What Is Invoice Financing

Invoice financing goes by many names that all mean the same thing: invoice factoring, receivables factoring, receivable financing, or other types of asset-based-lending that uses a business’s accounts receivables as a type of collateral. Generally, accounts receivable financing is a broader term for invoice financing and invoice factoring which are similar but different.

With invoice financing, a lender will lend a certain percentage of your incoming invoices, typically up to 85%. You pay about 1% on the money owed until the vendor pays. Some lenders, such as BlueVine won’t even check credit score because they are getting paid by the company’s invoices and don’t assume much risk by lending money.

With invoice factoring, a financer can advance you 100% of your outstanding invoices because they are buying your future receivables. When utilizing factoring, you pay the lender back weekly over a set period of time until the advance gets cleared rather than paying them back when the vendor pays. Some business owners prefer this so they aren’t waiting on customers to settle their debt, but this might mean your funder collects directly from the vendor and you don’t see any of the money, which could strain cash flow more if the repayment is not on your terms.

To summarize: Invoice factoring is purchasing your accounts receivables. Most of these factoring companies will collect from your customers on your behalf. Invoice financing is lending you a percentage of incoming invoices and will collect money directly from you.

How To Qualify For Invoice Financing

Invoice financing is considered easy to get, as the main piece of information needed is outstanding invoices.

Despite this funding being asset-based, you will still want to have a healthy business with the strongest credit and revenue you can show. These factors may or may not play a part in funding amount and rates depending on the provider.

Accounting Software

The easiest way to get approved for invoice financing is to find a provider who will sync with your accounting software. FundBox and BlueVine both look at accounting software to determine funding amounts and underwrite a business. This makes online funding quick and easy with minimal paperwork.

Outstanding Invoices

Funding can help cover gaps in cash flow created by unpaid invoices, yes, however this program isn’t designed to cover delinquent vendors. Outstanding means processed but not paid, not necessarily over due or late. While vendors can be paid, you would be best off utilizing this funding service if you have clients who generally pay on time. A funder is not designed to go after clients for you, you need to ensure your customers pay.

Each lender may require specific information besides the general bank statements, credit score and outstanding invoices. Otherwise, invoice financing primarily relies on one asset: the invoices!

Where To Get Invoice Financing

Thanks to accounting software, receivable financing can be done completely online. If all of your accounting is done online or through software, transferring business information and getting approved is extremely easy.

There are many invoice factoring providers and other asset-based lending companies, but these are the top three.

Top Invoice Financing Providers

BlueVine – If you need smaller amounts, BlueVine can provide businesses with factoring amounts of $5,000 to $5 million per month at starting 0.25% to 1.35% weekly discount rates. BlueVine is quick to approve – 10 minutes – and fund – 24 hours -. Plus, the company won’t directly interact with your customers to collect payment. You can receive 85% to 90% of invoices with weekly repayment, and a personal guarantee is required.

TCI Business Capital – TCI Capital re-evaluates your rate every month, which may or may not be beneficial depending on how your venders perform. With TCI Capital you can expect an APR of 12% to 55% on funding amount from $50,000 to $20 million per month. The funder can advance your business up to 90% of invoices due in 30 to 90 days and are paid automatically as your customers pay. You may need a personal guarantee depending on the health of your business and the amount of funding.

Paragon Financial Group – For businesses who need large amounts, Paragon Financial Group is the top option. They offer factoring amounts from $30,000 to $10 million monthly and rates of 1.25% to 2.5% per 30 days. The funder will advance 80% to 90% of invoices, which is repaid as your invoices are paid. A personal guarantee may be required, especially for larger amounts.

Accounts Receivable Financing Compared To Other Options

Invoice financing does come at a cost, but some industries need to pay to have cash now so they can ensure a smooth cash flow. Invoice financing is fast and easy to get, and can cover payroll gaps,

Depending on rates and fees, an invoice financing example could look like this: $100k in outstanding invoices gets you an advance for 85% or $85,000. After a 3% processing fee of $3,000 and 1% weekly fee, a vendor who takes two weeks to pay would cost you $2,000 plus the processing fee of $3,000 totaling $5,000. This may or may not be a lot of your business to pay to have the money immediately when it’s needed.

Equipment Financing – similar to invoice financing, this asset-based lending uses collateral to secure funding. Often, the equipment used as collateral is the equipment purchased with the money. You pay the lender for financing the equipment purchase and if you don’t, they take it back. Sometimes this term is used to refer to financing to purchase equipment, not necessarily using that equipment as collateral.

Merchant Cash Advance – Invoice factoring is more similar to merchant cash advance factoring in that they both utilize the purchasing of future receivables. A funder will provide money and withdraw payments based on monthly credit card sales. If you aren’t B2B and don’t have vendor invoices, this is a similar option to get unsecured business funding.

Business Loan – A business loan has the lowest rates of most business funding options, but can be slow to provide money and hard to qualify for. If you need invoice financing for an immediate need, a bank loan can cover that gap quickly enough. Bank loans also require credit scores over 700, strong revenue, collateral, and typically more than one year in business, which rules out many business owners.

Business Line Of Credit – A business may need revolving credit. Rather than continuously applying for loan after loan, you can open up a business line of credit, like a credit card but on a larger scale, and have a cash flow cushion for whenever you may need it. With a business line of credit, you only pay interest on what you borrow, which can also help save money. Just be sure to never spend more than you can pay, as additional cash flow is easy to use.

Improving your company’s working capital through invoice financing can be crucial to keeping operations moving smoothly. While you are paying money to use money, asset based lending through invoice factoring only finances what your business has coming in.

For more on asset based financing options, apply for funding with new York Tribeca Group to find out if there is a financing option that is a better fit for your business’s cash flow, asset, and term length needs.