Invoice Factoring B2B For Startups
The first few years are crucial for securing the long-term viability of any startup. One of the biggest hurdles facing any startup during its foundational years is access to steady and reliable cash flows. It’s a company’s access to capital that heavily determines whether or not the business venture will pan out in the long term.
If your B2B small business relies heavily on customer invoices to grow and build its working capital, then it is especially vulnerable to seasonal changes in market activity and the whims of slow-paying customers.
Many startups might have to wait between 30 and 90 days for customers to pay.
Most startups are already notoriously lean and need every spare dollar of working capital to secure their essential business needs and to fund their necessary business expenses, like—
- Operating Expenses
- Equipment Rental and Purchases
- Employee Benefits Packages
- Licenses, Certifications, and other Legal Requirements
- Business Insurance
- B2B Marketing
- Growth and Acquisitions
Invoice Factoring for small businesses is a solution to the many cash flow challenges facing new small and medium-sized businesses. Startup factoring has several advantages over other funding methods for startups.
We’re going to explore invoice factoring for startups, how it works, and why it can be the better funding option than other financing methods, like business loans or business lines of credit.
If you’d like to know more about how you can factor your outstanding invoices and achieve improved cash flow, fill out our contact form, and a Factoring representative from our factoring company will reach out shortly! Or, if you are ready to join our growing list of new customers, begin your credit application here.
What is Invoice Factoring?
Invoice factoring is a financial service that helps business owners and other small and medium-sized companies receive upfront capital in exchange for their unpaid invoices. The factoring company purchases a small business’s invoices and holds a small portion of the total invoice amount in reserve until the customer pays their invoice.
The business pays a small fee called a factoring fee.
In exchange for their outstanding invoices, companies receive upfront cash—often as high as 85% to 90% of the initial invoice value—with the additional promise of the reserve amount once their customer pays minus the factoring fees.
Essentially, accounts receivables factoring helps small businesses receive a large percentage of their invoice amount in a matter of hours rather than having to wait between 30 and 90 days. Plus, the small business receives help from the factor with collecting the invoice payment.
But how does invoice factoring for startups compare to other forms of funding?
How is Invoice Factoring Better Than Other Financing Options?
Other forms of business financing often involve debt, lengthy approval processes, and long-term loan agreements.
Invoice Factoring vs Loans
Invoice factoring is not a business loan. With most loans, there are lengthy waiting periods and very stringent due diligence on the part of the bank. With accounts receivable factoring, the money a factoring company sends you is your money. There is no interest owed or monthly payments. You don’t have to put up collateral beyond the invoice itself, which you must pay back if your customer fails to pay.
Plus, receiving loan approval as a new and untested small business with little financial history is difficult. If approved, your startup company will likely have a higher interest rate and less favorable terms than if you were an established company.
As a new and emerging startup, you can’t afford to wait months to get approved for loans. You’ll need quick access to capital to get off the ground and running, which is something invoice factoring offers.
Invoice Factoring vs. Lines of Credit
Similar to loans, a business line of credit (LOC) is a borrowed amount of money a lender will offer to a business. It works similarly to a credit card.
With a business LOC, your small business has to pay back with interest any money it borrows. And, like business loans, the fees for missed payments can add up. Plus, your startup company is still responsible for the debt, even if your business fails.
Getting approved for a LOC is challenging—a company needs to have outstanding credit and two years of financial history to even be considered for approval. When you have cash flow challenges now, a business LOC is not the best funding option.
Partnering with a factoring company to fund your small business is easier because you don’t need as extensive of a credit history, and your credit quality doesn’t need to be as high.
To learn more about how invoice factoring compares to other business financing methods, check out our blog post on invoice factoring vs invoice financing.
Is A/R Factoring Right For Your Startup?
Accounts receivable factoring is a viable funding option for many small to medium-sized businesses that rely heavily on customer invoices for income.
- The approval process is relatively easy and takes a matter of days—not weeks or months—so its ideal for companies that need to increase their working capital fast.
- A startup that uses invoice factoring to fund its operations doesn’t have to rely on business loans or other financing methods that put a business in debt.
- Factoring companies work with their clients to help collect payments and ensure that customers pay their invoices on time. For lean startups, not having to spend payroll on collections and customer management can increase the amount of working capital a business can spend on marketing or other important startup expenses.
- New companies that don’t have a strong credit profile or financial history are more likely to be approved for factoring
Check out our blog post on the benefits of invoice factoring.
How Invoice Factoring B2B Helps Your Startup Thrive
So, how does Great Funds Factoring help your business grow and get off the ground running? Learn more about our startup factoring process.
At Great Funds Factoring, we understand that there are many financial challenges that even the most successful businesses can go through. We believe that good communication is key to developing a strong working relationship with our clients and will strive to be personally available to answer questions about receivables factoring.
During the discovery process, we aim to understand your business needs better, gain your trust, and determine if open account receivable factoring fits you.
After submitting your credit application, Great Funds Factoring, LLC will review your credit application and other required documents, such as bank statements, master customer lists, and financial statements.
When the due diligence is completed, Great Funds Factoring works on the approval process. Usually, the entire process of both underwriting and approval review takes one to two business days. Once approved, we will send you the proposal and all documents needed to set up your account.
As you send invoices to your customers, we verify them and advance your funds immediately to your account while holding a small amount in reserve until your customer pays their invoice.
Recourse Vs. Non-Recourse Invoice Factoring Services
Great Funds Factoring only offers recourse factoring to our clients. With recourse factoring, the client is responsible for paying us back for the outstanding invoice if their customer fails to pay. With non-recourse factoring, the client doesn’t need to pay the factoring company back.
However, the factoring company takes on a larger amount of risk with non-recourse factoring. As a result of the increased risk, non-recourse factoring is much harder to get approved for and is much more expensive than recourse factoring.
By offering recourse factoring, we save small businesses time and money.
To learn more about recourse factoring and non-recourse factoring, check out our blog post Recourse Factoring vs. Non-Recourse Factoring.
Is Your Startup Ready to Partner With A Factoring Company?
Startups that serve B2B customers and need working capital to get off the ground can benefit from partnering with invoice factoring companies.
If you are ready to learn more about how Great Funds Factoring can grow your business and get it past its scary first few years, fill out our contact form, and a representative with contact you shortly.
Or, if you are ready to partner with us, start our application process by filling out your credit application.
Let us help move your business forward
Great Funds Factoring LLC
Contact Great Funds Factoring and Get Paid Fast
Great Funds Factoring helps your business unlock its capital fast, efficiently, and securely. You can’t afford to be a second behind in the tech industry. Great Funds Factoring helps get your business ahead.
Call Great Funds Factoring at 910-My-Money, (910-696-6639) or use our online contact portal.
If you are ready to get started, fill out our online credit application and unlock the power of your customers’ unpaid invoices today.