Invoice factoring is a type of alternative financing that helps businesses improve their cash flow situation. It can be used in place of or sometimes in addition to other types of financing such as equipment financing, unsecured loans, and venture capital.
Let’s take a closer look at how invoice factoring works so you can decide if it’s worth considering for your own business to help with cash flow and more.
How Invoice Factoring Works in 6 Steps
- The factoring company establishes a credit limit on the customers you submit for invoice factoring
- You deliver your product or service as you normally would
- You send your invoices directly to the factoring company
- The factoring company verifies that the product was received or service performed
- You receive your cash from factoring company
- Your customers pay the factoring company directly
Some factoring companies require you to factor all of your invoices and others do not. So, if this flexibility is important to you, be sure to ask the factoring company before signing up.
As you can see from the above steps, invoice factoring is quite simple. Once you set it in motion, it’s actually quite a bit simpler to factor your invoices than to bill clients the traditional way. The factoring company does a great deal of the work for you since it functions as your back-office billing and accounts receivable department.
Top 4 Advantages of Invoice Factoring
There are several key benefits to factoring your invoices. Here’s how invoice factoring works and how it benefits your company.
Easier to Qualify
In many cases, businesses that have trouble qualifying for loans are able to qualify for invoice factoring. This is an attractive option for newer businesses or anyone whose credit is less than perfect. With factoring, your customers’ credit is weighted more heavily than your own. Plus, the set-up process can generally be completed in just a few short days.
Better Cash Flow
When you send invoices to customers the traditional way, you may have to wait weeks to receive payment. This can hamper your cash flow. With factoring, you get paid right away. With consistent cash flow, you can keep up more easily with payroll and other business expenses.
Credit Guarantees on Customers
If the factoring company offers non-recourse factoring, that means the factoring company takes on the credit risk of any invoices they purchase. In other words, if your customer doesn’t pay your invoice for credit reasons or files for bankruptcy, you do not need to pay back the factoring company for the advance made on those invoices.
Less Hassle with Collections
Save time and hassle by not having to deal with collections. Since the factoring company will be collecting payment on your invoices you won’t have to spend time reminding customers to pay.
Why Choose Riviera Finance as Your Invoice Factoring Company
Once you understand the benefits and learn how non-recourse invoice factoring works, you may be anxious to get started. However, while there are many financial institutions that offer invoice factoring services, if you want to get the full benefits you need to choose the right invoice factoring company to work with.
It’s crucial to choose an experienced, reliable company that you can depend on. Riviera Finance has been a leading invoice factoring company for 50 years and works with B2B companies in many industries. Riviera factors companies from start-up to revenue of $2million per month.
Here are some additional reasons to work with Riviera:
- Stable company with an excellent credit rating and reputation.
- Personal service. We offer dedicated teams and personalized solutions to meet your own unique needs.
- Convenient. Riviera has nationwide invoice factoring offices with dedicated support teams, as well as an online account management system, ROAM, that you can access 24/7.
- Simple sign up process and straight forward pricing. There are no set-up fees and no requirement to sign long-term contracts. Click here to learn more.
Invoice factoring can enhance your cash flow and help your business grow faster. For more information about invoice factoring, contact Riviera Finance.
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*This article was originally published in 2019 and updated in May 2022