New Articles

10 Things You Should know About Factoring Invoices

spend invoice

10 Things You Should know About Factoring Invoices

Factoring invoices helps businesses who need working capital quickly improve their cash flow. With this financing, your business can leverage your assets by borrowing against your unpaid accounts receivable value. Factoring invoices is an easy way to get immediate access to working capital, cover your expenses, such as payroll and other operating expenses, and grow your business.

Here are 10 things every business owner and CFO should know about factoring invoices.

1. Eliminate your need to invest in credit, collection, and accounts receivable staff.
An invoice financing company manages and streamlines small businesses invoicing and collections processes. In fact, it provides them with reliable cash flow allowing them to focus on running and growing their business instead of chasing payments and worrying
about cash flow.

2. Help ensure you receive payment from customers with credit checks that evaluate your customer’s creditworthiness.
By evaluating your customer’s credit, an invoice financing company can determine the likelihood that your customers will pay you for your products and services. Additionally, the credit report will show how long they have been in business, the average time it takes
them to pay, their risk score, and their debt summary. This information will provide you with information to evaluate your customers and avoid bad debts.

3. Get up to 90% of invoices with same-day funding.
Once approved, many invoice financing companies will advance up to 90% of the factored invoices the day they are submitted. The remaining funds, minus their fee, will be paid to you once they receive payment from your customer. Additionally, invoice factoring approval only takes a few days instead of the long waiting periods for bank funding.

4. Save money by taking advantage of supplier discounts and special buying opportunities for prompt payment.
Since factoring your invoices guarantees you will have the funds quickly, you will be able to pay your vendors on time or even early. By knowing you will have the cash flow to make these prompt payments, you can negotiate with your suppliers for discounts and
special buying opportunities.

5. Handle seasonal inventory needs.
Invoice factoring provides you with the funds when you need them since the value of the outstanding invoice determines funding. This perfectly positions them to assist with financing that is tied to seasonal inventory needs.

6. Funding for growth expansions and new acquisitions.
You gain immediate liquidity to make investments earlier by factoring your invoices, effectively growing your business more quickly.

7. Your credit line grows with your business.
The financing is based on your outstanding invoices and not an established amount with a bank when you factor invoices. This means that as your business grows its sales, the amount you can finance grows as well.

8. Your personal credit does not affect your ability to obtain a factoring facility.
Approval is based on the credit quality of your assets and customers.
Since your customers pay the invoice factoring company, their creditworthiness is the most significant factor for you to be approved.

9. Move your businesses towards being approved for a conventional line of credit.
Invoice factoring provides the working capital you need now to help move you to a solid history of a strong balance sheet and income statement. For many small and growing businesses that are in transition, this means that it can enable you to be approved for a
conventional bank line.

10. You can be approved for invoice factoring even if your business is in turnaround mode, Chapter 11, or reorganized through Assignments for the Benefit of Creditors.
Finance companies that provide invoice factoring, such as Franklin Capital, will work with businesses in various situations. We can do this by looking beyond your current and past financial situation and leveraging your assets and customers.

About The Author

Sue Duckett is Executive Vice President at Franklin Capital, an IL-based finance company. Sue has over 25 years of experience helping small to medium-sized companies grow by getting them access to the working capital they need.


Survey Finds Dramatic Increase in Overdue Payments in North America

Will North American businesses remain resilient in the face of COVID-19 challenges? That answer is increasingly difficult to answer in the affirmative, as virus containment measures continue to negatively impact trade, consumer spending, industrial production, unemployment, corporate debt and supply chains.

According to the annual Payment Practices Barometer survey of businesses in the U.S., Mexico and Canada by trade credit insurer Atradius, companies are facing widespread cash and liquidity pressures. Survey data was collected this spring, and conditions have likely deteriorated further. News recently broke, for instance, that the coronavirus caused the U.S. economy to contract 32.9% in Q2, the worst contraction in modern history.

Needless to say, the bleak economic outlook puts businesses in an extremely tight spot, and it is likely insolvencies will rise dramatically, further exacerbating liquidity challenges among organizations in the supply chain. Some troubling signs of deteriorating payment practices and B2B customer credit risk captured in the survey include:

-Overdue payments have increased dramatically. Across the region, 43% of the total value of issued invoices remain unpaid by the due date, a sharp increase from the 25% reported last year.

-The value of invoices overdue by 90 days or more has doubled to 13%.

-Businesses write off 4% of the total value of outstanding invoices, up from 3% in 2019.

The increase in payment defaults is particularly alarming in the U.S., which saw a 72% year-over-year uptick compared to 2019, and in Canada, which saw an 86% increase. In Mexico, the amount of trade receivables firms have written off has doubled since last year.

These trends put a troubling burden on businesses, which end up having to spend more time, resources and funds chasing down overdue invoices. It also means working capital is tied up for longer than before, limiting businesses’ abilities to pay their own suppliers and make strategic investments. In short, rampant late payments cause a bad domino effect, spreading liquidity issues all throughout the supply chain.

UMSCA Firms Are Tightening Credit Controls

Faced with heightened B2B customer credit risk, many businesses across North America are tightening their credit control procedures, the Payment Practices Barometer found.

Firms typically rely on a mix of outsourced risk management, such as credit insurance, and internal tactics such as reducing risk concentrations and increasing debt collection resources. Notably, more than half of the region’s survey respondents plan on upping the efficiency of their debt collection processes through tactics such as payment reminders or outsourcing collections to an agency.

The Payment Practices Barometer also found that while credit-based B2B sales are on the rise across the region, the trend is slowing. Self-insurance against the risk of payment defaults also saw an increase – 66% of businesses rely on this tool compared to 22% last year.

The most prevalent methods of credit control vary by country:

-Many Canadian firms are planning on adjusting payment terms to better align with the credit capacity of customers – average payment terms are now 26 days, compared to 27 days in 2019. They also widely employ payment reminders and work to avoid concentrations of credit risk.

-In Mexico, a significant proportion of businesses employ credit insurance. Additional popular credit management tactics include suspending deliveries until outstanding invoices are paid, requesting payment on cash from B2B customers and requesting payment guarantees.

-U.S. firms focus more on credit management than their peers in the region. A large majority of U.S. businesses manage customer credit risk in-house through self-insurance. Requiring payment guarantees prior to sales and offering discounts for early payment are also widely used tactics.

UMSCA Businesses Remain Hopeful?

Despite the bleak economic outlook and all signs pointing to widespread liquidity issues, the majority of businesses surveyed in North America predicted growth in the coming months, their optimism rooted in the belief that banks will continue to provide credit to cushion the effects of poor cash flow.

But again, that was a few months ago, and business conditions are rapidly changing for the worse. Consumer sentiment, for instance, has fallen back almost as low as in the early days of the outbreak – optimism that COVID-19 will go away any time soon is now a distant memory.

The only thing that can be said for sure is that the business environment in North America is rife with uncertainty with no indication of sunnier skies in the near future. More than ever, businesses need to take a strategic approach to credit management that ensures adequate cash flows and a solid liquidity position.


Gordon Cessford is the president and regional director of North America for Atradius Trade Credit Insurance, Inc