Why Companies Use Invoice Factoring

Why Do Companies Use Invoice Factoring?

Invoice factoring is a type of alternative financing that helps businesses improve their cash flow situation. It can be used in place of or sometimes in addition to other types of financing such as equipment financing, unsecured loans, and venture capital. Companies use the cash they receive from factoring for a variety of reasons, including:

To make payroll
To pay rent
To buy inventory or raw materials
To hire more employees
To take on new orders/clients

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

Why Business Owners Consider Factoring Services

As a company grows and experiences an increased need for cash, they will likely seek out various forms of financing. Below are some of the most common reasons that we see business owners consider factoring services over other forms of funding.

Slow Paying Customers or Long Payment Terms
Need Scalable Financing
Have Bad Credit
Are a New Company
Didn’t Get Approved for a Loan
Growing Quickly

Why Wait?

Start getting paid immediately

Factoring Advantages and Disadvantages

While there are many positives to invoice factoring, there are also downsides, depending on the nature of your small business and the factoring partner you choose to work with. Here, we’ll break down the pros and cons of invoice factoring.

Pros of Factoring

Immediate access to cash for your business

No impact on your credit score

Cons of Factoring

Reduced profit margins for your business
Hidden costs and fees from bad factoring companies

Let’s take a closer look at how works so you can decide if it’s worth considering for your own business to help with cash flow and more.

How Invoice Factoring Works in 6 Steps

Factoring is a way to turn unpaid invoices into cash for your business today. Here is how invoice factoring works in 6 easy steps.

The factoring company establishes a credit limit on the customers you submit for invoice factoring
You deliver your product or service as you normally would
You send your invoices directly to the factoring company
The factoring company verifies that the product was received or service performed
You receive your cash from factoring company
Your customers pay the factoring company directly

Some factoring companies require you to factor all of your invoices and others do not. So, if this flexibility is important to you, be sure to ask the factoring company before signing up.

As you can see from the above steps, invoice factoring is quite simple. Once you set it in motion, it’s actually quite a bit simpler to factor your invoices than to bill clients the traditional way. The factoring company does a great deal of the work for you since it functions as your back-office billing and accounts receivable department.