Guide to Making the Most of Invoice Factoring

Use invoice factoring services to make more money for your business

By Rose Bricker, Freelance Writer

Action Steps
The best contacts and resources to help you get it done

Pick an invoice factoring company that specializes in the indusry that you're involved in

Consult an invoice factoring directory that shows your different industries that have invoice factoring services for your particular industry. These include trucking and construction as well as many others. You can make more of an invoice factoring service that caters specifically to your industry.

I recommend: All Options Factoring has an invoice factoring directory, which includes explanations on using factoring in different industries. Likewise, 1st Commercial Credit offers a list of the different industries, plus reasons why you should use a factoring company that is specifically geared for your industry.

Look for Internet sites where you can get a free quote for invoice factoring

There are many things to consider when you decide to borrow against invoices. Fees, the initial amount you'll receive, the final amount you'll receive, the time involved before you get the money and whether the company offers recourse or non-recourse services. Getting free quotes will help you decide which accounts receivable factoring business is right for you.

I recommend: You can get up to five quotes from vendors through Resource Nation. Simply fill out the form that describes your project or business and it will match you with qualified factoring businesses. Use BuyerZone to compare multiple quotes from different invoice factoring companies. Fill out the form and hit continue and you will have another form to fill out. Submit that form to send your request. Diversified Funding Services sends you an email after you complete and submit its form. You can pick up to five quotes when you fill out the form.

Search for an invoice factoring directory that compares factoring to other types of financing

Making the most of invoice factoring includes understanding the differences between factoring receivables and other more traditional financing. Thus, you should locate a chart that can explain the differences at a glance.

I recommend: The Factoring Company makes comparisons on how long it takes to get your money and how easy it is to fill out the application as well as many other things between many different ways to get financing for your business. Rexford Funding also gives you a chart, which will show you the differences between factoring and other more traditional means to finance your business.

Helpful advice for making the most of this Guide

• •  When making the most of invoice factoring companies, remember to consider how the factoring company will treat your customers. Many factoring companies take over all phases of your accounts receivable including collection, so you want to be sure they will treat your customers right.

Companies that typically benefit from factoring include:

1. Seasonal businesses.
2. Start-ups.
3. Undercapitalized businesses.
4. Businesses experiencing rapid growth.
5. Businesses that can't secure traditional bank loans.

Action Steps
The best contacts and resources to help you get it done

A la carte services

If you don't need factoring on a regular basis but simply need an advance once in a while, search out a factor who offers piecemeal services.

I recommend: Test drive the Facteon factoring service, which requires no ongoing contracts and can provide cash for a single invoice or for all your invoices.

Doing the paperwork

Some factors will do far more than simply send you an advance. For instance, factors may also handle billing and collections for you, which can reduce your postage costs.

I recommend: JDFinancial.com, which works with start-ups and established businesses, is a full-service factor that acts as your credit department, bookkeeping department and collection department.

Big businesses and government contracts

If you do business with the federal government or major corporations, it's common for payments to trickle in several months after products or services have been provided. This can leave you in a cash bind and has become a major reason why small businesses are turning to factoring.

I recommend: 1stCommercialCredit.com provides factoring for a wide variety of businesses and industries, including those who have federal government contracts.

Import/export factoring

Doing business with foreign countries can translate into extremely slow payments. Avoid cash crunches caused by slow international payments with a factor that offers import/export services.

I recommend: CIT, one of the world's largest providers of factoring, manages the entire import/export payment process — from invoicing through collections.

Check references

Factoring companies are less closely regulated than banks and thus require due diligence. Once you've initiated contact with a factor, ask for and check references.

I recommend: For added security, consider going with reputable, big-name firms, such as Wells Fargo, GE Capital or UPS.

Avoiding nonpayment

Factors may insist on a lien against your assets in case of non-payment. They may also negotiate a deal in which you're forced to repay funds for unpaid invoices.

I recommend: Inzap.com, which specializes in invoice funding for small businesses, requires repayment of any advanced funds that aren't paid within an agreed upon term.

Understand fees and payment structures

While most factors charge in the 3 percent range for their services, payment structures differ. Some will pay you almost the full amount of the invoices upfront; others will pay only a percentage of the invoices with the remaining percentage being sent to you once they've received payment of the invoices.

I recommend: Some factors, such as Capital Funding Solutions, advance approximately 60 to 80 percent of the invoices, with the remainder sent upon payment of the invoices.

Review your contract

Pay particular attention to pricing structures, total fees, monthly minimums and contract length.

I recommend: Check out this sample factoring agreement for an idea of what you can expect.

Helpful advice for making the most of this Guide

• •  Seek recommendations from your banker, accountant, lawyer and trade association for factors that serve your industry.
• •  A good factor should not only help you with cash flow and collections, but should treat your customers politely and be interested in helping your company grow. Some will even help you start doing business abroad.
• •  Look for factors that have experience working with companies in your industry and of your size.
• •  Shop around. Factoring rates are more competitive than ever.
• •  Consider your customers' reactions. Will they be irritated by dealing with an outside party? And are you willing to take that chance?
• •  Negotiate as you grow. As your company becomes more established, you may be able to land a better rate with your factoring company.

Guide to Invoice Factoring Basics

Everything you need to know about the basics of the factoring business

By Rose Bricker, Freelance Writer

Action Steps
The best contacts and resources to help you get it done

Understand invoice factoring basics by reading about factoring

Since factoring is new to small businesses, many factoring companies explain factoring. Visiting these sites will give you greater insight into what factoring is and how it work, and help you further understand the basics of the factoring business.

I recommend: New Century Financial explains what invoice factoring is and how you can qualify for it in a matter of days. Universal Funding explains invoice or accounts receivable factoring and how its company can help you get funds in as little as two hours.

Learn what fees are involved and the terms of invoice financing

There are costs involved when using a factoring company. In the factoring business, fees range from 1% to 5% and advances anywhere from 65% to 97%. You also need to consider if you can pick the invoices you want to factor, if you have to commit to factoring a certain amount of invoices on a regular basis and whether the company offers recourse or non-recourse.

I recommend: Factoring Company explains factoring fees, shows how the fee structure and funding works, provides an example and provides circumstances when factoring is not a good idea. Commercial Capital lets you explore the cost of invoice factoring as well as everything else you need to know about factoring.

Decide if factoring receivables is right for your business

If you find that your accounts receivable are surpassing your cash flow, you probably will benefit from factoring invoices for business. If you also need extra cash for expansion or to buy more inventory or other things in your business, an invoice factoring company can be right for you.

I recommend: Rexford Funding gives you many reasons why you should use factoring in its invoice factoring directory of benefits for using factoring. CapitalPlus allows you to read not only the benefits of factoring, but also explains why factoring is not a loan.

Helpful advice for making the most of this Guide

• •  When considering factoring invoices don't forget to check and see how long it will take to get your initial money.
• •  Locate factoring companies that have been in the factoring business for many years and cater to small businesses.

Guide to Invoice Factoring Key Terms

Learn more about invoice factoring key terms and help your business grow

By Rose Bricker, Freelance Writer

Action Steps
The best contacts and resources to help you get it done

Invoices or accounts receivable

Invoices are an asset on your books. Instead of getting cash immediately, you give your client credit and receive the cash in the future. If you need cash immediately, selling your invoices can help you raise funds. This way, you get an influx of cash into your business without taking out a loan.

I recommend: Wise GEEK explains what invoices or accounts receivables are and how they fit into your overall financial picture.

Factoring company

A factoring company buys your invoices or accounts receivable and allows you to get most of the cash immediately rather than in the future. Factoring companies offer you an alternative since factoring is not a loan, and your customers' ability to pay is the basis of your approval.

I recommend: Team Factoring provides a history of factoring, along with an explanation of the company's services.

Advance

An advance is the money the factoring company gives you before your invoices are paid by your clients.

I recommend: J&D Financial explains factoring and advances.

Factoring fees

Factoring fees are the amount of money, usually described as a percentage, that the factoring company charges you for it service.

I recommend: Business to Business Capital explains factoring fees.

Invoice factoring

Invoice factoring means selling your invoices to a factoring company and getting a certain amount immediately, rather than waiting until accounts are paid.

I recommend: The Invoice Factoring Group explains invoice factoring and provides you with an example.

Difference, reserve or holdback

The difference, reserve or holdback is the amount of money you will get when your invoice is paid by your customer, minus the percentage the factoring company keeps for itself.

I recommend: Crestmark Capital explains factoring and includes an example of the difference or reserve.