How do Invoice Factoring Companies Work?

As a business owner, it can be very frustrating having to wait on customer payments, especially those who pay in 30, 60, or 90-day terms. These extended payment cycles can weigh heavily on your cash flow needs. As a result,  it easy to fall behind on covering expenses such as, meeting payroll, paying bills, and purchasing equipment and supplies.

Businesses need to have money available to operate and succeed. Invoice factoring companies are an excellent source of consistent cash flow for small and mid-size companies. Factoring supplies the cash businesses use to meet payroll, manage expenses, and grow.

What is an Invoice Factoring Company?

Invoice factoring, also referred to as accounts receivable factoring, is an alternative to traditional bank financing. Instead of getting a loan or line of credit, businesses with customers that pay on extended terms, sell their invoices to a factoring company, and receive an immediate cash advance. This simple transaction provides money that is used as needed.

How does the Invoice Factoring Process Work?

Working with an invoice factoring company is a quick and painless process. It first begins with an agreement between a business and the factoring company. The business completes its work and generates an invoice as usual. Rather than the business sending the invoice to its customer, the invoices go to the factoring company. From there, the factoring company purchases the invoice and directly deposits the advance into the business’s bank account within 24 hours or less. Generally, the advance is around 90 percent. Once the end customer pays the invoice, the factoring company pays the remaining balance, less a small fee. Use the invoice factoring calculator to learn more about how much a factoring company charges.

Step-by-Step Factoring Process

1. The company provides the completed product or service to their customer and then issues an invoice with the net payment terms.
2. The company then sends the invoice to the factoring company.
3. In exchange, the company receives a cash advance from the factoring company. It is typically 90% of the amount of the invoice.
4. Once the customer pays the invoice to the factoring company, the business receives the remaining balance of the invoice, less a fee.
5. As a result, the customer gets cash up front, and their customer receives payment within their terms.

Why Use Factoring Companies Services?

Many companies cannot afford to wait for payments from customers that pay in terms of net 30 days, net 60 days, or net 90 days. Factoring eliminates the worry and stress of these long payment terms by paying the client immediately on their invoices.

Factoring companies are an excellent alternative source of financing because they provide businesses cash quickly. Setting up an account with a factoring company can be done quickly and easily, enabling company owners to focus on running their business.

Get a Quote for Invoice Factoring 

How to Choose the Top Factoring Company

All invoice factoring companies supply cash to their clients. What separates one from another is the advances, factoring rates, contracts, and services each offer. When choosing a factoring company here are some considerations to keep in mind.

• Industry Experience: First of all, make sure the Factor has a record of serving other businesses in your industry.
• Advance Rate: Advance rates range from 80% to 90% depending on the industry and payment terms.
• Factoring Fees: This is the cost of factoring. Monthly volume, payment terms, and length of contract are used to determine factoring fees.
• Contract Length: Factors offer contracts for month-to-month funding or longer-term agreements. Select the type of deal that fits your long-term needs.
• Additional Services: Some Factors provide other services to clients including credit review of potential customers, AR management, online reporting, and more.

Why Choose TCI Business Capital

Since 1994 TCI Business Capital has served companies in the United States with factoring programs customized to fit the specific needs of each client.  We are rated one of the best factoring companies in the United States, because we provide funding to businesses in 24 hours or less, along with superior customer service. Our factoring lines range from $50,000 to $10MM, giving businesses flexibility and room for growth. For a free, no-obligation consultation and factoring quote, complete the form below, or call (800) 707-4845.

Learn more about invoice factoring and factoring companies from TCI Business Capital.

• Recourse Factoring vs. Non-Recourse Factoring  
• Do I Qualify for Invoice Factoring 
• What to Look for When Comparing Invoice Factoring Companies 
• Who Factoring Benefits