Invoice Factoring

Get Paid for Outstanding Invoice Fast!

Are you tired of waiting to get paid before you can pay bills or start on a new project? If so, then invoice factoring may be an option for you. It allows you to move past invoices that are awaiting payment by turning them into cash that you can use now.

Learn if invoice factoring is right for your business.

  • Get up to 100% of invoice value
  • Only pay after the invoice is paid
  • No restrictions on what you use funds for
  • Quickly increase cash flow

Ready to get Started?

What type of Business
Loan do you need?

Select your type of business

What is Invoice Factoring

Businesses must often wait to get paid for their goods or services, but that can put a damper on their operation. This is where invoice factoring can greatly help. Invoice factoring can help cover operating expenses or any other costs that a business incurs.

Invoice factoring is not the same as a loan, where a lender gives you money in exchange for repayment. Instead, the lender will take over the outstanding invoice. You are essentially selling them the debt instead of borrowing money from them.

In some instances, lenders will treat invoice factoring as a loan where you will need to make regular payments to cover the interest that is accruing. In this case, the main difference between the two is who will be paid. With traditional invoice factoring, the debtor will need to pay the lender, but when it is treated as a loan, the business may still need to collect on the debt.

Why is Invoice Factoring right for me?

Invoice factoring allows a business to borrow money against what their customers owe. Instead of borrowing money against property, you are borrowing against your outstanding invoices. Doing so allows you access to money you may be waiting for customers to pay instead of going further into debt.

By borrowing against your debt, you are able to free up space on your books and get much-needed capital back into the business. It allows the business to not only improve cash flow but also cover its operating expenses.

Furthermore, your business’s credit or ability to secure other funding is not inhibited because invoice factoring is not a loan. This means you will still be able to make other purchases and get trade lines if necessary. Conversely, it does not help build credit either, but that is a tradeoff you will need to weigh out.

Finally, invoice factoring is very flexible with regard to the transactions you wish to factor. You can choose to factor all of your invoices or just certain ones. There are even options that allow you to factor all of your future invoices as well. Invoice factoring is not a good choice for everyone as the fees will quickly add up, but it could be worth it if you regularly wait long periods of time to get paid.

Pros & Cons

Although invoice factoring is not the best funding solution, it still has some pros that could make it right for your business. Just make sure that the pros of invoice factoring outweigh the cons.

Pros

  • No collateral
  • Does not count as debt
  • Factor as much as you want
  • Improve cashflow
  • No need to follow up with invoices

Cons

  • Extra fees
  • You may still be responsible if customers don’t pay
  • Lose control of invoicing
  • Amount depends on the number of invoices

Common Uses of an Invoice Factoring Loan?

Invoice factoring is oftentimes used to fill holes in a company’s cash flow. However, there are no set rules on what you have to use it on. Therefore you can spend it wherever you see fit to meet your business’s needs.

With that in mind, most businesses do have a reason in mind for pursuing invoice factoring because they would otherwise simply wait to get paid. Here are just some of the many reasons that a business might want to consider invoice factoring:

  • Make payroll
  • Pay off debt
  • Start new projects
  • Purchase materials
  • Expand business

Pay bills

  • Increase operating capital
  • Make payroll
  • Pay off debt
  • Start new projects
  • Purchase materials
  • Expand business
Pay bills
  • Increase operating capital

What Factors Affect Invoice Factoring Loan Rates?

There are a number of factors that can affect your invoice factoring rates. In some cases, you will be offered a set amount for the invoice, while others may offer you financing for the entire amount with monthly payments.

For flat rate invoice factoring, the lender will take a certain percentage of the amount loaned, let’s say 10%, they will give you 90% no matter how long it takes them to get paid. The other way is tiered, where the lender will give you the full amount upfront but will charge fees and interest until the debt is paid.

Now that you are aware of how invoice factoring determines rates, let’s look at how the debt is collected and who is ultimately responsible for it. There are two different ways that invoice factoring can be done. Recourse is where you are still ultimately responsible for the debt, and non-recourse is where you are completely free of the debt.

  • Recourse - Recourse invoice factoring means that a lender will be able to go back to you if they are unable to collect on the debt. The liability of the debt will still fall on the company. The business will need to buy back the debt that the factoring lender is unable to collect.
  • Non-recourse - With non-recourse invoice factoring, the lender is not able to come back and ask you for payment if they are unable to collect on the invoice. Therefore, they assume all risk and responsibility for collecting the debt. While this sounds like a great choice, the higher risk is passed down to you in the form of a lower payout on the invoice.

Requirements of an Invoice Factoring Loan

Invoice factoring does not have the same requirements as a loan since it is not technically a loan. However, there are some documents you will need to produce and in some cases, they may be scrutinized more heavily than they would be for a loan.

A noticeable difference is that invoice factoring typically does not rely on the business’s credit score. Most also do not look at the business’s ability to repay the debt. Because the lender is purchasing the debt, there is no concern for repayment in most cases.

The main thing that invoice factoring will scrutinize is your financial statements. This will tell them the payment history of your customers and the likelihood of receiving timely payment. Therefore, bank statements and accounting records are a critical part of pursuing invoice factoring.

Below are some of the information that a lender will need to get you started with invoice factoring:

  • Bank statements
  • Business documents
  • Tax returns
  • Accounting records
  • Invoices
  • Accounts receivable statement

How to Apply for an
Invoice Factoring Loan

If invoice factoring sounds like a good choice for your business, reach out to Lendnow. Our network of over 50 nationwide lenders will be able to assist you in getting the funding you need for your business in as little as 24 hours. Whether you need to make a purchase or just need some working capital, Lendnow can help.

Our application process is quick and easy. Simply submit your business details, and we’ll get back to you as soon as possible with financing options that best suit your situation.

Start Now

FAQ

Invoice factoring is not considered a loan as you are not borrowing money. Instead, a lender is purchasing your outstanding invoices. They purchase them at a discount which is how they make money.
There are invoice factoring options for startups and new businesses. However, the options available may be limited compared to well-established businesses. The most important requirement is that you have outstanding invoices that require payment.
Only you know what is right for your business. However, the high cost of invoice factoring may balance out with the fact that you don’t need to make monthly payments. Invoice factoring can ensure that you don’t end up in a worse position owing money you are unable to repay.
No, invoice factoring lenders deduct their fees and interest from the amount they give you. Repayment comes strictly from collecting unpaid invoices. The only time where you would be responsible is if you choose a recourse loan where the lender can require you to pay invoices they are unable to collect on.
Lenders will calculate the amount you can borrow based on your outstanding invoices. Not all of your invoices may be eligible for factoring. The lender will then add up all of your factored invoices and deduct their fees from the total payout.
Invoice factoring has no impact on your customers or what they owe. In some cases, your lender may require payments to be made directly to them. In this scenario, customers will need to pay the lender directly. If you are concerned about what customers will think, simply explain that a third party is handling your invoices.

Find the type of loan that is right for you

Few entrepreneurs get it right the first time – it takes resilience to continue when banks say “no”. Don’t let access to capital keep you from advancing!

Start Now