Tag: factoring company

Factoring 101: What Is a Factoring Company?

What is factoring and how does it work? This article gives you the basics you need to know to decide if a factoring company is an option for your business.

Managing cash flow is crucial for small businesses. Around 48% of small businesses had concerns about their cash flow in 2020, up from 40% in 2019.

If you’re looking for ways to free up cash flow to help your business function and grow, have you considered using a factoring company? Are you aware of how they can help you gain access to cash tied up in your invoices?

What is factoring and how does it work? This article gives you the basics you need to know to decide if factoring is an option for your business.

What Is Factoring?

Invoice factoring is a form of cash flow financing sometimes known as accounts receivable financing. A factoring company buys your outstanding invoices so you can receive the cash right away, rather than having to wait the 30-90 day terms on the invoices for your clients to pay.

While it is used by businesses ranging from startups to Fortune 500 companies, factoring is especially well suited to small and medium-sized businesses. Small business invoice factoring is a fast and easy way to boost cash flow, especially for businesses that may have trouble securing a loan from a traditional lender.

How Does Factoring Work?

A factoring company pays up to 90% of the value of an invoice as a cash advance and collects the payment that is due from the client. Once it approves an invoice it can pay the money in as little as 24 hours. That makes it ideal for businesses that need cash quickly to cover expenses.

The factoring company charges fees of around 1-5% depending on the amount of money, the length of the invoice period, and the client’s credit quality. Longer payment terms and questions about the client’s creditworthiness increase the fees.



There are two types of factoring. In recourse factoring, the business is responsible if the client fails to pay the invoice by the due date. In non-recourse factoring, the company takes on the credit risk. Some companies offer both options with different terms, so you should make sure you understand the terms you accept.

How Do Businesses Use Factoring?

Some businesses factor all of their invoices, while others use it only for customers that may take longer to pay. They use the cash to pay employees, buy inventory and new equipment, expand the business, or cover other expenses.

Small businesses often prefer factoring over other forms of financing, as it does not involve taking on debt or long-term contracts and the fees are low. It can smooth out uneven cash flow and keep a business afloat between invoice payments.

Some invoice factoring companies specialize in providing services tailored to specific industries, including trucking, construction, health care, or staffing. Some banks offer factoring, but most factoring companies are independent service providers.

A Factoring Company Can Unlock Cash Flow for Your Small Business

Using a factoring company can release cash tied up in your accounts receivable. There’s no need to undergo a long loan application process or take on debt.

Now that you know the benefits, you can research to find the best factoring company for your needs.

If you found this guide useful, keep reading the blog for more tips and growth strategies for your small business.



Essential qualities of an effective trucking factoring firm

When looking for a factoring company, you must carry out your search carefully.

Are you in need of a reliable trucking factoring company with which you can work? When looking for a factoring company, you must carry out your search carefully. The firm should have specific criteria that sets it apart and makes it favorable to work with as a company. Below are a few of these essential qualities that you should seek in any factoring firm with which you choose to work.

No Hidden Fees

You need to understand how the company will make its money. Are the charges clear up front? The last thing you want is to be taken off guard by an unexpected service fee of which you were not aware. You also need to ask if there are any minimum requirements before you sign the contract. Make sure that you know exactly what payment you will be paid too.

No Monthly Minimums

It is preferable to settle for a factoring company that has no monthly minimums and allows you to factor as and when the need arises. If your firm is small, you don’t want to be stressed out from trying to keep up with the required monthly invoice factoring minimum requirement from the trucking factoring company.

You should have the freedom to go and factor when you need a boost in your cash flow. Factors that tend to want you to have a set minimum are those that are looking at working with companies with higher invoice volumes. Make sure you’ve selected a factor that works with small-to-medium enterprises if you’re still growing.

High Advance Rates

The advance rates offered by a factoring company are equally important. How much of the total invoices will you receive? In general, it’s more often 80 to 90% of all the completed contracts; however, it is worth checking in with the factor and getting an idea on the rates before signing the contract. You want to be paid as soon as you finish the job, so you have the funds to take on bigger and better projects as well as meet all your business expenses.

Enables You to Grow

A factoring company is your partner for growth. Nothing slows down a business like a lack of cash flow. It’s a standard business practice that clients are billed invoices with a 60 to 90-day option for payment. However, this can mean waiting for months before being paid for a completed job. This issue is where trucking factoring companies step in to give a helping hand. They can advance the cash you need so you can focus on growing your business.

Quick and Efficient Setup

You are already busy with your business. You don’t want to spend hours filling in paperwork for a loan. So what do you do? Consider a factoring company, of course. Most trucking factoring companies have streamlined simple startup processes that can see you receiving your first payment within 24 hours. When applying, it is crucial that you ask them about the application process and how soon they can consider your case and cash out your first payment.

Some of the more prominent factoring companies working with corporate truckers can take seven business days or more to process applications. The above tips will help you to find a factoring company with which it is worth working.