Invoice Factoring
Converting outstanding business to business invoices into cash before the customer pays.
- Financed asset
- Outstanding invoices
- Common in
- Staffing, trucking, home health, subcontracting
- Prepare
- Aging report and invoice documentation
Factoring addresses a specific problem: the work is finished, the invoice is issued, and the customer will pay in thirty, sixty, or ninety days while payroll runs every two weeks. The receivable itself is the asset being financed.
Because the customer's payment behavior matters, factoring reviews look closely at who the business invoices, not only at the business itself. That makes it relevant for companies with strong commercial customers and long payment terms.
A typical situation
A staffing firm invoices a large hospital system on sixty day terms while paying its field employees weekly.
When this usually comes up
- Customers are commercial or institutional rather than consumers
- Payment terms are long and payroll is frequent
- Growth is constrained by cash tied up in receivables
- A few large customers represent a significant share of billing
- The business wants funding tied to work already completed
Common uses
- Weekly or biweekly payroll
- Materials and supplies for the next contract
- Fuel, maintenance, and operating costs
- Taking on additional volume from an existing customer
- Reducing pressure created by extended customer terms
What gets reviewed
Review varies by request. In general, the items below carry the most weight in this category, and having them ready shortens the conversation considerably.
- 01Accounts receivable aging report
- 02Customer concentration and payment history
- 03Invoice documentation and proof of delivery or completion
- 04Business bank statements
- 05Existing liens or financing tied to receivables
Before you commit
Your customers become part of the process
Depending on the structure, customers may be notified and may remit payment differently. That is a relationship decision as much as a financial one, so it should be considered before starting.
Clean invoicing makes this work
Disputes, partial billing, and missing documentation slow everything down. Businesses with disciplined billing practices get much more value out of this structure.
It scales with sales, which cuts both ways
Available funding grows as billing grows, which is useful during expansion and less useful during a slow stretch when receivables shrink.
Often a fit when
Businesses invoicing creditworthy commercial customers on extended terms with clean documentation.
Usually not the right tool when
Consumer facing businesses paid at the point of sale.
Questions about invoice factoring
Your customers become part of the process
Depending on the structure, customers may be notified and may remit payment differently. That is a relationship decision as much as a financial one, so it should be considered before starting.
Clean invoicing makes this work
Disputes, partial billing, and missing documentation slow everything down. Businesses with disciplined billing practices get much more value out of this structure.
It scales with sales, which cuts both ways
Available funding grows as billing grows, which is useful during expansion and less useful during a slow stretch when receivables shrink.
Talk it through before deciding
If you are weighing this against another structure, say so in the application. It is a better conversation when we know what you are comparing.