ongoing Progress
A sophisticated accounts receivable financing company will provide you with detailed reports on the status of your receivables, which helps you better manage your business and cash flow. This reduces the amount of time you spend preparing reports and allows you to focus on your business. CFI’s customer portal conveniently aggregates handy reporting tools to track your accounts receivable, invoices and documentation submitted, and payments received, and monitor the additional funding you can receive for your business.
Invoice factoring is an advantageous lending option for many B2B companies. A real factoring partnership can serve to alleviate administrative stress and pave the way for long-term growth for your business!
