One of the basic principles of running a successful business is having a consistent, reliable source of cash. Any business operating without cash will soon grind to a halt. The traditional source of operating cash is a bank loan or business line of credit. Nowadays many companies are turning to a different source of cash; invoice finance and invoice financing companies.
Invoice financing, or invoice factoring as it is sometimes called, is a type of business finance that has been around for many years. How invoice financing works is very simple. A business will “sell” their open invoices to an invoice financing company and receive an immediate cash advance, generally around 90% of the value of the invoices. Once the invoices have been processed and paid by the customer, the remaining balance of the invoice, less a small fee, is then remitted to the business.
Invoice financing is a reliable source of cash for businesses with customers on payment terms of net 30, net 60, or longer. These businesses are able to access the money in their receivable much faster, without creating additional debt for the company. This money is used to meet payroll, manage daily expenses, or expand operations.
Invoice financing companies are firms specializing in providing invoice financing programs. These companies offer the same primary service of advancing on invoices. What makes these companies different are the advance rates on the invoices, the financing fees, and the level of services they provide.
Industry knowledge and experience plays a big part in the success of an invoice financing arrangement. Many invoice financing companies focus on a specific industry or two and tailor their programs and services to the businesses operating in these industries. These companies generally offer a higher level of service. A few financing companies are more broad regarding the types of business they serve. While these companies can offer low fee rates, the additional services and knowledge may not be as great.
Invoice financing is used by small and mid-size companies. These companies can range from startups to long-established businesses. Companies that do not qualify for traditional bank loans or lines of credit can easily qualify and use invoice financing. Even businesses with tax or bankruptcy issues use invoice financing as part of their recovery. The most common reason companies turn to invoice financing is they tired of waiting for customer payments and need cash quickly to improve their business.
In order to finance invoices, companies must be providing their goods or services to other companies. Invoice financing companies do not accept business to consumer invoices. There are a number of industries in which invoice financing is commonly used including; trucking and freight transportation, staffing and temporary employment agencies, oilfield service providers, manufacturing, and many more.
Applying for a bank loan or line of credit is a time consuming and detailed process. It can take weeks or months for approval and requires regular reporting of financial statements to the bank. On the other hand, getting set up with an invoice financing company can be done very quickly.
The first step is to speak research and speak with a representative from a financing company that services companies similar to your own. Ask about advance rates, financing fees, additional services provided, and the setup process. By comparing financing companies, you can find the one that best fits your needs.
Scale Funding is a leading invoice financing company. Since 1994, Scale Funding has provided cash to 1000’s of companies involved in trucking, oilfield services, staffing, and other industries. For a free, no-obligation invoice financing consultation and quote, call 800-707-4845, or complete the form below.