factoring finance

3 Things You Need to Do When Applying for Invoice Factoring

Ezra Cabrera | January 30, 2019


    Are you in need of extra cash to add to your business’ working capital? Do you need to buy equipment but have no cash to acquire it? A business in need of an immediate cash infusion will often turn to invoice factoring finance companies in hopes of a speedy, viable solution. For some, it’s the easiest way to inject some cash into their business and carry on their day to day operations. Other than that, approval is fast and you can get the funds within 24 to 48 hours after approval.
    Related: 4 Reasons Why Your Business Needs Fast Business Loans

    Businesses can sell their invoices to the factoring companies at a discounted rate to gain fast access to cash. Once the money is received, it can immediately be put towards funding daily business operations, paying suppliers, making payroll, investing in new equipment, or hiring new employees, etc.

    How Invoice Financing Works

    Invoice financing is one of the most sought-of solutions for many businesses needing access to immediate cash. By selling their invoices, they can get up to 80% of the cash upfront. This way, they won’t have to wait 30 to 90 days to get their customer’s payments. With the cash, they won’t have to risk creating a huge gap in their cash flow and face cash flow issues.

    Just like traditional financing solutions, applying for factoring finance/invoice factoring requires attention to detail. The more knowledgeable you are, the faster you can expedite the process and ultimately achieve quicker access to additional working capital for your business. Like any business transaction, you should do your research and make sure you understand the concept.

    Invoice financing can be structured in two ways: you can apply for invoice factoring or invoice discounting. The main difference between the two is in the former, the factoring company will be responsible for payment collection from your customers. In the latter, you will be responsible for payment collection. Factoring is usually what businesses apply for, especially those that don’t have enough resources to collect payments from their customers.

    How to Apply for Invoice Financing

    Unlike other types of business loans, applying for invoice financing is quick and easy. You won’t have to go through the mind-grueling process of verifying some important documents and submitting your business plan. You can even apply even if you have a bad credit score. Here are three key steps to follow when applying for invoice factoring/factoring funds:

    1. Have a Firm Understanding of Your Company’s Financial History

    You must be well-versed in all facets of your company’s financial history and business operation before you meet with lenders or begin to submit applications. Every lender is going to ask you about your company finances, so best be sure that you are prepared to answer concisely and confidently. Their questions may pertain to your scope of work, number of clients, monthly revenue average, outstanding invoices, and liens against your company. Be well-versed in these topics and provide documentation to substantiate your declarations.

    2. Consult with an Expert

    Before submitting your application, you should consult with an invoice factoring specialist. You should ask them about the options most suitable for your business based on its financial history and present needs. Lenders typically offer different types of factoring services. These experts can help you determine which is the best financing option for your specific business goals.

    Always be transparent with them. After all, the rate of your financing is based on the information you provide your lender. Be sure to tell them everything they need to know, including any tax liens or bankruptcies. Any information omitted may show up when they run your background check so best to be upfront and forthright. Remember that with invoice factoring, lenders tend to not be too particular about your business’ credit history (comparative to other types of loans.) So, in the event you do have any issues in the past, it will not disqualify you from securing the funds you need.

    3. Know the Commitment You’re Making

    Different types of lenders offer different types of factoring terms. Some factoring companies may also require business owners to submit a minimum amount of pending invoices every month. In these cases, you’ll be facing fees if you fail to deliver.

    Your contract should list the agreement terms, rates, and any associated fees. After you’ve read it, be sure to verify all the information contained in the document. Then read it again, and then once more final time. Once you sign it, it’s legally solid.

    Are You Ready to Apply for Invoice Factoring Finance for Your Company?

    The invoice factoring finance option is a good choice for business owners who don’t have the luxury to wait a few days for their customer’s payments. With the additional cash, you can streamline your company’s operations, invest in the necessary equipment, and expand your business operations. The best part is, unlike other types of financing, you don’t need to have a stellar credit background to qualify. As long as your customers are creditworthy, you’ll be approved of invoice financing and ensure bring success to your business.

    Related: Invoice Financing: Funding for Businesses with Bad Credit

    About the Author

    Ezra Neiel Cabrera has a bachelor’s degree in Business Administration with a major in Entrepreneurial Marketing. Over the last 3 years, she has been writing business-centric articles to help small business owners grow and expand. Ezra mainly writes for SMB Compass, but you can find some of her work in All Business, Small Biz Daily, LaunchHouse, Marketing2Business, and Clutch, among others. When she’s not writing, you’ll find her in bed eating cookies and binge-watching Netflix.