Frequently Asked Questions
Invoice factoring is simply a cash flow solution that turns invoices into quick cash without adding any additional debt. Common in several industries, invoice factoring allows companies to use the cash to pay for upfront costs, rather than waiting 30, 60, or even 90 days for a payment. Many companies rely on factoring to access the working capital they need to grow their business.
So how does invoice factoring work and how can you get started? Below is a list of the top 10 frequently asked questions regarding invoice factoring:
Will factoring hurt my company’s credit score?
No. Invoice Factoring, also known as Accounts Receivable financing, will not harm your credit score because you are not incurring any debt. Factoring remains outside of credit by using your receivables (outstanding invoices).
Can I factor past due invoices?
Most companies allow you to factor invoices up to 30 days old.
How are funds transferred to my business?
In most cases, you can get funds wired to your company bank account, get an electronic payment through ACH, get an express code, or receive a check by mail.
Does invoice factoring require personal guarantees?
Unlike traditional bank loans, invoice factoring does not require personal guarantees.
How will my customers know where to send their payments?
Your customers will be notified to pay the factoring company directly. Typically, they will receive a copy of the invoice clearly stamped with information about where to send the payment
Do factoring companies contact my company’s customers?
Yes, usually through a one-time mailed notification (Notice of Assignment) alerting the customer to send payments to the factoring company. Factoring companies understand the importance of maintaining business relationships, and will professionally handle all communications with your customer.
What happens if a customer sends a payment to my company instead of my factoring company?
When a payment is sent to you inadvertently, you should immediately forward the funds to the factoring company.
Can my start-up qualify for factoring services?
Absolutely! Because factoring focuses on the credit of your customers, it is a great way for a start-up business to grow their working capital.
Will my customers think my business is struggling if I factor?
Factoring is an accepted form of financing in the business world. When a company factors, it will put them in a stronger financial position, which helps build trust in your business.
How is factoring different from a bank loan?
The approval process for invoice factoring is quite simple, as compared to the lengthy approval processes often associated with bank loans. Also, unlike a bank loan, factoring does not create debt.