Invoice factoring may be a relatively new concept to some, but it’s actually been around for centuries as a financial practice. It’s used quite frequently in the transportation and trucking industry, and often referred there as freight factoring, but it’s gaining popularity across other industries as well, including oil and gas, government, staffing, and manufacturing. Here at eCapital, our industry experts and consultants field a lot of questions from interested small business owners, eager to gain faster access to their cash to grow their business. We thought we’d share a few of the more common questions we receive.
1. What is factoring?
This is the obvious question especially for those unfamiliar with the term. In a nutshell, factoring (also known as invoice factoring, invoice financing, and accounts receivable financing) is simply a cash flow solution that turns invoices into quick cash. It can sometimes take more than 30 days for customers to pay their invoices. With invoice factoring, you sell your invoice to a third party invoice factoring company (like eCapital). The invoice factoring company pays you a large portion of the invoice, usually within 24 hours. The invoice factoring company then collects the invoice amount from your customer, and once they pay, you receive the remaining balance of the invoice, minus a small factoring fee. The nice thing about invoice factoring is that it gives you the ability to put your money to work for you faster. You can invest in capital equipment, pay down debt faster, or hire a new employee; really almost anything you can think of. In fact, think about how much different your business would run if your clients paid their bills in one day. Interesting thought huh?
2. How does invoice factoring compare to a bank loan?
While bank loans are certainly a viable option for obtaining cash, there can be some obstacles in the approval process, especially if you run a small business. Bank loans for a small business often attach themselves to the business owner’s personal collateral, such as a house, and they’re often very difficult to qualify for, especially for small businesses and start ups. The application process can be quite lengthy (often longer than the payment terms on your current outstanding invoices) and at the end of the day you’ve created debt. With invoice factoring you’re just getting your own money faster for a small fee.
3. Are all invoice factoring companies the same?
We don’t think so. We pride ourselves on being your trusted financial partner. There are three areas which we feel differentiate us from other invoice factoring companies and that’s flexibility, industry knowledge and customer service. Some factoring companies require you to factor all of your invoices, or have a minimum number of invoices required. Ask about this upfront because you may only want to factor your slow-paying customers.
Our team members pride themselves on knowing your industry well. If you’re looking for freight factoring services, our transportation experts are available to help. If you’re in the government industry, our experts understand the nuances of contractor payment needs. It helps to have an industry expert available to help you with the accounts receivable needs inherent with that industry.
Finally customer service… we provide our clients with 24 hour online account access so you can see exactly where your funds are in the invoice factoring process. We provide the tools and team member access you need to factor your invoices with confidence.
I’m sure there are other questions you have on the invoice factoring process and we’re here to help. You can contact us and speak to an industry expert.