What is invoice factoring (accounts receivable financing)?
Many companies and entrepreneurs provide products or services and do not get paid until long after they have done their work. This often causes cash flow problems that prevent them from taking their business to the next level, taking on other work, or even paying their employees. Invoice factoring, also known as accounts receivable financing, is a type of financing that converts outstanding invoices into cash. It is a financial transaction in which a business sells its accounts receivables at a discount to a factoring company.
Invoice factoring is a great way for businesses to get money for the work they have done quickly. Ontario factoring companies like Growth Capital provide businesses with immediate cash for their invoices without them having to take out a loan. Growth Capital is a private business provider of factoring solutions to businesses of all sizes.
How does it work?
When you operate a business in Ontario, you sell products or services to your customers and issue invoices. If your customers are slow-paying, you can factor these invoices by sending them to Growth Capital, Ontario’s best factoring service. Growth Capital’s accounts receivables management solutions are designed to solve your cash flow problems. We offer quick and simple factoring transactions to help you get paid right away.
When we receive your invoices, we will verify them with your customers and then advance you a percentage of the value of the invoices. This usually takes less than 24 hours and provides you with the cash you need. As soon as your customers send their payment for the invoices to us, we rebate the remaining value of the invoices to you, minus our small factoring fee.
Our factoring service fee will depend on a number of things, as we consider the different needs and circumstances of each individual client. We also work with our clients to agree on a service fee prior to any exchanges, so you can be sure you get the premium service and low rates that we are known for.
Get instant cash: Step-by-step guide to invoice factoring
Waiting on payments from customers often puts a large strain on cash flow. Many businesses cannot afford to wait when they have bills to pay. Invoice factoring allows you to finance your accounts receivables for immediate debt-free working capital. At Growth Capital we keep things simple so that you can get the funds you need.
Here are the 7 steps involved in invoice factoring after you open an account with Growth Capital
Step 1
Sell your product or service to a customer
The first step to invoice factoring is to sell a product or service to your customer as per the agreed terms and conditions. Once this is done, send an invoice to your customer for the product or service provided. The invoice must have net terms of 30 to 90 days.
Step 2
Send Growth Capital a copy of the invoice
After the invoice has been issued to the customer, the next step is to send a copy of the invoice to Growth Capital for financing.
Step 3
We verify your invoice
When we receive the submitted invoice, we will verify it with your customer to ensure that you have delivered the product or carried out the service. Factoring companies need to perform invoice verification measures to guarantee that they only fund correctly-issued invoices. We will contact your customer in a professional manner to verify that the issued invoice was received, and the amount stated is accurate.
Step 4
We send you the factoring advance
After verifying and approving your invoice, we will send you the factoring advance immediately. The factoring advance is calculated as a percentage of the face value of the invoice. Growth Capital’s advances vary from 80% to as high as 100% of the invoice value. The remaining portion of the invoice value is held as a reserve. Your advance percentage will be determined by 3 main variables: the volume and size of the invoice, the riskiness associated with your industry, and the creditworthiness of your customer. We will transfer the advance to your bank account by wire or EFT (Electronic Fund Transfer) within 24–48 hours.
Step 5
Your customer pays Growth Capital directly
Your customer makes a full payment to Growth Capital when the invoice is due. This has to be done within the terms of the invoice.
Step 6
We send you the rebate
Once your customer has paid the invoice in full, we will send you the rebate of the remaining reserve amount minus our factoring service fee. The factoring fee (also known as discount rate) is a small percentage of the invoice collected by the factoring company for their services. It is often priced out based on your customer’s credit and/or the length of time it takes for your customer to pay. Some factoring companies may include additional hidden fees such as a per transaction fee, credit check fee, overdue fee, and monthly minimum volume fee. At Growth Capital, we provide transparent discount rates and no hidden fees. Our factoring service fees can range from 1.5% to 6% of the invoice value.
Step 7
We are ready to factor more of your invoices
After you receive the rebate, you can choose to end the transaction or factor more receivables. If you decide to sell us more invoices, we will be ready to purchase them and repeat the entire process. By continuing to sell your accounts receivables, you can maintain a steady cash flow generation cycle for your business.
Ready to get started with Invoice factoring? Request a quote and open an account with Growth Capital.