In today’s funding marketplace, business owners have many cash flow options beyond traditional bank loans. Companies seeking working capital without waiting 30, 60 or even 90 days for customers to pay can explore different funding methods to find the right cash flow solution for their needs. Let’s look at two opportunities that are sometimes confused: invoice discounting and invoice factoring.
What is invoice discounting?
Invoice discounting is the process of using your outstanding invoices, or accounts receivable, as collateral for a loan from a finance company. The process is helpful to companies that are not eligible for traditional bank loans. These companies may not have the credit scores typically required by banks or the assets and property needed to guarantee a loan. They could be new startups without a long payment history or they could need funds quickly without waiting for loan committee decisions and bank processes. A finance company might lend you up to 80% of the value of the invoices you submit.
The challenge for businesses is that discounting your invoices still leaves you with a loan that must be paid off and the loan typically comes with high interest rates.
What is invoice factoring?
Invoice factoring enables you to sell your outstanding invoices at a discount to a factoring company and receive instant working capital for jobs you have completed. It is not a loan; you are not incurring debt. Instead you receive a large advance on those invoices as soon as you submit them to the factoring company. The balance of the invoice amount is sent to you as soon as your customers pay their bill, minus a small discount retained by the factoring for processing.
The reward for companies is having money in hand for expenses and growing their businesses without taking on debt or paying high interest rates.
However, invoice factoring with a leading factoring company gives businesses more than the opportunity to convert unpaid invoices into cash in their pockets. Interstate Capital invoice factoring clients also enjoy free credit checks on customers to protect them against business loss and free professional collections services to save time and better ensure prompt payment on their invoices. They work with an experienced account manager dedicated to helping them succeed and they can monitor the status of every invoice on Interstate’s easy-to-use client portal.
Learn more about invoice factoring and how this risk-free, debt-free way can get your business the money that is due to you without waiting weeks and months for customers to pay.