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Invoice Factoring

Accounts receivable financing, or Factoring, is the purchase of accounts receivable invoices at a discount. If you bill your services to commercial customers, and they pay in 30, 60, 90 days or more, Invoice Factoring is a great working capital solution. This flexible type of financing works great for businesses of many different ages and sizes, as long as you have qualifying invoices. Many factoring companies will even work with you if you’re a startup. 

Qualifying for invoice factoring with Webb Capital Advisors is easier than qualifying for long term financing, like term loans and lines of credit. While credit scores, annual revenues, and profitability can be significant hurdles for other types of financing, those are less often issues with invoice factoring. Most factors care about three primary things:​​

  1. You must invoice business (B2B) or government (B2G) customers. Your customers must have good credit scores and they must be established businesses. The factor will need to feel comfortable that your customers are likely to pay off your invoice.

  2. The invoices must be due and payable within 90 days and unencumbered by other loans.

  3. Your business should not have a history of serious tax or legal problems.

Invoice Factoring and Opportunity Cost

The longer customer invoices go unpaid, the less working capital is available to a business. Limited access to working capital equates to limited means to take advantage of opportunities to grow.

These missed opportunities are what is referred to as opportunity cost.  Simply, it is the "cost" a business pays by having their working capital tied up in accounts receivable. When this cash becomes readily available, it allows the business to grow more quickly.

Lost opportunities (or opportunity cost) includes all the things a company can’t do because cash flow doesn’t permit it. This could include:

  • Having to wait to take on new business

  • Being limited in the size of orders a company can fulfill

  • Being limited in the number of customers a business can serve

  • Being unable to take advantage of vendors’ early-pay discounts

  • Being unable to extend better payment terms to customers as a competitive advantage

  • Inability to pivot quickly to take advantage of emerging opportunities

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Stop Stressing. Start Growing

Get Access to Funds Quickly  Once you’ve decided to factor your invoices, you’ll be able to receive financing quite quickly. Oftentimes, money is available within a week following the signing of a factoring agreement. If your company is in a severe cash crunch, invoice factoring can help resolve the issue and get you access to the money you need.

Money Can Be Used for Any Business Purpose  Traditional business loans often restrict how funding can be used. For example, an equipment financing loan is usually only available for equipment purchases, and a commercial loan may be constrained to purchasing company property. Business factoring for small businesses allows you to use the money for any purpose.

Limit Your Collections Efforts

Under an invoice factoring agreement, the factor becomes responsible for collecting unpaid bills, not you. This frees up you and your team to dedicate time to other essential activities, such as building sales or developing new products. You’ll no longer need to follow up with customers who are late with their payments or constantly review your aging receivables.

Build Your Company’s Credit  While invoice factoring doesn’t enhance your company’s credit directly, it does serve to help you with your working capital. You can make sure your vendors are paid on time by having the funding you need. In addition, most invoice funding companies don’t place limitations on companies seeking to obtain debt financing. This gives you the flexibility to get additional funding in the future if you need it.

Reduced Risk of Unpaid Invoices  It can be frustrating to sell a well-developed good or service to a customer, only to have them not pay you. When you choose to develop a relationship with an invoice factoring company, in most cases, they will be involved in the approval of new customers. Rigorous checks will be conducted to prevent bad apples from souring your revenue. This helps to eliminate the chances of bad customer debt.

No Business Debt  Since factoring isn’t a loan, you’re not taking on debt that you’ll need to repay over time. The customers you have are responsible for paying their invoices, not you. You are simply benefiting from a quicker payout on their invoices. This means that your balance sheet will show limited liabilities (unless you’ve taken on a prior loan), which can benefit new companies. There’s also no personal guarantee required.

More Time to Focus on Your Business  There’s the old saying that it’s better to work on your business, not in it. Because you’re allowing another company to completely take over your outstanding invoice, invoice factoring helps to give you the extra time to focus on your business, rather than chasing down payment from a client.

Imagine what you could do without cash flow headaches

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