How Invoice Factoring Works for Small Businesses

July 8, 2019

Invoice Factoring 101 – How It Works for Small Businesses

Here’s a scenario explaining invoice factoring and how it impacts small businesses, like business owner, Sarah and her client, Nina’s Boutique. Sarah’s business sells affordable, trendy, handbags and Nina’s Boutique buys 50 handbags a month. At the end of every month, Sarah packages up her bags along with a $1,000 net 30-day invoice to Nina’s Boutique.

Sarah needs consistent cash flow to meet payroll, maintain daily operating expenses, and ultimately grow her business. She is low on cash and could use some financial backing, so she applies for a bank loan. Unfortunately, Sarah discovers that company bank loans are difficult to get. The rates are high, she must earn a certain amount of money through her business and the approval process is time-consuming. After feeling defeated, Sarah learns about invoice factoring.

Sarah speaks to a factoring company. The factoring expert reviews Sarah’s business and gives her $900 in cash upfront in exchange for her invoices. The factoring company holds onto 10% of the invoice until Sarah’s client pays the invoice in full. Sarah gets the remaining balance of the invoice minus a small factoring fee. Sarah says, “Sign me up!”

Moving forward, Sarah’s client, Nina’s Boutique, pays the factoring company for the full $1,000 invoice every month and Sarah gets paid $900 the same day without waiting 30 days.  Invoice factoring frees up the cash Sarah needs to successfully run her business.

Value Added Factoring Services

Not only do invoice factoring companies supply businesses with immediate cash, but some invoice factoring companies offer value-added services which can free up time for business owner’s, like Sarah to focus on growing their company.

Here are additional services that Scale Funding offers to help strengthen a client’s business.

Credit Analysis and Risk Assessment

A prospective customer presents new opportunities, but do they pay their bills? Knowing the credit history and payment trends of potential customers gives insight into the quality of the potential customer.

Treasury Services and Online Reporting

Funds are advanced to clients via ACH deposit, wire transactions, or even check. Online reporting of all transactions is a valuable line of communication.

AR Management

Scale Funding provides a dedicated AR specialist to give your customers friendly reminders about payment on an invoice.

Start Today

If you own a start-up company like Sarah, or are trying to expand your business, contact Scale Funding today online or at (800) 707-4845. We’ll provide a free, no-obligation consultation and quote for a custom factoring program to meet business demands within 15 minutes and funding within 24 hours. Our get-it-done culture, reliability, flexibility, and award-winning customer service gives customers access to capital they need, quickly and easily.