Invoice factoring is a financial product in which a business sells its account receivables to a factor. In explicit terms, a business presents its invoices to another company (a factor or factoring company) and receives a percentage of the value of those invoices in cash from the factor.
The factoring company collects the unpaid invoices from clients and then sends the due percentages to the business after deducting an agreed fee. The amount advanced by the factoring company to the business is not a loan. The transaction becomes invoice financing if account receivables server as collateral to secure loans.
While invoice factoring can be an option for your small business if you meet the requirements stipulated by the factoring agreement, it bears many limitations. BSD, a Seattle-based factoring firm, offers some of the best alternatives to invoice factoring, including flexible business loans of up to $10.0M delivered in less than 30 days.
How Invoice Factoring Works
Invoice factoring starts with a business supplying goods or services to creditworthy clients on credit. The following steps follow:
Step one: The business presents outstanding invoices to invoice factoring companies
Step two: The factor assesses risk and determines if the client meets invoice factoring requirements. Risk levels vary from client to client and among industries.
Step three: If the business meets the requirements, it receives a percentage of the invoice values. The rate averages 80% but can be as low as 70% and as high as 90%.
Step four: The factoring company collects outstanding invoices. Usually, debtors pay directly to the factor’s account, where all amounts stay. The factor deducts factoring fees and pays the business net amounts.
When Is Invoice Factoring A Good Idea?
Many scenarios can push a business into resorting to invoice factoring. If there are no other options, it applies when:
A business needs cash urgently
Invoice factoring provides cash if working capital falls below a certain level. Illiquid companies are unable to meet operating expenses when they arise. Since most payment terms may allow debtors up to 120 days, which cannot support urgent liquidity needs, factoring bridges the gap.
A business has no collateral
Small companies and start-ups may have inadequate security after asset aggregation. Invoice factoring is an optimum solution if a small business has unpaid invoices causing cash flow problems.
A business has inadequate debtor follow-up resources
Small and large businesses may have large or widespread credit customer bases that require considerable resources to follow up. Invoice factoring companies have debt collection solutions that create upside market value at a reduced cost.
Options Offered By BSD
Invoice factoring is not the ultimate solution. The desperate need for cash overshadows its limitations. Some of the demerits associated with invoice factoring include:
- Invoice factoring is a narrow solution that solves debt problems only. The cash flows from its proceeds are insufficient for expansion and asset acquisition.
- Invoice factoring may destroy customer relationships as a third party pressures customers to clear off debts.
- Factoring is costly, and canceling factoring agreements can be a tad expensive.
BSD Finance offers to collaborate with businesses and provide transformative alternatives to invoice factoring. Our services meet dynamic business needs for increased efficiency and increased returns. We offer diverse, custom-made solutions with a unique model to create scale.
Due to a proprietary technology that sets BSD apart from competitors, higher accuracy based on data actualizes finance options of up to $10M in less than 30 days. Our revolving lines of credit apply to:
- Purchase order financing
- Growth finance
- Expansion and acquisition
- Refinancing purposes
Why Choose BSD Options as an Alternative to Invoice Factoring
Should your business need increased cash flow at an accelerated pace or more resources for rapid growth, BSD Finance provides solutions superior to invoice factoring. BSD is different because:
- BSD financial solutions sweep wide across your business needs. They seamlessly integrate into the business without disrupting customer relations to provide the organizational support needed to attain the increased capacity to supply.
- Unlike factoring cash injections, which are barely sufficient for business growth, BSD solutions provide working capital and growth funds in one bundle. Your business gets the opportunity to experience a paradigm shift towards the future firm you desire it to be. As your business is growing, BSD Finance guarantees flexibility.
- BSD credit lines can finance increased automation equipment, inventory, and workforce. Your business gets the entire solution to expansions, acquisitions, and consolidations without worrying about liquidity issues.
- BSD provides advisory services in addition to liquidity solutions like invoice factoring. We articulate the business’s future and optimize resources to prepare for it.
Gain the BSD Finance Advantage
Your business deserves streamlined, flexible, accelerated, and custom finance options to guide it to increased performance.
Contact us to find an optimum financing solution geared towards business growth.