Struggling with slow-paying customers and tight cash flow? Our Factoring (Invoice Finance) services help you convert unpaid invoices into immediate cash. Enjoy quick access to the funds you need without waiting for lengthy payment terms.

At Finnex, we understand the challenges of managing cash flow and waiting for invoice payments. Thus, our Factoring (Invoice Finance) services are designed to transform your unpaid invoices into instant cash. You can access up to 90%* of your invoice value within 24 to 48 hours, empowering you to invest in growth, cover expenses, and keep your business on track.

Focus on growing your business while we handle the cash flow—easy, fast, and efficient!

Factoring (Invoice Finance)

Up to 90%* financed value of customer invoices!

Factoring, also known as invoice finance, is a financial service where a business sells its unpaid invoices (accounts receivable) to a third party, called a factor, at a reduced price. This provides the business with instant cash rather than waiting for its customers to settle their invoices. The factor then assumes responsibility for collecting the payments directly from the customers.

Factoring is crucial for businesses because it provides immediate access to cash by converting unpaid invoices into working capital. This quick influx of funds helps companies maintain smooth operations, cover expenses, and invest in growth without waiting for customers to pay. Unlike traditional loans, factoring doesn’t add debt to the balance sheet, making it an attractive option for businesses that need flexible financing. Additionally, it allows companies to focus on their core activities while the factor handles credit management and collections, reducing the risk of bad debt and supporting overall business growth.

Two types of Invoice Financing:

A. NOTIFIED

The customer or company to whom the invoice was issued is informed of the invoice sale and required to make payments to the factor doing the collection.

B. NON-NOTIFIED

The customer or company to whom the invoice was issued is informed of the invoice sale and required to make payments to the factor doing the collection.

How Factoring Works

Step 1: Invoice Generation

After delivering goods or services to your customers, you issue invoices with payment terms. These invoices represent the money your customers owe you.

Step 2: Selling Your Invoices to a Factor

Instead of waiting 30, 60, or even 90 days for customers to pay, you can sell these invoices to a factoring company (the “factor”). The factor agrees to purchase your invoices at a discounted rate, typically providing you with up to 90%* of the invoice value upfront. This immediate cash infusion helps you cover expenses, reinvest in your business, or manage other financial obligations.

Step 3: Customer Payment Notification

Depending on the type of factoring you choose, your customers may or may not be notified of the invoice sale:

Notified Factoring: Your customers are informed that their invoices have been sold and will be instructed to pay the factor directly.
Non-Notified Factoring: Your customers continue to pay you as usual, and the factor manages the transaction behind the scenes.

Step 4: Collection of Payments

The factor takes over the responsibility of collecting payments from your customers. With notified factoring, the customers make their payments directly to the factor. In non-notified factoring, you collect the payments and forward them to the factor.

Step 5: Final Settlement

Once the factor collects the full invoice amount from your customers, they will release the remaining balance to you, minus their service fee. This fee is typically a small percentage of the invoice value, which compensates the factor for the cash advance and collection service .

What are the Requirements for Factoring (Invoice Finance)?

The requirements for factoring can vary depending on the factor’s criteria, the industry, and the specific terms of the agreement. However, the general requirements often include the following:

1. Business Eligibility

Established Business: Most factors prefer businesses that have been operating for at least 6 months to a year.
B2B Transactions: Factoring is typically used by businesses that sell products or services to other businesses (B2B), as opposed to individual consumers.
Creditworthy Customers: Factors are more likely to accept invoices from businesses with customers that have a strong credit history.

2. Invoice Requirements

Outstanding Invoices: The invoices submitted for factoring should be unpaid and not subject to disputes.
Invoice Age: Most factors prefer invoices that are less than 90 days old.
Clear Terms: The payment terms on the invoices should be clear, typically net 30, 60, or 90 days.

3. Financial and Legal Documentation

Accounts Receivable Ledger: A record of all outstanding invoices and payment history.
Business Financial Statements: Recent financial statements, including income statements, balance sheets, and cash flow statements.
Credit Check: Some factors may require a credit check on your business or your customers.
Legal Documentation: Documents such as Articles of Incorporation, business licenses, and potentially contracts with your customers.

4. No Existing Liens

No Prior Claims on Receivables: The invoices you want to factor should not be pledged as collateral for other loans or have any liens against them.

5. Minimum Volume

Minimum Invoice Volume: Some factors require a minimum volume of invoices to be factored each month.

6. Contract Terms

Factoring Agreement: A signed contract outlining the terms of the factoring arrangement, including advance rates, fees, and recourse or non-recourse terms.

7. Industry-Specific Requirements

Industry Type: Certain industries might have specific requirements. For instance, construction factoring may have different criteria due to the nature of contracts and payment terms in that industry.

These requirements can vary slightly depending on the factor and the specific circumstances of your business. It’s always best to consult directly with a factoring company to get a detailed understanding of their criteria.

What are the Benefits of Factoring (Invoice Finance)

Factoring (Invoice Finance) offers a range of advantages that can significantly benefit businesses, particularly those that operate in industries with long payment cycles or face cash flow challenges. Below are the key benefits:

1. Immediate Access to Cash

One of the most significant benefits of factoring is the ability to convert your receivables into immediate cash. Instead of waiting 30, 60, or even 90 days for customers to pay their invoices, you can receive up to 90%* of the invoice value within 24 to 48 hours. This quick infusion of cash allows you to cover operating expenses, pay suppliers, invest in new opportunities, or handle any unexpected costs.

2. No Additional Debt

Unlike traditional loans or lines of credit, factoring is not a form of debt. When you sell your invoices to a factor, you are not borrowing money but rather receiving an advance on funds already owed to you. This means factoring doesn’t appear as a liability on your balance sheet, preserving your company’s creditworthiness and keeping your debt levels manageable.

3. Improved Cash Flow Management

Maintaining a healthy cash flow is crucial for any business. Factoring provides a consistent and predictable flow of funds, helping you manage day-to-day expenses more effectively. With steady cash flow, you can meet payroll, take advantage of supplier discounts, and reduce the risk of late payments or missed opportunities due to cash constraints.

4. Flexible and Scalable Financing

Factoring is inherently flexible and can scale with your business. As your sales and receivables grow, the amount of financing available to you through factoring increases as well. This scalability makes factoring an ideal solution for businesses experiencing rapid growth or seasonal fluctuations, ensuring you always have access to the working capital you need.

5. Outsourced Accounts Receivable Management

When you engage in factoring, the factor takes over the responsibility of collecting payments from your customers. This can save your business time and resources by reducing the need to manage accounts receivable internally. The factor’s expertise in collections can also improve payment times and reduce the likelihood of bad debt.

6. Focus on Business Growth

With the burden of cash flow management and collections lifted, you can focus on what matters most—growing your business. Factoring allows you to invest more time and resources into expanding your operations, acquiring new customers, or developing new products and services, without worrying about cash flow interruptions.

7. Improved Credit Management

Because the factor evaluates the creditworthiness of your customers, you gain insights into the financial stability of the companies you’re doing business with. This can help you make more informed decisions about extending credit and managing risks, ultimately leading to better credit control.

Who are Eligible for Factoring (Invoice Finance)

Factoring is an ideal solution for businesses of all sizes that:

Experience Cash Flow Gaps: If your business faces delays between delivering products/services and receiving payment, factoring can bridge the gap.
Operate in B2B Industries: Companies that invoice other businesses rather than individual consumers benefit most from factoring.
Seek to Grow Rapidly: If you need capital to invest in new opportunities but are tied up in receivables, factoring provides the liquidity to fuel your growth.
Have Reliable Customers: Factoring works best when you have creditworthy customers who are likely to pay their invoices on time.

When Should You Consider Factoring (Invoice Finance)?

Factoring is especially beneficial in the following situations:

During High Growth Periods

When your business is expanding quickly and you need capital to sustain growth.

To Manage Seasonal Fluctuations

If your cash flow is inconsistent due to seasonal sales cycles, factoring can provide the funds needed during slow periods.

When Facing Long Payment Terms

If your customers have extended payment terms (e.g., 30-90 days), factoring ensures you have immediate access to funds.

In Times of Economic Uncertainty

When traditional financing options are limited, factoring provides a flexible alternative.

Where Does Factoring Apply?

Factoring can be applied across various industries, including:

Manufacturing: Convert unpaid invoices into cash to invest in production and inventory.
Wholesale and Distribution: Use factoring to ensure steady cash flow and meet supplier demands.
Transportation and Logistics: Finance fuel, maintenance, and payroll by factoring invoices.
Professional Services: Secure working capital while waiting for client payments.

What Can You Benefit from Factoring?

Factoring offers several advantages over traditional financing options:

Quick Access to Capital: Receive up to 90%* of your invoice value immediately, without waiting for payment terms.
No Additional Debt: Factoring is not a loan, so it doesn’t add to your business’s debt burden.
Focus on Core Business: Outsource your accounts receivable management to the factor, allowing you to focus on running and growing your business.
Improved Cash Flow: Maintain a healthy cash flow, even when dealing with slow-paying customers.
Flexible and Scalable: As your business grows and invoices increase, your access to funds through factoring can grow too.

Start With Finnex Consultation!

We understand our client’s business models and strategies to help our clients to structure and obtain the right credit facilities by objectively assessing their business profiles and documents before finding the most suitable financial institutions that could give them the highest approval chances.

We also try to get the best deal for our clients by looking for the lowest interest rates in the market, but this could still vary depending on the company’s financial standing and profile.

If your company is not able to qualify for a loan at the moment, we would advise on what areas you can improve to qualify in the future.

At the end of our sales process, a Fund Utilisation Planning on the newly acquired facilities will be conducted in an engaging session with the business owner to set the greater path to success.

Every client is important to us and we do our best to meet the estimated timeline given.
* Subject to the credit facility proposed and applied for, processing time may take longer or shorter.

Frequently Asked Questions

1. What is the difference between factoring and traditional bank loans?

Factoring involves selling your accounts receivable (invoices) to a third-party financial company (factor) for immediate cash, whereas a traditional bank loan involves borrowing money that must be repaid with interest over time. Factoring is not a loan, so it doesn’t add to your debt, and approval is based on your customers’ creditworthiness rather than your business’s credit score.

2. How much does factoring cost?

Factoring fees typically range from 1% to 5% of the invoice value, depending on factors like the industry, the creditworthiness of your customers, the invoice amount, and the time it takes for the customers to pay. These fees cover the advance provided and the collection service.

3. Will my customers know that I’m using a factoring service?

This depends on the type of factoring you choose. In Notified Factoring, customers are informed and make payments directly to the factor. In Non-Notified Factoring, customers are unaware that you’re using a factoring service, and they continue paying you as usual.

4. How quickly can I get funds from factoring?

Funds are typically available within 24 to 48 hours after you submit your invoices to the factor. The exact timing may vary depending on the factoring company and the specifics of your agreement.

5. Can I choose which invoices to factor in?

Yes, many factoring companies offer flexibility in choosing which invoices you want to factor in. This means you can factor specific invoices based on your cash flow needs or other business considerations.

6. What happens if my customer doesn’t pay the invoice?

This depends on whether you have a Recourse or Non-Recourse Factoring agreement:

In Recourse Factoring, you are responsible for repaying the advance if your customer fails to pay the invoice.
In Non-Recourse Factoring, the factor assumes the risk of non-payment, meaning you are not liable if the customer defaults, though this option usually comes with higher fees.

7. Is factoring suitable for start-ups or small businesses?

Yes, factoring can be an excellent solution for start-ups and small businesses, especially those with limited credit history or those experiencing rapid growth. Since factoring relies on your customers’ creditworthiness rather than your own, it’s accessible to newer businesses that might struggle to qualify for traditional financing.

8. What types of businesses typically use factoring?

Factoring is commonly used by businesses in industries with longer payment terms and significant receivables, such as manufacturing, wholesale, distribution, transportation, logistics, staffing agencies, and professional services. Any business that regularly issues invoices to other businesses can benefit from factoring.

9. How does factoring impact my relationship with customers?

Factoring can be structured to have minimal impact on your customer relationships.

In Non-Notified Factoring, your customers remain unaware that a factor is involved, so your interactions with them remain unchanged.

Even in Notified Factoring, professional factoring companies handle collections with care to ensure that customer relationships are maintained. Many businesses find that the improved cash flow actually enhances their ability to serve customers effectively.

10. Is there a minimum or maximum invoice amount required for factoring?

The minimum and maximum invoice amounts can vary depending on the factoring company. Some factors may have a minimum invoice size requirement, while others cater to businesses of all sizes, including those with smaller invoices. Similarly, most factors are capable of handling large invoices, making factoring a scalable solution for businesses with varying needs. It’s important to discuss your specific requirements with the factoring company to find a plan that works best for you.

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