Factoring turns your invoices into working capital so you can cover your operating costs without taking on debt.
But that’s just the beginning.
Factoring is the sale of accounts receivable for working capital. A company will receive an initial advance, usually 80-90% of the amount of an invoice when the invoice is purchased by the factoring company. When they collect the invoice, the factoring company pays the remaining 10-20% (less a small discount fee) to the company.
For starters, it’s faster, easier, and much more flexible. Factoring gets your business immediate payment minus a small percentage that’s retained by the factoring company. That money is yours even though you haven’t yet received it from your customers.
Loan processing from a bank can take weeks or even months. With factoring, you decide which customer invoices to factor and you aren’t committing to a long repayment period. You can factor invoices whenever you need extra cash flow.
Factoring gives you advanced access to funds from existing invoices, while MCA loans give you money based on an estimate of future sales. If your sales fall short of expectations, you’ll still need to repay that money with an MCA loan.
MCA loans also require access to your bank accounts so they can automatically take out funds on a daily or weekly basis. Even though these loans may be easily available, they often come at a very high cost and can damage your cash flow through immediate paybacks and frequent withdrawals. With factoring, the advances are repaid when your customers pay the invoice.
Factoring takes perhaps the biggest burden of your business off your hands. Billing and collecting payments are among the most stressful aspects of operating a business. Choosing to factor allows you to avoid uncomfortable conversations with customers and allows you to focus on your relationships. Predictable cash flow at the time you invoice lets you pay your employee salaries, vendors, and taxes on time. No more waiting and wondering when your customer will send a payment.
They’re one and the same. Invoice factoring is sometimes known as AR factoring or accounts receivables financing, but regardless of what you call it, the process is the same. You get immediate cash to help run your business by selling your invoices at a small discount.
Fees start between 1 ½ to 3% of the amount of the invoice. Our fees depend upon a variety of factors, such as the size of the account, whether the customer has monthly minimums for factoring, and the length and flexibility of the contract. Typically our fees are less than you would pay in credit card processing fees if your customers paid with credit cards.
They sure are. Invoice factoring fess can be deducted as a business expense.
Absolutely. By agreeing to a monthly minimum, you’ll save money. You can also save by agreeing to terms of a long-term contract — usually one or two years.
We have no monthly minimum contracts with no term contracts – they just come with a slightly higher fee.
When you fill out your application, you’ll need to submit a customer list, sample of invoice with supporting documents, and accounts receivable aging.
We need to have a priority security interest in accounts receivable in order to factor your invoices. We do searches prior to finalizing an agreement with you. We can always seek a subordination or termination from your other lender if they are agreeable.
We can move as quickly as you need. From application review to finalizing legal documents, the process can take as little as 24 to 48 hours.
We’re not interested in your personal credit score. We’re concerned with how creditworthy your customers are. If your customer has a track record of on-time payments, we can almost certainly work with you to help your business grow by factoring your invoices.
Absolutely. You can choose to factor the invoices of as many or as few customers as you want, and you can choose when you want to factor them.
Once you decide to factor a specific account, however, we prefer that you factor all invoices for that customer.
No. If anything, your relationships can improve. You still invoice your customer directly. The only change is that your customer will remit payments to our lockbox. We can make any follow up collection efforts on past-due invoices, freeing you up to nurture the more enjoyable aspects of building relationships with customers without finances hanging over your head.
Almost certainly not. Factoring, particularly for small- and medium-sized businesses, is a widely accepted and established method to optimize cash flow. Given the numerous bank restrictions on many smaller companies and start-ups, factoring is the answer for many businesses worldwide.
Sky Business Credit is a member of the International Factoring Association and adheres to the IFA’s code of ethics.
We think of you as a partner, so we think of your customers the same way. Our team of experts has years of experience working with companies big and small, and we treat each business — and each person — we encounter as if they’re family.
Each invoice will have specific instructions about where to send payment, so you don’t need to worry about any confusion during the transition process.
Through our online account management platform, you’ll find information on all of your customers and can keep real-time tabs on your invoices. We strive to keep you as informed as you’d like to be.