Last Updated on October 27, 2022
Agricultural businesses are very seasonal by nature, which means you may encounter inconsistent cash flow at certain points throughout the year. Unfortunately, this inconsistent cash flow is worsened by delayed customer payments that create cash crunches, leading to a cycle of negative cash flow and mounting debt.
To keep your agricultural company flourishing, you need cash to make payments, purchase seeds, and meet payroll obligations – this is where agricultural factoring can help.
In this article, we discuss how invoice factoring for agricultural companies works, its benefits, and how it compares to other financing alternatives. Read on to learn how altLINE’s agriculture factoring services can increase your cash flow and support business growth!
What Is Agricultural Factoring?
Agricultural factoring is when your business invoices to a third-party company such as altLINE in exchange for a cash advance. Agricultural companies experience high and low seasons in terms of harvesting, so cash flow can be very inconsistent. Not to mention, late customer payments lead to difficulties in covering costs. Agricultural factoring is typically used to access working capital when needed so companies do not rely on customer payment timelines.
Benefits Of Invoice Factoring For Agricultural Companies
One of the best factoring companies in the agriculture industry, altLINE gives you a cash advance to unlock extra funds when customers are slow to pay. Check out how invoice factoring can help you access cash when you need it:
Get Your Accounts Receivable Invoices Paid In Days, Not Months
The best agricultural factoring companies fund your invoices within 1 or 2 days. This means you can receive up to 80-90% of your hard-earned money as soon as possible instead of in 30, 60, or even 90 days.
Access Capital To Grow Your Business While Maintaining Equity
Business owners may be forced to sacrifice equity to pursue growth opportunities, but invoice factoring can set them up for long-term success. Invoice factoring gives you the cash needed to grow your business, pay debts, and meet payroll without selling valuable assets or equity.
Get Cash When You Need It Most
Late payments and overdue invoices can put extra stress on your finances. Invoice factoring accelerates customer payments and increases cash flow to ensure your business stays financially healthy all year round.
How Does Agricultural Factoring Work?
Our agricultural factoring services work by providing you with the cash needed to pay various expenses and grow your business. Moreover, our factoring services soften the financial blow of late customer payments. Instead of waiting on customers to pay their invoices, you can factor them to get cash whenever you need it.
Here is a quick guide to funding your company with altLINE’s agriculture factoring services:
Submit Your Unpaid Invoices
At altLINE, you can submit all types of unpaid invoices for processing, though we generally favor invoices for creditworthy customers and medium or large companies. Additionally, we do not factor invoices for customers with a history of late repayment.
If your invoice turnover time is between 30 and 90 days, your receivables are well-positioned for factoring.
Related: How to Collect Unpaid Invoices
altLINE Advances Up To 80-90% Of The Invoice Face Value
You can generally expect a factoring advance rate of 80-90% of the invoice’s value and receive the cash advance within 24 to 48 hours after submitting your application to altLINE. The exact timing of your deposit may vary depending on when the customer receives your products.
altLINE Helps Collect Payment For Your Outstanding Invoices
altLINE assists your team in payment collection by providing a secure lockbox for the money and reporting progress through an online portal. If issues arise, we communicate with customers to resolve disputes professionally, so you can maintain good business relationships.
altLINE Pays Out The Remaining Unpaid Invoice
Once we process the payment and deduct our fee (typically 1-5% of your invoice), we transfer the remaining invoice balance to your bank account.
Uses For Your Factoring Cash Advance
Receiving factoring cash advances accelerate your cash means you do not have to wait on customer payments to grow your business. Instead, you can eliminate long payment cycles and unlock growth capital sooner to accelerate business development.
Here are some ways to use your cash advances to fund things:
Your employees are one of the most important elements in your agriculture company. Unfortunately, late customer payments damage your cash flow and may result in delayed payroll, which reduces morale. Invoice factoring cash advances ensure prompt salary payments, improving productivity and employee happiness.
Take On New Orders
You should not be forced to wait for customer payments to clear to take new orders and grow your business. Cash advances from agricultural factoring companies help you purchase everything needed to complete new orders without sacrificing assets or equity.
Pay Operating Expenses
From transport expenses to permit renewals, there are many operating costs you need to pay as an agriculture business owner. Agriculture factoring cash advances help you pay those obligations on time without selling equity or assets, even when customers delay invoice payment.
Agricultural Businesses We Fund And Finance
altLINE offers factoring services for various companies in the agriculture sector. Here are some services we offer for the agriculture industry:
- Agricultural farm factoring
- Organic farmer factoring
- Animal farm factoring
- Compost and organic fertilizer plant factoring
- Farming equipment provider factoring
- Flower growing company factoring
Factoring For Agricultural Businesses vs Other Funding Options
You have a few other alternatives to improving your business cash flow in addition to invoice factoring. What are the most popular methods, and how do they compare against agriculture factoring? Here’s a breakdown:
Agricultural Factoring vs Bank Line Of Credit
A bank line of credit is usually the first financing alternative chosen by businesses. But while many agricultural companies can qualify for a bank line of credit, the funds it provides may not be enough to grow their business.
Banks usually approve your application and set your credit limit by looking at your financial profile and fixed assets. Most agricultural companies have many fixed assets, which leads to higher credit limits. However, you may not receive high credit limits and have a harder time qualifying if you’re a new company with few fixed assets.
Agricultural invoice factoring is typically a better option for new and growing companies because the financial company approves your funding based on customer invoices and not your fixed assets. If you work with an established customer base, factoring companies will give you enough working capital when banks cannot.
Agricultural Factoring vs ACH/MCA Loans
ACH (automated clearing house) and MCA (merchant cash advance) loans are popular among businesses because they only take one or two days to approve. They are also extremely easy to qualify because most lenders only need your bank statements for review.
Unfortunately, the ease and speed of ACH and MCA loans are offset by their notoriously high fees and interest. If you fall behind on payments, your business may experience financial trouble.
Agricultural factoring is generally safer because customers are highly likely to pay their invoices, thus repaying your cash advance. Invoice factoring also gives you more freedom to expand your business instead of stressing over debt repayments.
Agricultural Factoring vs Quick Pay Discounts
You can accelerate cash flow when needed by offering discounted rates to customers who pay ahead of their invoice’s due date. Quick pay discounts are a viable way to convert invoices into cash quickly, but there is one important limitation.
Some customers may prioritize having more cash over cost savings, so they may ignore your offer altogether and leave you low on cash, unable to grow your business. Since quick pay discounts are not all that reliable, they are best used when you need an occasional cash flow boost.
Invoice factoring is usually more reliable because the financing company will issue cash advances on all approved invoices.
Typical Factoring Rates And Fees
altLINE determines your factoring rates based on how much you plan to factor and how long customers take to pay. Factoring more amounts and getting customers to pay faster usually gives you lower factoring fees. We also consider other criteria like your tenure in business, customer base diversity, and overall customer credit quality.
We charge two types of factoring fees:
- Initial fee: This fee covers the factoring company’s invoice processing expenses for a set initial duration (typically the first 30 days). Expect to pay between 0.90% and 3.50% of your invoice value.
- Incremental fees: These periodic fees compensate the factoring company for the time its money spends out the door beyond the initial period. Expect to pay 0.25-1.50% of your invoice’s value per charge, and keep in mind that the longer your invoices are outstanding, the more expensive the incremental fees will likely be.
Requirements To Apply For Agricultural Factoring
You need to apply for factoring services to be eligible. Here are the documents you need to get approved for factoring:
List Of Existing And Potential Customers
altLINE requires the names and addresses of all your existing and potential customers as part of your application. We review this list to learn your customer base’s credit quality and determine their factoring eligibility.
You need to fill a form out when applying for agricultural factoring.
Include these documents alongside your application:
- Business ownership identification
- Personal identification
- Employer Identification Number
- Customer contracts
Articles of incorporation and other relevant corporate documents
Accounts Receivable Aging Report
Accounts receivable aging reports list all your outstanding invoices alongside their due dates. altLINE uses this report to learn customer payment behaviors and determine which ones are eligible for factoring.
We will factor invoices that are 60 to 90 days outstanding, but invoices where customers state an inability to pay may be ineligible for factoring.
Frequently Asked Questions About Our Agriculture Factoring Services
Here are some common questions about agricultural factoring answered:
Do you need to run a credit check before getting started?
altLINE runs a credit and background check on all agricultural company owners. However, there are no minimum credit thresholds for approval. Background checks are reviewed for financial-related crimes or felonies. In the event a borrower has a spotty background, approval with altLINE may be in question, but in the event the borrower is disqualified, altLINE will often work with the borrower to identify an agricultural factor that is willing to help.
Do you require UCC filings when factoring agricultural invoices?
Upon executing a term sheet, altLINE will file a UCC on the client’s business. This UCC filing allows altLINE to properly secure the collateral (i.e. the invoices) it plans to advance against when the factoring facility is in place. UCC filings are an integral part of any form of lending.
Is agricultural factoring a debt or loan?
Agricultural factoring is neither debt nor a loan. Invoice factoring is the sale of your invoices to a third party. The money advanced against these invoices will be repaid by your customers.
However, altLINE is a recourse factor, so you may need to pay the cash advance back if your customer fails to pay their invoice.
Do you offer non-recourse agricultural factoring?
altLINE only offers recourse agricultural factoring. While you must repay the cash advance if your customer fails to pay, recourse factoring structures often allow for factors to extend lower rates and larger credit limits on your customers.
Jim is the General Manager of altLINE by The Southern Bank. altLINE partners with lenders nationwide to provide invoice factoring and accounts receivable financing to their small and medium-sized business customers. altLINE is a direct bank lender and a division of The Southern Bank Company, a community bank originally founded in 1936.