It’s common for businesses that rely on accounts receivables to run into cash flow problems. Invoices often aren’t due for 30-90 days, potentially leaving you without the capital you need to take on new work.
Factoring is one way to keep your company’s cash flowing, relying on your accounts receivables to qualify for an advance of what customers owe you. This short-term financing may be especially helpful if you’re not able to qualify for traditional business loans.
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SharpShooter Funding offers loans up to $300,000 for small business owners who have been business for at least 100 days and can show a minimum of $5,000 in monthly deposits ($60,000/year).
Compare business loan providers that offer factoring services
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How can I find the right factoring company for my business?
When looking for a factoring company that works best for your business, ask yourself the following questions:
Is my business eligible? While factoring companies are relatively lenient about who they’ll take on, you often must satisfy at least a few requirements requirements. Don’t waste your time with a company that ultimately won’t work with you.
Does it accept invoices from my clients? Many factoring companies work with B2B (business-to-business) and B2G (business-to-government) companies, but your business might work with other types of clients.
How much can I get up front? Make sure your advance is enough to cover your business’s overhead costs.
How does the factor fee work? Tiered factoring and prime plus can save your business money if its invoices are due within 30 days. If you have longer due dates, you might want to look for a fixed rate.
Are there any other fees? Look for administrative and processing fees in particular. Some companies charge extra fees for optional services like wire transfers.
How much will it cost? After you’ve narrowed down a few companies, crunch the numbers for a rough estimate of how much working with each company might cost.
They’re not lenders, but factoring services can be helpful for businesses looking to cover overhead costs — especially if you have trouble qualifying for business loans. But the process takes time and money, given the fees involved.
It depends. Some companies require you to set up a separate bank account they can access, asking your clients to make payments there. Others contact the business or agency to collect the funds themselves.
From the factor fee and any other fees it charges you for the service. Generally, you could be loaned up to 85% of the value of your invoices and receive the remaining amount less the factor fee later. The factor fee is could be around 0.5%-4% per month.
Debt factoring is another term for invoice factoring. It’s not a common term, but you’ll see it used in the UK and other countries.
Anna Serio is a trusted loans expert who's published more than 800 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Fundera, Business.com, and ValueWalk feature her professional advice, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
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