Invoice Factoring
What Is Invoice Factoring?
Are you seeking unparalleled flexibility? Invoice factoring offers the liberty to sell open invoices and obtain cash promptly for a predetermined discount fee. It’s a financial service aimed at enhancing a company’s cash flow without the burden of a loan. Here’s how it works: the company sells its outstanding invoices to a factoring company at a discounted rate, gaining immediate capital. The factoring company then manages the collection process, adhering to the payment terms, typically within 30-60 days, from the invoiced customers.
Our Process
Step 1: Apply
Complete form &
become an Ark Client
Step 2: Service
You deliver your
products or services
Step 3: Send
Send your invoices to
Ark Capital Funding
Step 4: Get Paid
Ark Capital verifies &
pays you within 24 hours
How Is Invoice Factoring Different Than a Bank Loan?
Invoice factoring emerges as a compelling choice for companies seeking rapid funds when conventional bank loans aren’t accessible. Known by various monikers like receivables factoring, invoice discounting, or debtor financing, the outcome remains consistent: your company can swiftly transform its receivables into vital operational cash. This eliminates the waiting game of 30, 60, 90 days, or more for customer payments. In this blog post, we delve into the distinctions between invoice factoring and traditional bank loans.
How Are Invoice Factoring and Invoice Financing Different?
Invoice financing, also referred to as accounts receivable financing, diverges slightly from factoring. Rather than selling your invoices outright to a factoring company, you leverage them as collateral to obtain working capital, with the responsibility of collecting payments on the invoices retained by you. This form of financing, akin to asset-based lending, mirrors a loan structure, as the line of credit is contingent upon the value of your accounts receivable. Qualifying for accounts receivable financing resembles the process for securing a loan, necessitating a track record of business longevity and the provision of financial statements showcasing profitability.
Invoice Factoring Pros & Cons
Every form of financial assistance comes with its own set of advantages and disadvantages. Bank loans often demand a robust credit history or collateral as security, whereas alternative financing options might entail relinquishing a portion of your company or future earnings. Similarly, invoice factoring presents both benefits and drawbacks.
The Pros of Invoice Factoring
Invoice factoring can provide immediate working capital to help cover a cash flow gap caused by slow-paying customers.
You can keep loyal customers on longer payment terms but still improve your cash flow to help you grow your business.
Invoice factoring provides financing to companies that might not be able to get capital from other sources, such as a traditional bank, because of a lack of collateral, a limited operating history, or poor personal credit. Typically, factoring companies base approval on the value of the invoices you’re looking to factor and the creditworthiness of your customers.
Non-recourse factoring essentially provides accounts receivable insurance, along with the cash advance.
The Cons of Invoice Factoring
The invoice must be for a B2B transaction. And the service must be completed before the factoring company will purchase the invoice.
The factoring company will need to verify the creditworthiness of your customers. If the customers have a history of late or missed payments, or if the business has weak revenue, you may not be approved for the financing.
There’s no certainty the invoice factoring company will successfully collect on your unpaid invoices. If it’s a recourse factor, the factoring company may require you to buy back the unpaid invoice. If you can’t afford to risk customer non-payment, make sure the factoring company you choose offers non-recourse factoring
Common Questions About Invoice Factoring
In order to be a candidate for invoice factoring, you must be invoicing other business customers for delivered goods or services. If you have sales, but cash flow issues are preventing you from keeping up with business expenses or increasing sales, then invoice factoring will benefit your business.
Invoice factoring is not a business loan, rather a form of business financing. There is no money to be repaid and no long-term commitments. Instead, it is an advance on a business’ existing accounts receivable. The unpaid invoices are actually sold to the factoring company for immediate business capital.
Businesses in many different stages and industries use invoice factoring to help their business grow and expand. Factoring is suitable for start-ups, growing companies, and any businesses who can’t always wait 30-60 days for business customers to pay. Invoice factoring is a flexible form of financing that grows with a company as their financing needs change. Ark Capital works with the following industries, among others:
- Transportation
- Freight
- Oil & Gas
- Energy Funding
- Temporary Staffing
- Telecom
- Underground Utility & Cabling Contractors