{"id":12084,"date":"2018-11-12T07:41:05","date_gmt":"2018-11-12T06:41:05","guid":{"rendered":"https:\/\/www.invoiceberry.com\/blog\/?p=12084"},"modified":"2018-11-07T15:33:48","modified_gmt":"2018-11-07T14:33:48","slug":"invoice-financing-and-invoice-factoring-the-411","status":"publish","type":"post","link":"https:\/\/www.invoiceberry.com\/blog\/invoice-financing-and-invoice-factoring-the-411\/","title":{"rendered":"Invoice Financing and Invoice Factoring: the 411"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Any business that deals with the unenviable task of <a href=\"https:\/\/www.invoiceberry.com\/blog\/15-advantages-of-using-online-invoicing-software\/\" target=\"_blank\" rel=\"noopener\">collecting on invoices<\/a> knows it\u2019s a hassle. B2B companies often wait 30-90 days, or sometimes longer, for a client to pay them in full\u2014and in the meantime, their own <a href=\"https:\/\/www.invoiceberry.com\/blog\/how-to-manage-your-business-cash-flow\/\" target=\"_blank\" rel=\"noopener\">cash flow<\/a> needs pile up. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">If waiting to be paid prevents you from balancing your <\/span><a href=\"https:\/\/www.fundera.com\/blog\/what-the-heck-is-accounts-receivable-turnover\"><span style=\"font-weight: 400;\">accounts receivable turnover ratio<\/span><\/a><span style=\"font-weight: 400;\">, building good credit, or otherwise running a successful business, you might consider turning your invoices into a source of funding with either invoice financing or invoice factoring. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">These two forms of financing\u2014collectively called accounts receivable financing\u2014are similar, but a few key differences will help you decide how best to proceed.<\/span><\/p>\n<div class=\"tip_box choice\" style=\"color:#555;background-color:#fff8f8;border-left:5px solid #e22524;padding:30px 30px 25px 30px\">\n\t\t\t\t\t\t\t<div class=\"col-sm-4 col-xs-12\">\n\t\t\t\t\t \t\t\t<a href=\"https:\/\/www.invoiceberry.com\/blog\/revenue-vs-cash-flow-facts\/?ref=invoice-financing-and-invoice-factoring-the-411\">\n\t\t\t\t\t \t\t\t\t<div class=\"blog_hp_img\" style=\"height:120px;background-image:url('https:\/\/i0.wp.com\/www.invoiceberry.com\/blog\/wp-content\/uploads\/2018\/09\/cashflow-vs-revenue.jpg?fit=600%2C252&ssl=1');\" title=\"Revenue vs Cash Flow - the Facts\" alt=\"\"><\/div>\n\t\t\t\t\t \t\t\t<\/a>\n\t\t\t\t\t \t\t<\/div>\n \t\t\t\t\t\t\t<div class=\"col-sm-8 col-xs-12\" style=\"text-align: left;font-style: normal;margin-top:-8px;\">\n \t\t\t\t\t\t\t\t<a href=\"https:\/\/www.invoiceberry.com\/blog\/revenue-vs-cash-flow-facts\/?ref=invoice-financing-and-invoice-factoring-the-411\"><span style=\"font-weight:bold;color:#e22524;font-size:16px;display:block;\">Revenue vs Cash Flow &#8211; the Facts<\/span><\/a>\n \t\t\t\t\t\t\t\t<span style=\"font-size:14px;color:#000;line-height:1.8;display:inherit;\">The difference between revenue and cash flow can make all the difference to yourbusiness\u2019 financial health. Revenue vs cash flow - what are the facts?<\/span>\n \t\t\t\t\t\t\t\t\n \t\t\t\t\t\t\t\t<a href=\"https:\/\/www.invoiceberry.com\/blog\/revenue-vs-cash-flow-facts\/?ref=invoice-financing-and-invoice-factoring-the-411\" style=\"color:#e22524;font-size: 14px;line-height: 2;display: inherit;\">READ MORE<\/a>\n\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t<div class=\"clearfix\"><\/div>\n\t\t\t\t\t<\/div>\n<h2><b>Why would a business finance their accounts receivables?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">There are benefits to both kinds of accounts receivable financing, which we\u2019ll get into below. But the question for either choice is: why choose this type of financing over another kind of lending, such as a traditional business loan? And is it required for businesses to do it all?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">First of all, as with all financing, accounts receivable financing is only something you should do if it adds value to your business or <a href=\"https:\/\/www.invoiceberry.com\/blog\/important-financial-kpis\/\" target=\"_blank\" rel=\"noopener\">increases your ROI<\/a>. If your choppy cash flow prevents you from staying on top of payroll, or you are spending too much time chasing after clients, you should consider this option.<\/span><\/p>\n<p><img decoding=\"async\" loading=\"lazy\" class=\"aligncenter size-full wp-image-12094\" src=\"https:\/\/i1.wp.com\/www.invoiceberry.com\/blog\/wp-content\/uploads\/2018\/10\/accounts-receivable-financing.png?resize=690%2C460&#038;ssl=1\" alt=\"Outstanding accounts receivable gives you the ability to choose from invoice financing and invoice factoring.\" width=\"690\" height=\"460\" srcset=\"https:\/\/i1.wp.com\/www.invoiceberry.com\/blog\/wp-content\/uploads\/2018\/10\/accounts-receivable-financing.png?w=900&amp;ssl=1 900w, https:\/\/i1.wp.com\/www.invoiceberry.com\/blog\/wp-content\/uploads\/2018\/10\/accounts-receivable-financing.png?resize=600%2C400&amp;ssl=1 600w\" sizes=\"(max-width: 690px) 100vw, 690px\" data-recalc-dims=\"1\" \/><\/p>\n<p><span style=\"font-weight: 400;\">Invoice financing and invoice factoring both have a few choice benefits that make them attractive to business owners over a term loan, line of credit, or <a href=\"https:\/\/www.invoiceberry.com\/blog\/5-ways-to-finance-your-new-business\/\" target=\"_blank\" rel=\"noopener\">other source of funding<\/a>: <\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><b>It\u2019s fast<\/b><span style=\"font-weight: 400;\">: You can get funds for your invoice in as little as one business day. <\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Almost anyone can qualify<\/b><span style=\"font-weight: 400;\">: If you have outstanding invoices, lenders will be interested in lending to you. Your revenue or time in business\u2014both very important when applying for a traditional loan\u2014aren\u2019t as relevant here. \u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Smoother cash flow<\/b><span style=\"font-weight: 400;\">: Knowing you can use your invoices to get an consistent income\u2014even if it\u2019s less than what you\u2019re owed\u2014will help you pay bills and staff without a hitch. \u00a0\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Note that lenders will likely still check your credit score and will look to lend to credit-worthy people and businesses.<\/span><\/p>\n<h2><b>What is invoice financing?<\/b><\/h2>\n<p><a href=\"https:\/\/www.fundera.com\/business-loans\/invoice-financing\"><span style=\"font-weight: 400;\">Invoice financing<\/span><\/a><span style=\"font-weight: 400;\"> is the act of borrowing money against your outstanding invoices. A lender will give you the majority of the amount of your invoice now, and you pay the lender back once your client delivers their payment. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">In this scenario, you typically receive a minimum of 85% of the invoice. Lenders then charge a processing fee (typically around 3% of the total invoice), and then a factor fee (typically 1% a week until your client pays). <\/span><\/p>\n<p><span style=\"font-weight: 400;\">When you finance an invoice, you are still responsible for collecting the money owed by your client. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">If slow invoice payment is only an occasional issue for your business, and you have <\/span><a href=\"https:\/\/www.salesforce.com\/ca\/blog\/2015\/06\/build-stronger-b2b-relationships.html\"><span style=\"font-weight: 400;\">a good relationship with your clients<\/span><\/a><span style=\"font-weight: 400;\">, invoice financing is likely your best option.<\/span><\/p>\n<div class=\"tip_box choice\" style=\"color:#555;background-color:#fff8f8;border-left:5px solid #e22524;padding:30px 30px 25px 30px\">\n\t\t\t\t\t\t\t<div class=\"col-sm-4 col-xs-12\">\n\t\t\t\t\t \t\t\t<a href=\"https:\/\/www.invoiceberry.com\/blog\/10-ways-get-paid-in-advance-invoice-due\/?ref=invoice-financing-and-invoice-factoring-the-411\">\n\t\t\t\t\t \t\t\t\t<div class=\"blog_hp_img\" style=\"height:120px;background-image:url('https:\/\/i2.wp.com\/www.invoiceberry.com\/blog\/wp-content\/uploads\/2017\/10\/IB-get-paid-in-advance.png?fit=600%2C249&ssl=1');\" title=\"10 Effective Ways to Get Paid in Advance (Before Your Invoice Is Due)\" alt=\"\"><\/div>\n\t\t\t\t\t \t\t\t<\/a>\n\t\t\t\t\t \t\t<\/div>\n \t\t\t\t\t\t\t<div class=\"col-sm-8 col-xs-12\" style=\"text-align: left;font-style: normal;margin-top:-8px;\">\n \t\t\t\t\t\t\t\t<a href=\"https:\/\/www.invoiceberry.com\/blog\/10-ways-get-paid-in-advance-invoice-due\/?ref=invoice-financing-and-invoice-factoring-the-411\"><span style=\"font-weight:bold;color:#e22524;font-size:16px;display:block;\">10 Effective Ways to Get Paid in Advance (Before Your Invoice Is Due)<\/span><\/a>\n \t\t\t\t\t\t\t\t<span style=\"font-size:14px;color:#000;line-height:1.8;display:inherit;\">Getting your invoices paid late can be a real problem. Today I\u2019ll show you the 10 best ways you can get paid in advance long before your invoice is due.<\/span>\n \t\t\t\t\t\t\t\t\n \t\t\t\t\t\t\t\t<a href=\"https:\/\/www.invoiceberry.com\/blog\/10-ways-get-paid-in-advance-invoice-due\/?ref=invoice-financing-and-invoice-factoring-the-411\" style=\"color:#e22524;font-size: 14px;line-height: 2;display: inherit;\">READ MORE<\/a>\n\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t<div class=\"clearfix\"><\/div>\n\t\t\t\t\t<\/div>\n<h2><b>What is invoice factoring?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Invoice factoring is a form of invoice financing with one key difference: The lender outright buys your invoices, and takes over the responsibility of collecting from your clients. You receive part of the invoice total upfront, as well as the difference for the full amount once it\u2019s paid\u2014minus a substantial fee for their service. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Typically, businesses will receive a maximum of 85% of the invoice\u2014though companies that enter into agreements with lenders to regularly factor their invoices will get a better deal. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Factoring is more suitable for businesses who wait 60-90 days or longer for their invoices to be paid, or struggle to recover outstanding invoices. <\/span><\/p>\n<h2><b>What are the pros and cons of Invoice\u00a0<\/b><b>Financing\u00a0<\/b><b>and Invoice Factoring? <\/b><\/h2>\n<p><img decoding=\"async\" loading=\"lazy\" class=\"aligncenter size-full wp-image-12090\" src=\"https:\/\/i2.wp.com\/www.invoiceberry.com\/blog\/wp-content\/uploads\/2018\/10\/pros-and-cons-for-accounts.jpg?resize=690%2C345&#038;ssl=1\" alt=\"What are the pros and cons of invoice financing and invoice factoring?\" width=\"690\" height=\"345\" srcset=\"https:\/\/i2.wp.com\/www.invoiceberry.com\/blog\/wp-content\/uploads\/2018\/10\/pros-and-cons-for-accounts.jpg?w=700&amp;ssl=1 700w, https:\/\/i2.wp.com\/www.invoiceberry.com\/blog\/wp-content\/uploads\/2018\/10\/pros-and-cons-for-accounts.jpg?resize=600%2C300&amp;ssl=1 600w\" sizes=\"(max-width: 690px) 100vw, 690px\" data-recalc-dims=\"1\" \/><\/p>\n<p><span style=\"font-weight: 400;\">Don\u2019t just flip a coin when choosing what to do with your invoices. It\u2019s more than likely that either invoice financing or invoice factoring will be better for your business. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Invoice financing is generally the cheaper of the two options, depending on how long it takes for your client to pay you back. Lenders usually charge around 3% of the total invoice for processing, then a \u201c<a href=\"https:\/\/www.businesscash.com\/factoring-fees-explained\/\" target=\"_blank\" rel=\"noopener\">factor fee<\/a>\u201d of 1% each week that the client takes to repay. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">You\u2019ll also get greater flexibility and privacy when you do invoice financing. You can choose to finance the occasional invoice and not worry about getting bulk deals, as you might want to do with factoring. And since you maintain control of the invoice, you\u2019ll continue to interface with your customers\u2014not disclosing that you\u2019re outsourcing the collections aspect of your business to a third-party. \u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Invoice factoring, on the other hand, is the more expensive option. You can enter into consistent agreements with lenders to drive down the price-per-invoice factored, but you\u2019ll still likely max out at receiving between 80-90% of the value of the invoice. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">You may also not want customers to deal with a debt collection service instead of with your company when they are ready to pay. On the other hand, if the hassle of collecting on your invoices has become too much, it may be worth the investment to simply outsource the process altogether. You won\u2019t risk outstanding payments that can negatively impact your credit score as well as bottom line anymore.<\/span><\/p>\n<div class=\"tip_box choice\" style=\"color:#555;background-color:#fff8f8;border-left:5px solid #e22524;padding:30px 30px 25px 30px\">\n\t\t\t\t\t\t\t<div class=\"col-sm-4 col-xs-12\">\n\t\t\t\t\t \t\t\t<a href=\"https:\/\/www.invoiceberry.com\/blog\/blockchain-technology-evolving-conventional-accounting-systems\/?ref=invoice-financing-and-invoice-factoring-the-411\">\n\t\t\t\t\t \t\t\t\t<div class=\"blog_hp_img\" style=\"height:120px;background-image:url('https:\/\/i2.wp.com\/www.invoiceberry.com\/blog\/wp-content\/uploads\/2018\/09\/how-blockchain-changes-accounting.jpg?fit=600%2C252&ssl=1');\" title=\"Blockchain Technology is Evolving Conventional Accounting Systems\" alt=\"\"><\/div>\n\t\t\t\t\t \t\t\t<\/a>\n\t\t\t\t\t \t\t<\/div>\n \t\t\t\t\t\t\t<div class=\"col-sm-8 col-xs-12\" style=\"text-align: left;font-style: normal;margin-top:-8px;\">\n \t\t\t\t\t\t\t\t<a href=\"https:\/\/www.invoiceberry.com\/blog\/blockchain-technology-evolving-conventional-accounting-systems\/?ref=invoice-financing-and-invoice-factoring-the-411\"><span style=\"font-weight:bold;color:#e22524;font-size:16px;display:block;\">Blockchain Technology is Evolving Conventional Accounting Systems<\/span><\/a>\n \t\t\t\t\t\t\t\t<span style=\"font-size:14px;color:#000;line-height:1.8;display:inherit;\">Blockchain technology has the potential to disrupt conventional accounting methods. See how blockchain will revolutionize accounting and auditing.<\/span>\n \t\t\t\t\t\t\t\t\n \t\t\t\t\t\t\t\t<a href=\"https:\/\/www.invoiceberry.com\/blog\/blockchain-technology-evolving-conventional-accounting-systems\/?ref=invoice-financing-and-invoice-factoring-the-411\" style=\"color:#e22524;font-size: 14px;line-height: 2;display: inherit;\">READ MORE<\/a>\n\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t<div class=\"clearfix\"><\/div>\n\t\t\t\t\t<\/div>\n<h2><b>What do you need to get started?<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Unlike traditional business loans, accounts receivables financing requires just a few important documents in order to get started with a lender. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">You should have the following ready to go when preparing to apply for both financing and factoring: <\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Driver&#8217;s license;<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Voided business check;<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Bank statements;<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Credit score;<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The outstanding invoices you want to borrow against or sell.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The amount and terms of your invoices will primarily dictate how much funding you\u2019ll receive; however, some lenders will consider your credit score and business financials as well. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">***<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The first step in choosing between invoice financing and invoice factoring is deciding whether you need financing at all. <\/span><span style=\"font-weight: 400;\">You might want to explore online payment systems or offering discounts to your clients for early payment. <\/span><span style=\"font-weight: 400;\">Only <\/span><a href=\"https:\/\/www.forbes.com\/sites\/jaredhecht\/2017\/08\/04\/6-questions-every-small-business-owner-should-ask-a-prospective-accountant\/\"><span style=\"font-weight: 400;\">you and your accountant<\/span><\/a><span style=\"font-weight: 400;\"> know whether your outstanding invoices are enough of a detriment to your business that <\/span><span style=\"font-weight: 400;\">financing or factoring is a responsible option. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Once you decide to move ahead with accounts receivables financing, the kind of business you own and the clients you have will help dictate which direction you go. From there, it\u2019s up to you how to use your more consistent cash flow.<\/span><\/p>\n<div class=\"tip_box choice\" style=\"color:1;background-color:#eff7ff;text-align:left;font-style:normal;padding-top:0;padding-bottom:0\"><br \/>\n<img decoding=\"async\" loading=\"lazy\" class=\"wp-image-12092 size-thumbnail alignleft\" src=\"https:\/\/i2.wp.com\/www.invoiceberry.com\/blog\/wp-content\/uploads\/2018\/10\/Meredith-Wood-1.jpg?resize=200%2C200&#038;ssl=1\" alt=\"\" width=\"200\" height=\"200\" srcset=\"https:\/\/i2.wp.com\/www.invoiceberry.com\/blog\/wp-content\/uploads\/2018\/10\/Meredith-Wood-1.jpg?resize=200%2C200&amp;ssl=1 200w, https:\/\/i2.wp.com\/www.invoiceberry.com\/blog\/wp-content\/uploads\/2018\/10\/Meredith-Wood-1.jpg?zoom=2&amp;resize=200%2C200&amp;ssl=1 400w\" sizes=\"(max-width: 200px) 100vw, 200px\" data-recalc-dims=\"1\" \/><\/p>\n<p>Our guest post today was written by Meredith Wood. She is the Editor-in-Chief at <a href=\"https:\/\/www.fundera.com\/\" target=\"_blank\" rel=\"noopener\">Fundera<\/a>, an online marketplace for small business loans that matches business owners with the best funding providers for their business. Specializing in financial advice for small business owners.\u00a0<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Any business that deals with the unenviable task of collecting on invoices knows it\u2019s a hassle. B2B companies often wait 30-90 days, or sometimes longer, for a client to pay them in full\u2014and in the meantime, their own cash flow needs pile up. If waiting to be paid prevents you from balancing your accounts receivable [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":12127,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"spay_email":"","footnotes":"","jetpack_publicize_message":""},"categories":[345],"tags":[622,620,621],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/www.invoiceberry.com\/blog\/wp-content\/uploads\/2018\/11\/Invoice-Financing-and-Invoice-Factoring-411.png?fit=1380%2C580&ssl=1","jetpack_publicize_connections":[],"jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p5m6q6-38U","amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.invoiceberry.com\/blog\/wp-json\/wp\/v2\/posts\/12084"}],"collection":[{"href":"https:\/\/www.invoiceberry.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.invoiceberry.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.invoiceberry.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.invoiceberry.com\/blog\/wp-json\/wp\/v2\/comments?post=12084"}],"version-history":[{"count":10,"href":"https:\/\/www.invoiceberry.com\/blog\/wp-json\/wp\/v2\/posts\/12084\/revisions"}],"predecessor-version":[{"id":12109,"href":"https:\/\/www.invoiceberry.com\/blog\/wp-json\/wp\/v2\/posts\/12084\/revisions\/12109"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.invoiceberry.com\/blog\/wp-json\/wp\/v2\/media\/12127"}],"wp:attachment":[{"href":"https:\/\/www.invoiceberry.com\/blog\/wp-json\/wp\/v2\/media?parent=12084"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.invoiceberry.com\/blog\/wp-json\/wp\/v2\/categories?post=12084"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.invoiceberry.com\/blog\/wp-json\/wp\/v2\/tags?post=12084"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}