Invoice/Receivables Financing

We assist our clients in obtaining working capital through accounts receivable factoring for their businesses.

Intro To Accounts Receivable Factoring

Many businesses face delays in receiving payments after providing goods or services. This spans across various sectors, including medical practices, construction contractors, and wholesalers. Typically, business owners endure waiting periods of several weeks before funds are received. If a client delays payment on an outstanding invoice, this waiting period can extend from weeks to months. Even when payments arrive on time, the timing might impact profitability if they coincide with monthly bill due dates. Fortunately, Accounts Receivable Factoring offers a solution to mitigate these challenges.

This flexible financing option accelerates your payment cycle to just a few days, effectively easing cash flow constraints, enhancing profitability, and covering unforeseen expenses.

In this comprehensive guide, we will address the following questions and more:

What Is Accounts Receivable Factoring?

Accounts Receivable Factoring, commonly known as “Invoice Factoring,” involves a business selling its unpaid invoices to an accounts receivable factoring company, often referred to as a “Factor,” at a discounted rate. The factoring company assumes the responsibility of collecting payment from the customer. Once the payment is collected, the factoring company remits the remaining invoice amount to the small business owner, deducting factoring fees.

Invoice factoring serves as an ideal solution for small business owners encountering extended delays between providing a service or delivering goods and receiving payment. This financial arrangement accelerates the receipt of payments on accounts receivables, providing quicker access to funds.

MAX FUNDING AMOUNT

$10K – $10M

FACTOR RATES

Starting at 1% p/mo

TERM

Up to 24 months

SPEED

1-2 Weeks

How Does Accounts Receivable Factoring Work?

Accounts Receivable Financing, also known as Invoice Factoring, differs significantly from other business financing products in its requirements. Factoring companies prioritize the creditworthiness of your customers rather than focusing on your personal credit history or cash flow. This means that you do not necessarily need an excellent credit score or perfect cash flow to qualify. Instead, eligibility is based on your customers’ perceived ability to make timely payments. If the factoring company has concerns about your customer’s payment reliability or anticipates difficulties in collecting payments, your application may not be approved.

These considerations also affect the percentage of the outstanding invoices that the factoring company purchases and the associated factoring fees. Typically, factoring companies advance between 85% and 90% of the invoice amount upfront, providing this funding within a few business days, which is significantly faster than waiting weeks or months for payment.

Each factoring company applies its fee structure, including a fee for the second payment made once the factoring company collects from your customer. Generally, a lower factor rate is associated with a higher fee for the second payment.

While you may relinquish a portion of your income, this trade-off facilitates immediate access to funds and transfers the responsibility of collecting payments to the factoring company.

An Example of Invoice Factoring

When you sell your accounts receivables to a third-party factoring company, they determine the discounted purchase price using a factor rate. Here’s an example to illustrate this process:

Imagine you have $20,000 in outstanding receivables, and the factoring company applies a factor rate of 3%. According to this rate, the factoring company purchases your receivables at a discount, giving you 97% of the $20,000. This means the factoring company buys your receivables for $19,400.

However, you won’t receive the entire $19,400 upfront. Typically, you receive an upfront advance, which is usually around 85% of the purchase price. In this scenario, you would receive an immediate advance of $16,490.

After the factoring company collects the payment from your customers, you receive the remaining 15% of the purchase price, which equals $2,910.

Receivables Factoring – Research, Facts, and Reports

Recent market research anticipates that the global invoice factoring market will expand to $9.27 trillion by 2025. This growth is projected at a robust rate of 15.8% from 2018 to 2025, driven by the rising demand for alternative financing options among micro, small, and medium enterprises (SMEs).

Sources:

  • Adroit Market Research forecasts the global invoice factoring market to reach $9.27 trillion by 2025.
  • According to Adroit Market Research’s analysis, the international receivables factoring market is expected to grow at a compound annual growth rate of 15.8% from 2018 to 2025.
  • Grand View Research highlights the increasing necessity for alternative financing sources for micro and SMEs as a key driver of this market growth.

What Are The Advantages of Accounts Receivable Factoring?

Similar to other types of working capital loans, receivables factoring is accessible to businesses with less-than-perfect credit histories and fluctuating cash flows. Approval often hinges more on your client’s payment track record than your own financial stability.

To fully appreciate the benefits of invoice factoring, consider the impact of delayed customer payments. The longer an invoice remains unpaid, the less profitable the sale becomes—similar to holding unsold inventory. Your business continues to accrue expenses while waiting for revenue. Even a brief delay in payment cycles can significantly affect profitability. When clients typically pay at the end of the month, most funds often go toward covering monthly bills. Having quicker access to cash allows for more substantial reinvestment in your business before these obligations arise.

Using factoring services also frees up valuable time by removing the need to chase down payments. Once you sell the invoice, you can cease daily reminders and preserve client relationships.

Furthermore, there’s a common misconception that factoring companies aggressively pursue your clients for payment. This isn’t the case with companies like 60Day Capital—your clients are often unaware that their invoices have been sold in the first place.

What Are The Disadvantages of Accounts Receivable Factoring?

Accounts Receivable Factoring provides near-term financing but is generally more expensive compared to traditional bank loans with their lower interest rates. This higher cost is due to its flexible requirements and fee structure. For instance, similar to merchant cash advances, factoring involves a factor rate, contributing to its inherent expense.

Approval for accounts receivable financing depends heavily on the reliability of your customers. If a customer consistently misses payment deadlines by several weeks, collecting from them becomes challenging. Therefore, this financing option is most suitable for businesses with established customers and reliable partnerships. Smaller or less-established businesses may lack the reputation or credit profiles of larger counterparts, making approval more difficult.

Moreover, accounts receivable financing isn’t the sole solution for managing late-paying customers. Simple strategies like sending more frequent invoices can sometimes prompt timely payments. Therefore, consider exploring other practical measures to address cash flow issues before opting for accounts receivable factoring.

PROS
CONS

Invoice/Receivables Financing Compared To Other Products

LOAN TYPES
MAX AMOUNTS
RATES
SPEED

Who Qualifies For Invoice/Receivables Financing?

Approved businesses generally met the following criteria:

ANNUAL REVENUE

$250K+

CREDIT SCORE

550+

TIME IN BUSINESS

1 year+

How To Apply For Accounts Receivable Factoring:

At 60Day Capital, we facilitate factoring agreements with a range of companies, accommodating receivables up to $10 million, featuring competitive factor rates starting from 5.8%. Our streamlined funding process typically completes within two weeks. Here’s how you can get started:

Step 1: Ensure Your Customer is Reliable

An essential criterion for factoring companies is the reliability of your customer. Before approaching a factoring company, verify that your customer will promptly settle their invoices.

Step 2: Gather Your Documents

To apply, the finance company will need the following documents and information to determine if factoring invoices is suitable for you:

Step 3: Complete the Application

To initiate the application process, you can either reach out to us by phone or complete our straightforward one-page online application. You’ll need to furnish the details mentioned earlier, including the specific invoice amount you intend to sell.

Step 4: Speak to a Representative

Once your application is submitted, a representative will reach out to you to discuss the factoring fee, factor rate, and terms of the transaction. This ensures transparency throughout the process, avoiding any unexpected fees during subsequent payments.

Step 5: Receive Approval

The entire process typically spans about two weeks. Upon approval of the transaction, funds are expected to be deposited into your bank account within 1-2 business days.

Your Receivables Financing Gets Set Up – Now What?

Invoice factoring isn’t just a means to secure funding for your business; it’s also a valuable opportunity to establish or enhance your credit profile.

Regardless of the type of working capital financing you secure, ensure all payments are made promptly and completely. If you have a business line of credit or another revolving credit option, maintain a balance below the credit limit.

Consistently meeting your financial obligations for business financing will have a positive effect on your credit rating. This can result in more favorable rates and terms when you pursue future factoring transactions.

What If I’m Declined For Accounts Receivable Factoring?

If your application for invoice factoring is declined, it may be due to concerns about the collectability of your invoices from customers. In such situations, we can recommend alternative financing solutions to help meet your cash flow needs. Options may include a business line of credit or other products tailored to address more immediate financial requirements.

If qualifying for these alternatives remains challenging, we may suggest exploring options such as business credit cards or personal loans. These alternatives typically have more lenient qualification criteria compared to traditional bank loans. For those facing obstacles related to poor credit, consider utilizing credit repair services. These services can assist in improving your credit score by addressing underlying issues affecting your creditworthiness.

Contact us

175 Great Neck Rd # 206, Great Neck, NY 11021, United States

info@60daycapital.com