Invoice Factoring for Small Businesses & New Business

‍Lenders for invoice factoring loans

Invoice factoring loans can be leveraged if business owners have outstanding invoices. Cash flow is a dilemma for business owners as it can take money a while to come in. As you await paid invoices, you can use the accounts receivable to back loans, known as invoice factoring loans. Essentially you are selling the invoice to a third party company. There are three parties involved in the transaction; the seller (your business), the debtor (your customer), and the factor (invoice loan company). Of course, the lender offering to loan on unpaid invoices will collect a fee so that’s what is in it for them. Invoice factoring offers a way to boost working capital, which can help businesses prosper. 

We know how hard you worked to bill an invoice. From acquiring the relationship to delivering quality work or products, maintaining healthy profits is important, no matter what. Therefore, when you choose to partner with an invoice factoring company, choose one that keeps your best interest in mind. 

Invoice factoring lender highlight: Elevation Capital 

• Elevation capital is a valued invoice factoring partner that can help you borrow money against unpaid invoices. As a reputable and experienced company, they work off values that benefit all parties involved. Ensure the success of customers is not only critical to business owners, but lenders too. However, not all may view it like that. Choose Elevation Capital as a trusted partner to grow your business with. 
• Kapitus is also a great lender for invoice factoring, providing loans as soon as the next business day upon approval and a minimum of 600 credit score.

Lenders for invoice factoring loans for bad credit

Bad credit can hinder business owners from getting the funding they need. As a result, alternative options such as invoice factoring can be viable. It can also be more cost effective too. While we always encourage business owners to build and maintain a strong financial position, we understand that the day-to-day never ends. At mySMBscore we can help business owners understand their SMBscore and provide insights to improve it, as well as connect business owners with lending partners that can help based on your current situation. 

• Lender highlight for bad credit invoice factoring: Elevation Capital: We proudly partner with Elevation Capital to provide invoice factoring loans for bad credit. With a minimum credit score requirement of 550, business owners can get the funding they need, judgment free. Elevation Capital understands the financial risk of being a business owner, and therefore, is committed to helping as many business owners achieve success as possible. 
• Kapitus is also a great lender for bad credit invoice factoring, requiring a minimum of 600 credit score and loans up to $20 million.

How much money can I borrow with an invoice factoring loan‍

In exchange for your unpaid invoices, you can borrow funds. The amount you qualify for will vary, as can the amount a lender can offer. Elevation Capital is committed to maximizing the success of business owners by offering invoice factoring loans up to $10,000,000. As a committed partner in the financial space, we work with a wide variety of business owners to ensure they get the funding they need. 

How long do I have to repay an invoice factoring loan?

The average invoice factoring loan repayment time at Elevation Capital is 120 days. For Kapitus, the total time it takes to access financing through invoice factoring is typically anywhere between 1-2 weeks. However, repayment terms vary for Kapitus.

What is invoice factoring?

First things first — What exactly is invoice factoring?! It’s an alternative type of financing where a business will sell its outstanding invoices to a third party, who will then collect the outstanding payment amounts. The third party will collect a portion of the outstanding amount, and the business will collect the rest. 

While it might sound somewhat complicated, it’s a great financing option for businesses that invoice customers. One of the best benefits is that it can help businesses maintain a normal cash flow, even when their customers pay invoices irregularly. 

How does small business invoice factoring work?

Curious to learn how invoice factoring works? If you agree to an invoice factoring agreement, you’ll invoice a client like normal. But, instead of waiting to collect that money directly from the customer, you’ll sell the invoice to the factoring company. In exchange, you’ll get a percentage of the invoice upfront. How much? Well, it’ll depend on your agreement, but usually around 80% of the invoice’s value upfront. Then, when the customer pays, you’ll collect the remaining amount minus any fees the factoring company charges. 

How can invoice factoring benefit my small business?

Invoice factoring won’t work for every business, but for those who rely on invoices to collect payment, it can be a great way to regulate your cash flow and streamline your finances. Instead of waiting weeks or months for an invoice to get paid and collecting the money, you can get a large amount of that outstanding invoice immediately. In turn, this can help businesses keep track of their finances better, manage their cash flow and avoid the troubles that come with late payments.

For small businesses with fragile finances, waiting weeks for payment can really impact their bottom line. With invoice factoring though, that wait is minimized, and you can get cash in hand faster.

What types of businesses are eligible for invoice factoring?

Most businesses that use invoices to collect payments are B2B businesses. So, companies like wholesalers, service firms, manufacturers or others that send invoices are the target business to participate in invoice factoring. 

Invoice factoring can be a great fit for a business that might experience different seasonal peaks to their business or those who can’t qualify for more traditional financing options because of their credit score. If you’re not sure what your business credit score is or what you might qualify for, you can check your small business credit score on mySMBscore so that you can get valuable insights from the perspective of a lender. 

When should your small business use invoice factoring?

Like everything in business, timing is everything. So when is the right time to consider invoice financing? There are a few tell-tale signs that this type of financing can help you. 

• If you’re a new business - When you’re starting a business, every penny counts. If you’re struggling to collect payments or need to increase your cash flow quickly, invoice factoring could be a good fit for you. 
• You need cash fast -  Invoice factoring can help you get access to the outstanding cash you’re owed in a quicker way than waiting for customers to pay. 
• Your customers pay late - If you’re finding that your customers are frequently paying their invoices late, invoice factoring can help provide a more predictable stream of cash. 

What are the fees associated with invoice factoring?

Some of the common fees with an invoice factoring deal include: 

• A factoring fee - This is the fee that the third-party factoring company will charge and can range from 0.5% to 5% per 30 days.
• Reserve fee - A fee that can be held back until the entire invoice is paid by your customer. This amount is usually paid back to you once your customer pays the invoice.
• Miscellaneous - Of course, keep an eye out for any other fees like processing fees or early termination fees.

What is the difference between invoice factoring and invoice financing?

While they sound similar, they are two very different types of financial tools. 

Invoice factoring involves selling your invoices to a third party, who will collect payments directly. You’ll get cash up-front but pay a percentage of your invoices to the factoring company. 

Invoice financing, on the other hand, is quite different. Otherwise known as accounts receivable financing, this is when a business gets a line of credit based on outstanding invoices you have with customers. You’ll stay in control of collecting any payments from customers, and you’ll pay fees and interest rates instead for the line of credit. 

What are the pros and cons of invoice factoring for my small business?

Pros: 

• No added debt - Invoice factoring doesn’t involve adding debt - just paying fees. 
• Another company will collect payments - You won’t have to worry about hassling customers to pay your invoices anymore — that’s what the factoring company will handle!
• Your credit score is less important - You don’t have to worry about your credit history if you’re just starting out or don’t have fully established business credit yet. 

Cons: 

• Fees - You can expect fees from invoice factoring, although they’ll range based on different factors, like the industry you’re in and your customer’s creditworthiness.
• Disconnect from customers - When a third party is collecting fees from customers, you can lose control over the communication with your clients, which can lead to lower customer satisfaction.

Can I use invoice factoring to improve my cash flow?

Yes! Small and mid-size companies can use invoice factoring to get access to capital (fast!) and bridge the gap between when you send invoices and when your clients pay you. 

How long does the invoice factoring process take?

Overall, the process is fast! While it depends on the invoice factoring company you go with, most companies get set up within 5 to 10 days. Of course, it depends on the size of your company’s business and how many invoices will need to be processed. 

What happens if my customers don't pay their invoices?

It’s a common fear for any company that opts for invoice factoring, and there are a few different ways it can go depending on your arrangement.

The most common arrangement is something called recourse factoring. In this situation, your business will ultimately be responsible for any invoices your customers don’t pay. Yikes! That’s why it’s still important to maintain good connection with your customers and ensure you’re still holding them accountable — even if a factoring company is managing the invoices. 

The other option is a non-recourse arrangement. This is less common, but in this case, the factoring company would take a hit for any payments that your customers don’t take. While this might seem like a good option, it also usually comes with higher fees for your company. 

How do I choose the right invoice factoring company for my business?

There are countless companies out there that will factor invoices for your business, but finding the right one takes a bit of research and understanding. As you search for a factoring company, keep in mind these considerations: 

• The industry they specialize in - Some companies have a specialization in different industries, which can be helpful when it comes to contracts, fee structures and other terms of the agreement.
• Their reviews - Make sure the company you choose has good reviews and a positive reputation from past customers. Reputation is everything when it comes to financial institutions!
• Proposed fee structure - Every company has a different fee structure, so make sure the companies you explore have transparent fees outlined in their offer. 

You can use a site like mySMBscore to see your offers and review your credit score through the eyes of a lender, so you can ensure you’re getting the best deal possible when it comes to invoice factoring.

What documents are required for invoice factoring?

Each lender will have a different set of documents you have to submit to be considered. But you can generally expect the following documents to be required: 

• The completed application 
• Your customer’s contracts and payment agreements
• The invoices you plan to factor

Is invoice factoring a good option for businesses with bad credit?

You’ll notice in your application for invoice factoring that your credit score doesn’t impact your ability to get invoice factoring. Since credit is not taken into account for the approval decision, invoice factoring can be a great option for businesses that have bad credit but still need upfront cash. 

If you’re looking to improve your credit score or see where your credit score stands, mySMBscore is here to provide you with the insights you need to make the right decisions for your business. 

How does invoice factoring affect my relationship with my customers?

Invoice factoring not only impacts your bottom line — but it can also impact your customer’s perception of your business. That’s why it’s important to over communicate with your customers and outline why they’ll now be paying a third-party company and why you decided to use invoice factoring for your business. 

As long as you continue to stay involved and keep a healthy, positive relationship with your customers, you can mediate any issues with their perception of your business. 

What are recourse factoring and non-recourse factoring?

Recourse and non-recourse factoring are the two main kinds of invoice factoring. The biggest difference is that with recourse factoring, you are still responsible for any invoices your customers fail to pay. With non-recourse factoring, the third party will be responsible for those unpaid invoices. 

What happens if I need to cancel my invoice factoring agreement?

Each agreement is likely structured differently, so you’ll have to look closely at what the terms and conditions of your agreement are.