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Invoice Financing

Use your invoices to accelerate growth!

How much are you looking for?

price

Loan Amounts

$25,000 – $5,000,000

Terms

Revolving Credit

Rates

6% – 18%

Speed

24 – 48 hours

Benefits of working with SMB Compass

  • Successful track record of supporting small businesses

  • Free consultations to discuss financing options

  • 5 Star Customer Reviews

  • Over $160 million delivered to 1,100+ small businesses

  • 10+ years of business lending expertise

  • Flexible and low cost options available

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What is Invoice Financing? What is Factoring?

Invoice Financing is a great way to accelerate cashflow by getting paid on your outstanding invoices today, rather than waiting 30, 60, or 90 days to be paid. Invoice financing acts like a line of credit, when your invoices are paid, your balance goes down, when you create new invoices, you can draw more money. The purpose of Invoice Financing is to bridge the gap between your accounts payable and accounts receivable, which not only helps with day to day expenses, but helps you take on additional customers and grow your business.

There are different terms and fees that come with Invoice Financing. This is determined by the strength and credit of the business, but most importantly, the strength and credit of its customers. As an example, if a food vendor sells their goods to a restaurant that recently opened, the quality of those invoices wouldn’t be considered strong. If that same food vendor sells to Walmart and they have a multiple year relationship, the quality of that invoice is very strong. The first example would result in higher rates and less competitive terms where the second example would have Invoice Financing companies competing for the business!

What are the different types of Invoice Financing?

Factoring Line of Credit

A factoring line of credit is a business line of credit that is secured by all the invoices of a business. With a factoring line of credit invoices are required to pay to a lockbox, which is controlled by a factoring company. You have the ability to sell all eligible invoices and receive funding the same day you invoice. Businesses no longer have to wait for customer to pay when using a factoring line of credit.

Spot Factoring

Spot Factoring is when a business sells a single invoice to a factoring company. Unlike a factoring line of credit, spot factoring is usually and individual transaction rather than an ongoing relationship. Companies will typically use spot factoring for big orders that tie up necessary operating cashflow.

Non-Notification Factoring

Traditional factoring programs require both notification and verification of invoices. A non-notification factoring facility is when the factoring company does not notify your customers that they are purchasing invoices. In order to qualify for non-notification factoring you must have strong financials. Like a factoring line of credit, all invoices will have to be paid to a lockbox which is controlled by the factoring company.

International Factoring 

International factoring is similar to domestic factoring, except the buyer and seller of the goods are located in different countries. No different than domestic factoring, international factoring is based on the invoices created from the sale of goods or services. Although there are similarities, there are more parties involved in the transaction. There is the seller, the buyer, the export factor, and the import factor.

Export Factoring 

Export Factoring is specific to invoices with foreign buyers. No different than traditional factoring arrangements, when good and services are provided a bank or factoring company will purchase the invoices. Factoring companies will look to credit insure the receivables for export factoring facilities.

Invoice Discounting 

Invoice Discounting is a form of invoice financing where cash control is maintained by the company. Unlike factoring, where cash management is handled by the factoring company. Invoice discounting is for companies with strong financials and a good paying, diversified customer base

Credit Card Factoring

Credit Card Factoring is for companies that accept a majority of their payments by credit card. With credit card factoring a business will use future credit card sales as a form of repayment. For example, a credit card factoring company will take 10% of all credit card sales until they are repaid in full. If you were to borrow $100,000 and you process $50,000 in credit card sales per month, you will repay $5,000 per month until your loan is paid in full.

Recourse Factoring  

Recourse Factoring is the most commonly used form of factoring. With recourse factoring, if an invoice does not get paid then your company is responsible to buy back the invoice. It’s a common misconception that a business is not responsible for the invoice once it is sold.

Non-Recourse Factoring

On the surface, non-recourse factoring means that the factoring company is assuming the risk that an invoice will get paid. If it doesn’t, the factoring company is responsible to collect on that invoice. Non-recourse factoring is for companies that have strong financials and well paying, large customers. Non-recourse factoring usually protects against debtor bankruptcy, not just an unpaid invoice.

What type of collateral is used for Invoice Financing?

Accounts Receivable (A/R)

A/R or accounts receivable is money that is owed to a company after a sale has been made or services have been rendered. Unlike asset-based lending, the only asset a business can use for factoring is accounts receivable. Typical advance rates for factoring range from 70% to 95% of the face value of the invoice. For example, if the face value of an invoice is $100,000 and the factoring advance rate is 85%, the factoring company will give $85,000 at the time of the invoice purchase. Once the invoice is paid in full, the remaining balance, less the factoring fee, will be remitted.

Why would you use Invoice Financing?

The flexibility of Invoice Financing gives business owners the ability to use the money for a wide variety of purposes. There is no restrictions on what money can be used for so it provides business owners flexibility to use capital as they see fit. By accelerating payments on invoices there is an immediate influx of working capital. Some of the ways a business can use the money is:

  1. Day to day operating expenses
  2. Purchasing new inventory and materials
  3. Bridging the cash flow gap between a/p and a/r
  4. Tight cash flow from seasonality
  5. Growth capital, the more you sell the more you can borrow!

What are the best industries for Invoice Financing?

In order to qualify for Invoice Financing a business must be in an industry that sells to other businesses, or a B2B industry. The reason for this is because B2B industries invoice their customers and sell on terms, while B2C industries collect payment at the point of sale (POS). The most common and best industries for Invoice Financing are; transportation and logistics, wholesale and distribution, temporary staffing, and manufacturing. While invoice terms vary, there are common terms that are offered in each industry. As an example, average terms in the transportation industry range from 15 to 30 days. In manufacturing it’s common that deposits are paid upfront, a percentage when shipped, and then final invoice terms of 30 days.

Factoring for Staffing Companies

Transportation Factoring

Oilfield Service Factoring

Textiles and Apparel Invoice Factoring

Media Invoice Factoring

Factoring for Manufacturing Companies

Distributor Factoring

Healthcare Factoring

Construction Factoring

Freight Broker Factoring

Government Contract Factoring

Agriculture Factoring

Factoring for Consulting Companies

Supplier Factoring

Factoring for Wholesalers

Janitorial Service Factoring

What are Invoice Financing Rates?

There are a variety of different factoring companies, all of which have different structures, credit criteria, and rates. Rates for factoring can range from .5% to 3% per month. Below is a list of factors that can affect your rate.

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The quality and size of your clients.

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Previous payment history with your clients

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The length of payment terms with your clients – 30, 60, or 90 days

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Your business credit score and vendor payment history

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The profitability of your business

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The quality and size of your clients.

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Previous payment history with your clients

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The length of payment terms with your clients – 30, 60, or 90 days

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Your business credit score and vendor payment history

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The profitability of your business

Type of Ineligible Billing for Factoring

Progress Billing is a type of invoice that’s issued to collect on a portion of a project that has been completed. Without the full contract being completed it’s ineligible for most factoring companies.

Pre-Billing is when an invoice is created before a project or service has been completed. Until services are rendered or good have been shipped, the invoice is not eligible for invoice financing.

Milestone Billing is a form of billing where the total amount of the invoice is billed over a set time period. When each milestone of the project is completed a company will issue a bill for the milestone that’s been reached.

Factoring Terms

Notification – When an invoice factoring company notifies your clients that your business has entered into a factoring arrangement. 

Lockbox – A bank account created to collect invoice payments. This account is controlled by an invoice factoring company.

Advance Rate – Percentage of each invoice that a factoring company is willing to advance.

Concentration – Amount of invoices due from a single client or debtor.

Concentration Limit – Maximum dollar amount of invoices that a factoring company will advance against one debtor.

Debtor – The company that is purchasing the goods or services from a factoring client.

Factoring Fee – The fee charged by a factoring company to purchase a company’s invoices.

Notice of Assignment – A letter sent by a factoring company to debtors notifying them that invoices have been factored.

Recourse Factoring – When a business is liable for invoices that are not paid to a factor.

Non-Recourse Factoring – When a business is not liable for invoices that are not paid to a factor.

Reserve – Percentage of an invoice that this held by a factor when purchasing an invoice.

Verification – When a factoring company calls the debtors to verify invoices.

Bill of Lading – Binding document issued by a carrier that outlines the terms and goods being shipped.

Credit Insurance – Insurance policy issued by insurance companies to protect lenders from losses due to default.

Why our team is the best!

Our company specializes in invoice financing and is agnostic to industry, geographic region, and age of your company. We spend the time to get to know you, your business, and share all the information that we can about our company. Before making a decision we make sure all the details are explained, questions are answered, and act as a value add partner for your business. With a dedicated lending specialist and multiple points of contact you will always receive fast responses and top notch customer service!

What is the Invoice Financing application process?

Applying for invoice financing is a simple process. The industry dictates what application documents are required, but to get a proposal the only documents that are needed is a simple one page application, a current A/R Aging Report, sample customer invoice, and a P&L and Balance Sheet. The aging report outlines who your customers are, what terms they pay on, and if there is any customer concentration. After a proposal is signed the remaining documents are to verify company ownership, understand your contracts and payment terms, and to make sure the business is financially stable. Once you are on board, the process to submit invoices and borrow money is simple! We confirm your invoice and advance payment within 24 hours.

What documents are needed to apply for Invoice Financing?

Although each industry has its nuances, the initial application package remains constant to receive a term sheet. The below list is necessary to process an invoice factoring application, but additional documents will be requested for closing;

  1. A/R Aging Report
  2. P&L and Balance Sheet
  3. Sample Customer Invoice
  4. Simple One-Page Application

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