What is Invoice Factoring?
Invoice factoring is a financing method that helps businesses access immediate working capital. In this transaction, a business sells its invoices at a discounted rate to a factoring company, improving the business’s short-term cash flow. This process of accounts receivable financing is of huge benefit to businesses, as it allows them to bypass the waiting period when collecting customer payments. This helps businesses save time that they can devote to other important matter and provides them with instant funds to cover their everyday expenses.
At Growth Capital Corporation, we offer invoice factoring solutions for businesses of all sizes. If you run a B2B business that sells a product or service to your customers, invoice factoring is a convenient way to generate cash, meet your business expenses and focus on growth.
How Does Invoice Factoring Work?
Growth Capital follows a simple process to get you cash, quick. Typically, invoice factoring transactions are doled out in 2 installments:
The factoring advance is determined based on a percentage of the face value of the invoice factored. The percentage is calculated based on a predetermined rate, and the remaining amount of the invoice is held as a reserve.
The rebate is the amount of the reserve minus a factoring fee. It is given after we have collected the full invoice amount from the customer.
Invoice factoring involves 5 steps:
- Set up an account with Growth Capital
- Invoice your customers for products and/or services rendered and submit the invoices to us for financing
- Receive your cash advance of between 80-100% of the invoice
- Growth Capital collects the invoice from your customer when the invoice is due
- Receive your rebate of the remaining value of the invoice, minus a small factoring fee
Is Invoice Factoring Right for Your Business?
Invoice factoring is suitable for any type of business, whether it’s a start-up, small business, or large conglomerate. If your business is being held back due to slow-paying customers, receivables factoring is right for you.
Growth Capital helps businesses gain better control over their cash flow by giving them instant access to working capital that they can use to pay for other expenses and to finance growth. It’s a great option for businesses looking for an alternative to conventional business loans and lines of credit. Unlike loans, invoice factoring won’t add to your debt and is scalable, as the amount of capital you receive will grow as you issue more invoices.
Growth Capital often works with businesses that have low credit ratings or have been turned down by banks. Businesses that are low on staff or lack a collection department also benefit from our credit control management.
How Can Invoice Factoring Improve Your Small Business Cash Flow?
Growth Capital improves small business cash flow by eliminating the unreliable waiting period of customer payment. Payment terms for invoices can last anywhere from 30 to 120 days, and that can be too long when your business needs cash to invest in daily operations and growth initiatives.
With receivables factoring, you get instant access to working capital that would otherwise be held up by unpaid invoices, without incurring additional debt.
How Do I Qualify for Invoice Factoring?
Invoice factoring is only suitable for B2B businesses that sell products or services.
Invoices cannot be promised to other institutions as collateral.
Funding will rely on your customers’ credit history and their ability to provide invoice payments on time.
How is Factoring Cost Calculated?
The cost to your business is in the factor fee, or discount rate, which is the fee that is taken off when you receive your rebate. The factor fee ranges from 1.5% to 6% of the invoice and is calculated based on your customers’ payment days, their credit, or a combination of both. For example, if one of your customers pays within 90 days and another pays within 25 days, you will likely pay more for the former.
This equation is designed around the cost of capital. Many factoring companies borrow from a financial institution and must pay their own fees based on the outstanding days. Therefore, the longer it takes the factor to collect on the invoice, the more it costs.
At Growth Capital, we pride ourselves on our transparency. There are no transaction fees, credit check fees, or overdue fees introduced after you sign a contract. There are no hidden fees or long-term commitments with Growth Capital.
Inquire today to learn more and request a quote from Growth Capital.
Invoice Factoring Benefits, Terms & Qualifications
Quick Access to Working Capital
Getting started is quick and easy. It only takes a few days to set up a new account, after which factoring cash advances are deposited into your bank account within 24 hours.
Improved Cash Flow and No Debt
You’ll receive access to short-term cash flow that can be used to cover your expenses, operational costs, and invest in the growth of your business. As invoice factoring is different from a loan, there is no accumulation of debt.
You don’t have to worry about being rejected by a bank or financial institution because you are not yet established. At Growth Capital, we don’t reject businesses based on size, age, or credit history.
Our receivables factoring program manages credit control services for you so you can lower overhead costs and resources.
Transparent Terms and Low Fees
The terms of agreement are transparent and designed specifically for your business, with no hidden fees.
Choosing the Right Factoring Company
Choosing the right factoring company is essential. Growth Capital ensures that our customers understand all the costs associated with their agreement. We also ensure professional, respectful, and fair customer management, so businesses can feel confident that their customers are treated with care. We pride ourselves supporting businesses so they can achieve their own success.
Pros & Cons of Invoice Factoring
Growth Capital helps businesses of all sizes in many industries, but we understand that invoice factoring is not suitable for everyone. There are pros and cons of receivables factoring:
- With invoice factoring, it is the creditworthiness of your customer, and not your business, that is considered. As approval depends more on the value of the invoices that will be factored, approval is much easier than with other financial institutions.
- No collateral, such as real estate or inventory, is required.
- Increased time and cash flow: Not only are you getting fast cash to put back into your business, but you can spend time that would have been spent pursuing customer payment on other important matters.
- Growth Capital takes on the responsibility of communicating directly with your customer for invoice payment. We pride ourselves on professional customer service so you will not have to worry about any risk to customer relations.
- Growth Capital takes control of accounts receivables for you, which means that you have less control. That’s why we work hard to be an invoice factoring company you can trust.
Invoice Factoring FAQs
1. What is the difference between invoice finance and factoring?
Invoice financing is like factoring but with one major difference: you maintain control over the invoices. With invoice financing, you use the invoices as collateral against a cash advance instead of selling them to a factor. You are then responsible for contacting customers and receiving payment, and then you repay the advance in installments. There is more risk involved in invoice financing, as you will have to meet your weekly or monthly payments regardless of whether your customers have paid off their invoice.
2. Is invoice factoring expensive?
No, invoice factoring is not expensive. The only cost to your business is a small factoring fee ranging from 1.5% to 6%. At Growth Capital our rates and fees are transparent, with no hidden fees or long-term contracts.
3. How long does it take to factor invoices?
After you set up an account with Growth Capital, you can receive daily cash advances from your factored invoices in as little as 24 hours. Cash goes directly into your bank account, making this a quick, easy process.
4. Can I choose which invoices to factor?
Yes, you can be selective about the invoices that you factor if you don’t wish to factor all of them. This process is referred to as selective invoice factoring, spot factoring, or single invoice financing, and it allows you to factor individually selected invoices. Growth Capital is committed to offering tailored factoring agreements that suit your needs.
5. Is invoice factoring regulated?
Invoice factoring does not operate under the same regulations as traditional lending and funding, and as such is much less regulated. In Canada, invoice factoring companies are governed by the Personal Property Security Act (PPSA), which mandates that customers be notified of the invoice factoring agreement between the factoring company and the business.
Invoice factoring is an easy, fast, and cost-effective way for businesses of all sizes to access funds. Growth Capital provides low interest rates, exceptional customer service, customizable plans, and reliable payment. We handle your transactions with ease using our advanced accounts receivable factoring software. By working with Growth Capital to manage your credit control, you can reallocate your resources to help your business grow.