What is receivables financing / invoice factoring?
Invoice factoring is a cashflow management tool available to any business that sells products or services to other business and waits for payment. As opposed to waiting for the actual invoice payment, factoring is the process of converting a company’s accounts receivable into instant working capital by selling invoices to a factoring company at a slight discount.
What kinds of businesses are eligible?
Any company that invoices other creditworthy businesses for delivered goods/rendered services with net credit terms of 60 days or less. The profile of the “typical” client who can benefit from factoring varies greatly; from startups with no credit history but have viable customer receivables to existing companies who may have had back tax issues and are ineligible for bank lines.
Long payment terms present universal challenges to smaller businesses – often waiting 60 days for bank approval, even if available, simply is not an option.
How is invoice factoring different from bank lending?
Most banks tend to focus on established credit history. For many startup business or those in rapid growth mode, that access to that channel is lengthy and often times, simply unavailable.
When making a funding decision, we focus on the creditworthiness of your customers while banks will only focus on your company’s established credit history and cashflow. Additionally, since accounts receivable funding is not a loan, there is no debt on your company’s balance sheet.
Best of all, we can approve you for funding in a few days, while banks may take months to approve a loan.
How does it all work? What are the steps involved?
The steps involved in invoice factoring with Plus Funding are simple and transparent:
- Your customer (XYZ Co) requests goods/services from you.
- You deliver these goods/services to XYZ Co.
- You issue an invoice to XYZ Co.
- You sell this invoice to Plus Funding.
- Upon verification of the invoice (typically 1-2 days with a preexisting facility in place), Plus Funding will advance cash (typically 70-85%)
- XYZ Co pays Plus Funding.
- Upon receipt of the payment, Plus Funding releases the difference (reserve) between the collected amount and the advance, minus the factor’s discount fee.
For more detailed process, please visit “Our Process” page.
Why do companies use Factoring?
Many business owners find Factoring beneficial because they:
- Are experiencing rapid growth and need to purchase materials, pay vendors and cover operating expenses
- Want to obtain immediate cash for any business use without creating debt — no principal or interest to repay
- Want to expand their line of business or take on larger accounts
- Are labor-intensive industries and need to meet payroll
- Are start-ups with no financial track record
- Have seasonal cash flow crunches
- Need short-term cash to use as a bridge loan
- Need to improve the business’ credit rating
- Need to make timely tax payments
- Want to benefit from trade discounts
- Have State or Federal tax liens
What are the fees like?
Our services are tailored to your specific business so the fees will depend upon your specific needs. The typical fee structure is comparable to discounts offered by many businesses that offer early payment discounts.
Fees will also vary depending on the advanced rate, invoice aging, and the total dollar amount you intend to factor on a monthly basis, there are also volume discounts. However, specific Factoring Fees cannot be quoted without information on your customers, invoices, amounts you wish to factor, and your type of business.
One thing you can be certain of is that all fees will be detailed out in a transparent manner; there will be no gotcha, “hidden” fees.
How will outsourcing my receivables management affect my customer relationships?
There is minimal impact. From their perspective, only remittance payments need to be redirected. Our role is to quietly monitor your customers’ credit and monitor outstanding receivables QUIETLY. Think of our services as outsourced invoice management.
Are there any minimum size requirements / commitments?
At Plus Funding, we do not require a minimum factored amount per month. You have the flexibility to choose how much working capital you need. We do however offer volume discounts.
What happens if a factored invoice doesn’t pay?
You can choose to repurchase it, or simply substitute a new invoice. As your credit investigators, our goal is help you avoid these detrimental situations!
How long does the process take?
Once you are set up with Plus Funding, armed with the proper documentation, we can fund your invoices within 24-48 hours.