Getting the best impression and understanding what are the invoice factoring companies does might be a little bit difficult.
But, have you ever asked yourself what is factoring company? What do they do? If yes, you don’t have to worry because this article will explain everything in detail about factoring companies. First, let us define a factoring company.
What Is an Invoice Factoring Company?
A factoring company is a type of business that deals with buying the invoices of another company.
In a nutshell, a factoring company offers invoice factoring services to companies of a range of sizes by providing finances to companies with cash flow problems due to slow-paying invoices.
Factoring companies do not focus so much on providing finances to big companies. Instead, they provide financing to small and midsize companies that need to develop their cash flow.
One thing that should be clear to you is that most factoring companies do not work like companies that offer business loans that follow a lengthy procedure.
Which Industries Work with Factoring Companies?
You can join any invoicing factoring company if you sell goods and services to commercial clients and receive a payment within 30 to 60 days, depending on your industry.
Below are some of the businesses and industries that use factoring. They include;
- Freight brokers
- Business services
- Staffing agencies
- Courier services
- Security services
- Call center operators
- Cell tower construction and maintenance
- Medical offices
- Diagnostic centers
- Private investigators
- Oilfield services
- IT consultants
- Office supply
Why Would a Business Work With a Factoring Company?
The primary purpose of company factoring is to help businesses have a good cash flow in their accounts.
Again, most factoring companies accept small and startup businesses so long as you meet their requirements.
That is important to companies, especially for startups who could not qualify for a loan. To some businesses, once there is a good cash flow in their accounts, they use the funds from factoring to;
- Pay their employees
- Pay suppliers
- Cover tax expenses
- Start new projects
- Get more clients
How Do Factoring Businesses Work?
You might be wondering how factoring businesses work. A company factoring business works by taking control of that businesses’ accountsreceivable, either partially or fully. Below is our step-by-step information on how factoringbusinesses operate. As a business;
- You provide goods and services to your customers as usual.
- You invoice your clients for those goods and services.
- You “trade” the raised invoices to a factory company. The factoring company will then pay you the bulk of the invoiced amount immediately after verifying that the invoices you sold to them are valid.
- Your clients then pay for the factoring company directly. If necessary, the factoring businessesfollow up for the invoice payment.
- The factoring company pays you the remaining invoice amount, excluding their fee when the payment is given to them in the total amount.
When Should Your Company Use Factoring?
Invoice factoring is costly, which means you earn a little profit on the invoices you deliver to the factoring company. Not just any business can use factoring. It is a decision that you as a business shouldn’t just make but think critically.
As a business, invoice factoring is of benefit if your customers are businesses or even companies but not individuals.
Business clients always pay 30, 60, or even 90 days out, and invoice factoring can provide you access to money while you wait for payment. Below are some of the reasons you may consider using invoice factoring as an industry.
- When you don’t have the credit to get a loan or use a credit card.
- When you have gaps in cash flow due to the seasonality of your business.
- In a case where your business is growing so fast, and you need more money to sustain that kind of growth.
Benefits of Invoicing Factoring Companies
Factoring companies can be of good help, especially if you want to increase your company’s cash flow or business. Below are some of the benefits of working with an invoicing factoring company. They include:
Having Cash Immediately
This is why some businesses have invoicing factoring companies; to get cash quickly.
The old-style mode of payment requires customers and clients to make their payment in 30, 60, or even 90 days.
Factoring helps companies secure critical materials for the next job and agencies for construction companies.
The fact that they have cash in hand helps sort out payrolls effortlessly and timely.
Having Both Short and Long Term Solution
Depending on your cash flow, you can decide to have either long or short-term factors in your industry.
To ensure a steady flow of cash, you can try a short-term solution, and if you are not sure of it, you can withdraw.
Factoring is Easier than Applying for a Loan
Factoring applications take less time to be approved. But when talking about a loan, it is different.
A loan requires a lot of paperwork as compared to factoring businesses. Factoring is straightforward, and many factoring companies will deposit cash into your business account within 48 hours of applying.
The Requirements are Not Complicated
Company factoring companies have fewer conditions, such as running a business with commercial or government clients, having good credit, and having no legal issues.
New and Small Businesses or Companies Can Use Factoring
It is the best part of factoring companies. They give room for mew and small businesses, which business loans may reject in some cases.
Without the help of factoring companies, small businesses can struggle to the point of failure. Since they do not have enough benefit to draw a lender, factoring firms will take care of them.
Your Line Increases as You Grow
Factoring balances with your business simply means getting access to more funds allows you to gain more customers.
Your invoices are your Security
Many loan businesses tend to take your assets like real estate, vehicles, and other intangible assets whenever your enterprises struggle.
On the other hand, factoring, companies benefit from not taking something personal or company-related from you, which is particularly important when your business is unstable.
Limitations of Factoring Companies
Since there are benefits of using factoring companies, you take some risks when you consider using factoring.
The primary and obvious disadvantage of using a factoring company’s services is that you lose part of what would be a profit to your business.
Some other disadvantages are;
Factoring rates are high compared to the traditional line of credit rates
Yes, factoring takes a little time to process after signing as it requires less paperwork than conventional lenders.
Still, the rates are significantly higher than the conventional lenders. The actual rate might range from 1% to 4% for 30 days. These rates are higher, which could be a great hindrance to your business.
Factoring companies may get in touch with your customers
You wouldn’t wish your customers to be involved or communicated directly in matters to do with your business invoices.
Yes, most factoring companies will communicate to your clients, as they depend on the client’s payment. So, in a case where your client takes time to pay, what will they do? They will contact your clients directly.
Some clients who don’t understand how factoring companies operate can decide to cancel their contract with you because they feel at risk.
Factoring companies do not fix your financial problems
Factoring companies only deal with improving the cash flow problems in your business but not solving or fixing your financial problems.
If you want to keep your inventory fully stocked or open a new storefront, traditional lenders are the best option. They will help you overcome any financial problems the company might encounter.
What Services Do Factoring Companies Offer?
There are many services that different factoring companies offer in making sure that there is cash flow in your business. Below are the most common services that factoring companies provide;
This kind of service applies in a case whereby if the factoring company does not collect the payment on the invoices, the business must pay back any advanced money.
This kind of service might be riskier for small and startup businesses, but the good thing about it is that the fee is low.
If the client does not pay the invoice, the factoring company starts doing follow-ups to your client. Still, there is a higher fee to be paid, though it is a lesser risk to you and your business.
This service applies to businesses that only require to factor a single invoice. Generally, it is for large invoices your business is having trouble with collecting, or you don’t want to wait for several months to get paid for it.
Whole ledger factoring
With this type of service, you factor in all your invoices, which tend to be cheaper. The risk with whole ledger factoring is that you could face a hefty fee if you break your contract with your factoring company before it expires.
10 Best Invoice Factoring Companies Of 2021
Before choosing any factoring company, read this article to understand the best factoring companies, which of course, are the latest.
It is crucial to understand everything about a factoring company before deciding to have one. Some of the best factoring companies of 2021 are highlighted below. Keep scrolling.
You need cash faster than expected, maybe for one reason or the other, right? Well, if so, BlueVine got you covered. According to the review from business.com, BlueVine has a harsher minimum qualification compared to other factoring companies.
But, once you meet the requirements, you can expect to get an advance on your invoices within 24 hours.
BlueVine gives you room to choose which invoice you want to factor over other companies that may require you to factor every invoice through them.
Again, it provides 85% to 90% of all invoice value upfront, compared to some factoring companies, which will advance you from 95% to 100% of the invoice value upfront.
In the case of the $15 fee, the BlueVine will hand over cash to you the very day you submit an invoice through a wire transfer. On the other hand, you can collect funds in a day or two without charges via an ACH transfer.
With the factoring services BlueVine offers, you can open a credit line that ranges from $20,000 to $5 million.
This line of credit may be available to medium to large businesses, and it can be a lifesaver if they have an unforeseen cost. Still, it may not be available to smaller companies. Remember, BlueVine does not charge any advance penalties.
BlueVine checks some criteria when assessing your company, such as your company’s cash flow, financial history, and creditworthiness of your clients, before factoring you in. Some of the criteria you must meet to factor with BlueVine includes:
- The credit score of your business is 530 or greater.
- Your company has been existing for a minimum period of three months or even more.
- Your business generates a monthly income of $10,000.
- Your company earns at least $100,000 yearly.
- Your business either serves other companies or the government.
Again, for you as a business to factor the invoices of the BlueVine, your customers must meet specific requirements, which are:
- Your customer must be based in the United States or English-speaking Canadian provinces.
- Your customer must be a business.
Lastly, your invoices must meet some requirements for you to factor into the BlueVine. The requirements are:
- Your services were completed and accepted by the customer. The satisfaction of the customer matters to BlueVine.
- Your invoice is at least $500 or even more.
- The compensation term is less than 13 weeks.
- The due date should be at least one week away.
The Application and Approval Process
Once you feel that you have met all the requirements to factor into BlueVine, you can begin filling an application form. Applying for a factoring line of credit with BlueVine is fast and excellent.
The application form is filled online through the BlueVine website, which takes a few minutes to complete. The questions being asked are basic business details like contact information, tax ID, and annual revenue.
The moment you are done filling the form, you can submit your financial documents like your most recent bank statement. These documents are necessary as they prove your monthly or even yearly income.
Again, the papers tell whether the previous customer you worked with was satisfied, as it is one of the minimum requirements to factor into BlueVine.
On the other hand, you can give BlueVine access to your bank account, with read-only access to your funds, enabling BlueVine to determine your creditworthiness.
The moment you connect your account to BlueVine, the invoices will appear on the dashboard automatically. Which, of course, saves your time, especially if you were to enter the information manually.
And since BlueVine gives you a chance to be in a position to choose which invoice you want to factor into, the connectivity will again allow you to make that choice.
BlueVine is well-suited with accounting software like QuickBooks, Xero, and FreshBooks. If your business uses this accounting software, then the application process might go even faster than expected, as most fields are populated for you automatically.
After submitting your application, you will receive a response from BlueVine within 24 hours. Once approved, BlueVine will help you verify and notify your clients.
At first, BlueVine could take three to five days to provide you cash on a customer’s invoice, but now invoices are funded every day.
Customer Service and Support
Business.com contacted BlueVine to determine how effective they are regarding customer support. Still, they found their customer care representative helpful and full of knowledge.
If you want to contact BlueVine customer care, you can reach them from Monday to Friday from 8 am to 8 pm (ET) and on Saturdays from 12 pm to 4 pm.
As much as Bluevine customer service is not available 24 hours, they have extended their business hours.
Disadvantages of BlueVine Invoicing Factoring Company
As much as BlueVine is considered one of the best invoicing factoring companies, it has its drawbacks. They are;
There are limitations for businesses that generate less than a monthly income of $10,000 and have poor credit. It means that you cannot factor into BlueVine.
The advances of invoices in BlueVine are low as they range from 85% to 90% compared to other factoring companies like Fundbox, which gives out a 100% advance.
There is a risky situation as BlueVine only offers recourse factoring. As a business, you are liable if your clients don’t pay their invoices, which should not be an issue if you work with reputable clients.
Still, if a single client missed payment, it can disrupt the cash flow for your business or company.
CapitalPlus is specifically majoring in factoring companies with construction kinds of business. Not all factoring companieswork with companies with construction firms. If your business is based on construction works, consider using CapitalPlus for the convenience of your business.
CapitalPlus Rates and Fees
The CapitalPlus factoring companyfunds 80% or more depending on your business since it purchases invoices from you directly. After receiving the payment from your clients, CapitalPlus sends the remaining amount of the invoice into your account minus its fees.
As a business, you can factor in invoices that are up to 60% overdue with that is, if you consider CapitalPlus your factoring company.
Again, there is no minimum amount of money you must have to work with CapitalPlus because the company will factor in how much you need each month.
This is convenient for businesses withmany invoices and wants to factor. CapitalPlus does not charge for startup or termination fees.
However, you are responsible for unpaid invoices from your client.
If your client missed a payment, you are responsible for that amount which eventually may interfere with the cash flow in your account negatively.
Finally, CapitalPlus requires a least planned amount of $6,500, which may be excess depending on your business needs.
Minimum Requirements at CapitalPlus
Like any other invoicing factoring company, CapitalPlus is one of the companies with a minimal requirement, including factoring startups and small businesses.
CapitalPlus, unlike other factoring firms, does not look at your credit score, annual revenue, or how long you’ve been in business. Instead, it sets many of your clients to ensure their creditworthiness.
CapitalPlus approves your application within 48 hours. You can receive an advance on your first invoice, which takes up to three days to be approved.
That can only happen after submitting your application and completing the required paperwork. As I mentioned before, CapitalPlus does not charge any application fee, and it does not provide any long-term contracts.
Customer Service and Support
CapitalPlus provides a devoted advisor to its customers, which is easier for you to get any help you may need. It is available from Monday to Friday, 8:30 am to 5:30 pm.
Shortcomings of CapitalPlus
CapitalPlus does not have non-recourse factoring, which means that your consumer may not reimburse CapitalPlus the invoice amount. You, as a business, are liable for repurchasing the invoice, which may impede your company’s cash flow.
Again, CapitalPlus requires a minimum of $6,500 scheduled amount, which might challenge new or small businesses.
However, those who own construction companies should not worry about the minimum planned amount.
Paragon Financial Group
Paragon Financial Group factoring company is a factoring company that offers non-recourse factoring service to businesses that want to factor between $30,000 and $10 million in a month.
Paragon Financial Group is the best fit for many companies struggling with tax problems. It is willing to work with such businesses.
Paragon Financial Group Rates and Fees
Paragon Financial Group forwards the remaining invoice, excluding its fee that begins at 1.25% to 2% for every 30 days.
That process begins after Paragon Financial Group receives payment from your clients. Since Paragon Financial Group deals with long contracts, the starting fee is not bad, especially if you want a long deal contract.
As I mentioned earlier, a business can factor up to $10 million with Paragon Financial Group. Still, your account can not be overdue for more than 60 days because of the Paragon Financial Group insurance cover.
Again, Paragon Financial Group was initiated to help startups and small businesses with tax problems. It also works nationwide in the United States and with Canadian companies.
To work with Paragon Financial Group, you must be able to factor in at least $30,000 a month, which ensures that small companies with less income will not be considered. Instead, they should look elsewhere for invoice factoring.
There is no minimum or maximum amount of time you have to work with Paragon Financial Group. Meaning that you are not tied to a specific period. You are in a position to cancel the service that Paragon Financial Group offers if you no longer need them to factor in your invoices.
Paragon Financial Group offers non-recourse factoring. It means that in a case where your client does not pay Paragon Financial Group, you are not required to purchase the invoice back. It is essential because it will not interfere with your cash flow.
Like any other factoring company, Paragon Financial Group does not have strict requirements for you to work with it.
If you have a poor credit score or have not been in business for long, then you can be part of Paragon Financial Group.
But Paragon Financial Group will always check the creditworthiness of your clients since they are the ones who will be paying the invoices.
Paragon Financial Group’s restrictive requirement is that your business has to have a revenue of up to $10 million per month. That hinders most small companies that do not meet this specific requirement from Paragon Financial Group.
Like any other factoring company, Paragon Financial Group has an easy way of making an application. After filling an online application with Paragon, the financing approval can be within 24 hours, typical to almost all invoicing factoring companies.
But, the initial advance for your first invoice can be between 3 to 10 days after signing the agreement form. This period is more extended than any other factoring companies business.com reviewed.
Before you begin with the application process to work with Paragon Financial Group, there are some documents you need to have or prepare. They are;
- Your most recent accounts receivable and payable aging reports.
- Your articles of incorporation or DBA filing.
- A master customer list.
- A sample invoice.
Customer Service and Support
Paragon Financial Group provides a devoted advisor for your business when you sign up to provide telephone communication, live chat, and email support.
Setbacks of Paragon Financial Group
The most limiting factor with Paragon Financial Group is that your business must be in a position to generate a revenue of at least $30,000 per month and a plan to factor over $30,000 each month.
It is disadvantaged to startups and small businesses that cannot generate revenue per month.
Riviera Finance is one of the factoring companies with a strong reputation in the factoring industry. It works with startups and small businesses operating in most industries. It is not specific to what industries to factor into, and it offers a non-recourse factoring service.
Again, Riviera Finance offers advances up to 95% of an invoice. It has a fast-factoring process that considers one of the best factoring services.
Riviera Finance Rates and Fees
After Riviera Finance purchases your invoices, it funds up to 95% of the invoice amount back to your account within 24 hours.
The initial percentage is very high; however, you are not assured of this rate. It depends on the type of industry you want Riviera Finance to factor in.
Again, factoring with Riviera Finance is not just anyhow, as there is a limit to how much you can factor each month.
Riviera Finance allows you to stay below $2 million in the accounts receivable you wish to factor in. The limit is advantageous to small and startups businesses, but they might be too low for large companies.
Paying more for each invoice applies with Riviera Finance. It will pay you the remaining invoice balance, excluding its fees, which begins at 2% after Riviera Finance purchases your invoice and collects the money from your clients. The rates are too high compared to other factoring companies.
There is no startup fee you need to pay for you to work with Riviera Finance. But, if you choose to stop factoring with Riviera, and maybe you want to factor with another factoring company, you must pay a termination fee.
The good thing about working with Riviera Finance is that it will purchase invoices from your businesses irrespective of how overdue the invoices are.
Most companies have a specific number of days that your invoices have for your business to be factored in. Again, Riviera Finance is in a position to work with your overdue clients.
Another major plus of Riviera Finance is that it is a non-recourse factoring company. It means that if your clients don’t pay for their invoices, you are not responsible for repurchasing the invoices from Riviera Finance. That makes your business secure since there is cash flow.
Riviera Finance has shallow requirements, and it becomes a good option for small and startup businesses. Below are few requirements you need to meet to work with Riviera Finance. Your business:
- Must be based in the United States or Canada.
- Must have verifiable accounts receivable.
Riviera Finance does not evaluate your credit when you apply to factor with it. Again, there is no minimum invoice value that you must provide for you to work with Riviera Finance. It has a minimum commitment of six months since it offers flexible contracts.
Riviera Finance takes 24 to 48 hours to be approved, which only happens after filling out an application form through their website. Receiving the initial payment of your first invoice might take up to seven days.
When your account has been set up, you are an official customer of Riviera Finance. You receive funds 24 hours after Riviera Finance buys your invoices.
Limitations of Riviera Finance
Since Riviera Finance has low requirements and works with new and small businesses, it has some weaknesses.
Below are few setbacks you need to know about Riviera Finance. It can take up to seven days to process your application and receive funds from invoice factoring companies. It can take at most three days.
The rates of Riviera Finance begin at 2%, which is a higher starting rate compared to other factoring companies. Riviera Finance needs you to sign a contract, generally for six months.
Doing so might be a challenge for a business that was not ready to take up to six months and would wish to terminate the contract before that period.
Fundbox is categorized as one of the best invoice financing services for small businesses because of its minimal requirements and providing 100% advances on the value of an invoice to a company.
Fundbox does not suggest checking your credit history like every other business factoring company convenient for new companies.
Below are some of the minimum requirements you must meet to work with Fundbox. They are as follows.
- Your business must be located in the United States.
- You must have a business proving account.
- Your business must have an income of at least $50,000 per year.
- You must use accounting software with at least two months of activity and five invoices per month.
Limitations of Fundbox
Although Fundbox is the preferred factoring company for startups, it has a few setbacks you need to know before working with it.
It is costly compared to other factoring companies. The maximum advance is $100,000, which is too small and may not fully solve your cash flow problems.
You must repay weekly instead of per invoice, which means you must follow up on your bank account weekly.
Late fees may add up quickly, which might interfere with your profit since it is used to compensate for the late payment.
How to Choose the Right Factoring Company
There are numerous factoring companies, as mentioned above. So, before you decide to sign into one, you should know which one is the best in terms of good services and best offers that favor your business.
Remember, it is your business at stake. The deep you look at the right factoring company for your business, the better. So, there are things to look at when selecting the right or rather best factoring company for your business. Read on.
Ensure you are eligible to use the services that the factoring company offers. That’s because some factoring companies are specific to the type of industry they work with. For example, CapitalPlus specializes in providing its services to construction companies.
So, is your company dealing with things to do with construction? If not, then you cannot work with CapitalPlus.
Look for factoring companies that will turn you away if you have poor credit or if your business is bankrupt. Yes, such invoicing companies exist, for example, Paragon Financial. It is a non-recourse type of factoring company that ignores the personal credit of your business. Still, it focuses on your customer’s ability to pay.
Good deal, right? However, ensure that your consumers are not at risk, as this type of factoring companies relies on your customers’ creditworthiness and will not buy your invoices.
Many factoring companies do not accept overdue accounts or rather receive invoices that are 45 days overdue. Most factoring companies only get due statements between 60 and 90 days on many occasions.
Riviera Finance has no maximum number of days that an invoice can be outstanding for it to buy from you. Sounds interesting, right? So, you need to check if you have an overdue account and which factoring company will favor your business. In this case, it is Riviera Finance.
Finally, consider how long factoring companies take to provide feedback on your company’s acceptance and funding process after applying.
The best factoring company will provide feedback in notifying you of their decision within 24 hours. It can even transfer funds 24 hours from submitting an invoice for factoring.
Before deciding to work with it, do detailed research on the reputation of every factoring company. For example, if your invoices are overcharged or have a history of harassment.
You can look at the reviews on their website and observe how the invoicing factoring company impacts your business. There should be cash flowing in your account since that is their work. Your business should not be the same way it was five years ago.
To finish, know the kind of service a factory company offers before working with them. For instance, Factoring companies that only provide recourse factoring service always presents businesses at risk.
Whenever your client does not make payment to them, it is your responsibility to buy back the invoices. This could jeopardize your business because your cash flow will be reduced, and your company may fail, mainly if you are a startup or small business.