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Invoice Factoring Vs Line of Credit

Invoice Factoring

Line of Credit

Collateral

Line Increase

Access to Funds

Maintenance

Credit Limit

Approval Time

Qualification

Cost

Only accounts receivable as collateral

Simple & Quick

Easy

Easy

Flexible

2-3 days

Very little requirements

Based on volume

Usually all company assets

Complicated & Slow

Easy

Difficult to Maintain

Restrictive

Weeks to months

Extensive process

Varied on Collateral

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When a business needs cash but doesn’t want to borrow money they can turn to Invoice Factoring. Rather than a bank loan, outstanding invoices are sold to a factoring company.

When your business delivers goods or services to a customer on terms an invoice is created. The average customer may wait 20, 30, or even more days, before paying the invoice.

Rather than wait for payment, your business can receive an immediate advance on the face amount of the invoice from a factoring company.

The factor issues the advance and keeps back a portion in reserve. When the invoice is paid the reserve is released,  less the factoring fee. There is no interest or loan fee charged as the process involves the assignment of an invoice rather than the creation of debt.

5 Steps to Factoring Invoices

Selling or factoring invoices is very straight forward with 5 main steps:

Step 1 – Submit the invoice to the Factoring Company or Factor.
Step 2 – Submit POD, rate confirmation, work order, permits or other pertinent materials.
Step 3 – Factor receives payment on the invoice directly from your customer.
Step 4 – Factor releases the reserve balance to your business less the factoring fee.
Step 5 – Factor invoices of your customers.

Accounts Receivable Factoring Example

Here is an example of how the numbers might work on a factoring transaction:

  • $10,000 – Invoice Amount Customer owes Business
  • $ 9,500 – Advance Rate Paid to Business (Assumes 90%)
  • ​$ 500 – Reserve Held By Factor (Assumes 5%)

Invoice Paid In 30 days

  • $250 – Fee Deducted from Reserve (Assumes 2.5%)
  • $250 – Balance of Reserve Paid to Business
  • $9,750 – Total Amount Received by Business

​The amount of the advance, reserve, and factoring fee can vary by industry, customer strength, and how long it takes the customer to pay the invoice.

Some factoring companies might charge a small one-time set up fee to the business upon acceptance.  Others will waive the set-up fee depending on the volume and length of the factoring contract. While the assumptions may vary from the example, they will always be clearly spelled out upfront in the proposal and agreement between your business and the factoring company.

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How Factoring Helps

Factoring provides immediate access to cash so your business can pay bills, meet payroll, purchase inventory or equipment, manage overhead, fund expansion, and increase profits.  Over the years many Fortune 500 companies have enhanced their growth using accounts receivable financing.

During the challenging economy, many banks have declined business loans or lines of credit. Factoring provides an option even when banks say no since it is based on the credit worthiness of the customers paying the invoices.  This means new companies may qualify and strong financials are not required.

These are just a few of the many advantages of selling invoices over increased debt. For more information please read the Benefits of Factoring and Frequently Asked Questions!

How to Get Started With Factoring

If you are interested in flexible cash flow solutions with accounts receivable factoring please contact us!  We will discuss your objectives, answer any questions, and forward the factoring application.  If you want to get a head start just download the Online Factoring Application!

About NBS Factoring

Get Paid on Invoices NOW!

  • Discover how factoring can turn invoices into cash … FAST!
  • Up to 95% Advance Rates
  • Factoring Fees as Low as 1.5%
  • Working Capital Without Debt
  • No Long Term Contracts
  • Strong Financials Not Required
  • 24 Hour Funding on Approved Invoices
  • You Control How Funds Are Used
  • Pay Bills, Fund Growth & Increase Profits!

Benefits of Factoring

  • Cash Without Debt
  • No Long Term Contracts
  • Strong Financials Not Required
  • You Control How Funds Are Used
  • Pick & Choose the Invoices to Factor

Learn more about these Factoring Benefits!