Not every business can wait for invoice payments. They may need funds for an urgent purchase or to keep operations running smoothly. This is why invoice factoring can be beneficial and keep your business growing.
Many of these companies turn to invoice factoring to raise the necessary capital. Some business owners wonder if they can get invoice factoring without a credit check. We’ll cover the details.
How Does Invoice Factoring Work?
Companies issue invoices to clients after performing services or providing a product. These invoices don’t get paid right away. Some invoices have deadlines several months in the future. Most clients will not part ways with their money early, even if you need their capital for equipment and other investments.
Invoice factoring companies will provide you with funds upfront for your invoices. Factoring does come with a fee or percentage of the factored amount. However, you get funds right now instead of waiting several months for a client to pay an invoice. Invoice factoring companies use a set of criteria to determine how much to offer for your invoice.
Is Personal Credit Rating Important for Factoring?
While invoice factoring companies review several factors before making offers, they won’t check your credit rating. Invoice factoring companies want to receive the invoice’s face value. When they buy an invoice, they already have a contractual agreement that gives them funds at set times.
Invoice factoring companies will look at the relationship between a company and its customers. They want to know if your customers pay on time and can afford upcoming invoice payments.
Do Factoring Companies Run Credit Checks?
Invoice factoring companies will run credit checks on your clients and brokers. Assessing a client or broker’s credit helps the factoring companies calculate the risk of taking on an invoice.
Factoring companies want to see a strong history of customers paying you back and not falling into financial trouble. More reliable and financially sound clients translate into better offers for your invoices. Risky clients will warrant a lower offer for your invoices.
How Do You Determine Credit Worthiness of a Customer?
Some companies rely on invoice factoring to fund essential purchases. These companies should run credit checks on potential clients before working with them.
A single client with bad credit can lower your chances of getting approved for invoice factoring. Companies will make less attractive offers if your company has many low-credit clients with bad repayment history.
You can check a client’s credit before working with them. Businesses can get away with a low-credit client if they have many high-credit companies in their client pool. However, you shouldn’t accept too many low-credit clients if you rely on invoice factoring because ultimately the responsibility of repayment falls back on the factoree.
Why Factoring Instead of the Bank?
It’s easier to obtain funds from an invoice factoring company than a loan from a bank. Invoice factoring companies don’t look at personal credit, giving you a better chance of approval.
Banks will look at credit and can take longer to review applications. Companies with lower credit but reliable clients will benefit from factoring over bank loans.
How Long Does It Take To Get Approved for Factoring?
It typically takes between 2 to 7 days to get approved for invoice factoring, some companies offer as soon as 24-hour funding! Some invoice factoring companies offer cash advances on your invoices. A factoring company will give you the remaining funds minus a factoring fee after receiving all payments from a client.
Benefits of Invoice Factoring
Invoice factoring provides your company with many benefits. We have outlined some of them below.
Speeds Up Cash Flow
Invoice factoring gives you quick access to cash. You don’t have to wait months for a client to pay their invoice. By receiving immediate funds, you can improve the likelihood that you’ll be able to afford important investments for your business.
Invoice factoring doesn’t have as much red tape as traditional banks. Factoring companies won’t ask about your credit score, and your credit won’t take a hit. Banks will ask for more information before giving you a loan.
Invoices Serve as Collateral
Collateral minimizes the risk for lenders. This reduced risk makes lenders more willing to do business with you and provide you with a better deal. You can use your invoices as collateral instead of equipment, trucks, and other vital assets.
No Back-End Office Personnel
You won’t have to approach clients about invoice payments unless they are unresponsive. The factoring company will reach out to clients about their invoices, giving you and your staff time to address other priorities.
Reduced Balance Sheet Debt
Getting a loan from a bank puts your company in debt. Interest will accrue on the debt, and you may have to refinance or sell important assets if you can’t pay off the loan.
Invoice factoring does not add any debt to your balance sheet. You won’t have to stress about juggling another expense for your company.
Speed and Availability
Some companies need funds within a few days for urgent investments. Top-notch invoice factoring companies can provide quick cash advances on nights and weekends, helping companies meet approaching deadlines as frequently as possible.
Factoring companies provide additional benefits for their clients. Some offer discounts on fuel, higher-paying freight, and access to business loans. Benefits vary across each factoring company.
Get the Money Your Company Needs With Invoice Factoring
Invoice factoring provides a quick source of cash flow to fund investments in your company. You can factor invoices and use the proceeds to buy equipment and pay workers.
You can also obtain funding through a bank loan, but you’ll add debt to your balance sheet and may not qualify. Banks will check your credit score, while invoice factoring will focus on your relationship with clients. Invoice factoring is an excellent choice for your business if you want grow your business and get quick funds!