Compare 3 types of invoice factoring options | finder.com

Which type of invoice factoring is right for your business?

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Invoice factoring could be an efficient way to improve your cash flow, but do you know what type will best suit your business?

Invoice factoring lets your your business unlock money your clients owe by selling their invoices to a third party for a fee. It can be a great source of working capital, especially if your business is in an industry that has a hard time getting a loan. But there are several different types of factoring to choose from — and not all are right for every business.
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    First, what exactly is invoice factoring?

    Invoice factoring is a type of business financing in which a business sells their unpaid invoices to a factoring company at a discount. The company typically gives businesses between 80% and 95% upfront and then the rest of the funds after your clients pay up — with a fee subtracted.

    Businesses can use their funds for any legitimate purpose like working capital. It can be expensive, so you might want to consider less costly financing like equipment loans if they’re available to your business.

    Is invoice factoring the same as invoice financing?

    It isn’t. Invoice factoring technically isn’t a loan. Instead it’s an advance with a two-step process that doesn’t involve repayments or interest. When you sign up for invoice factoring, the factoring company typically handles invoice payments from your clients and gives you the funds after your clients pay up.

    On the other hand, invoice financing is a secured business term loan backed by your business’s unpaid invoices. You repay it in installments over a set period of time with interest and fees. And you’re still in charge of collecting on your invoices.

    Compare invoice financing vs. invoice factoring

    Three types of invoice factoring to compare

    • Whole turnover
      Sell all of your invoices to a factoring company over a period of time.

    Compare business loan providers that offer invoice factoring

    Rates last updated October 18th, 2018
    Unfortunately, none of the business loan providers currently offer loans for these criteria.
    Name Product Product Description Min Loan Amount Max. Loan Amount Requirements
    Interstate Capital Factoring
    Free up working capital with an advance on up to 100% of your unpaid invoices.
    $8,000
    100% of your unpaid invoices
    Business in good standing with no existing tax liens
    National Business Capital Business Loans
    Get a large business loan to cover your financing needs, no matter what the purpose is. Startups welcome with 680+ credit score.
    $10,000
    $5,000,000
    Your company must have been in business for at least 6 months and have an annual revenue of at least $180,000.
    Lendio Business Loan Marketplace
    Submit one simple application to potentially get offers from a network of over 75 legit business lenders.
    $500
    $5,000,000
    Must operate a business in the US or Canada, have a business bank account and have a personal credit score of 560+.
    LendingTree Business Loans
    Multiple business financing options in one place including: small business loans, lines of credit, SBA loans, equipment financing and more.
    Varies by lender and type of financing
    Varies by lender and type of financing
    Varies by lender, but you many require good personal credit, a minimum business age and minimum annual revenue.
    BizLoans.io Business Loan Marketplace
    Get connected with wide range of loan amounts and multiple loan types from reputable lenders.
    $20,000
    $500,000
    Must have good credit and at least 6 months in business.
    BlueVine Invoice Factoring
    BlueVine invoice factoring helps your business free up the cash trapped in your invoices through its simple and intuitive online process.
    $20,000
    $2,500,000
    Must be in business at least 3+ months, have a personal credit score of at least 530, and have a monthly revenue of $10,000 or more.
    Fundbox Business Financing
    Get flat rate, short-term financing based on the financial health of your business, not your credit score.
    $100
    $100,000
    You must have an established business with regular monthly revenue.

    Compare up to 4 providers

    Whole turnover

    This is a popular choice for companies that are expanding and want a long-term solution for their invoice factoring. With whole turnover factoring, businesses are typically required to sign up for at least 12 months of factoring on all invoices they receive during that period. Since you’re signing up for the long haul, many factoring companies often charge lower fees for whole turnover financing.

    • Lower rates and fees than shorter term factoring arrangements.
    • May provide additional credit and debt collection services.
    • Less flexibility, invoices are typically financed in the order they’re received.
    • Locked into a contract for at least a year.

    Selective invoice factoring

    Selective invoice factoring lets businesses choose which invoices they want to factor and which they’d like to handle themselves. It allows companies to account for a number of factors that can affect income — such as the time it takes individual customers to pay invoices, peaks in trading and unique agreements with specific customers.

    Like whole turnover factoring, selective also usually involves a year-long contract. However, it gives you the option to choose which invoices you finance and when. These features makes this brand of factoring a sound option for small businesses who deal with a diverse array of clients and customers. But it can be more expensive

    • Save by leaving out invoices they expect to be paid quickly.
    • Maintain your relationship with some customers.
    • Typically higher rates than those offered by whole turnover factoring.
    • Doesn’t allow for the same hands-off approach as whole turnover.

    Spot factoring

    If your company needs income quickly, possibly to cover a one-time payment or meet the monthly payroll, you might consider spot or single factoring. This is for when you’re looking to access the funds from one invoice or a single load as quickly as possible.

    Keep in mind that the speed of this type of invoice factoring is reflected in the costs, which are the highest out of these three choices. The short period makes this type of invoice factoring less profitable for the lender, who may charge you weekly or even monthly for just a few hours of work.

    • No long-term commitments.
    • Choose when you want to sign up for factoring.
    • More costly than other types of factoring.
    • Not as common as whole turnover or selective factoring.

    Bottom line

    The type of invoice factoring that’s right for you on the size of your company, your relationship with customers and how heavily your business relies on invoices for cash flow. Invoice factoring can offer efficiency and value that other business lenders don’t.

    But that comes at a price. By choosing the one that best fits your business, you can improve your cash flow and keep your customers happy. You can learn more about how invoice factoring works by reading our guide to factoring companies.

    Don’t want to sell your invoices? Explore other business financing options.

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