Last Updated on June 9, 2023
As a professional service provider, you depend on prompt invoice payments to cover operating costs and staffing expenses. Unfortunately, sometimes you have to wait weeks or even months for customer invoices to clear, leading to a cycle of negative cash flow and increasing debt.
To keep growing your business and stay competitive in the professional services industry, you need cash to consistently make payments and build good relationships with business partners – this is where professional services factoring can help.
In this article, we discuss how professional services factoring works, its benefits, and how it stacks up against other financing solutions. Read on to learn how altLINE can improve cash flow and business growth through invoice factoring!
What Is Professional Services Factoring?
Professional services factoring is when your company sells invoices to a financial provider like altLINE in exchange for a cash advance. Bad cash flow often hurts your business, which is why professional services factoring is generally used to improve cash flow when customers delay payment.
Benefits Of Invoice Factoring For Professional Services
One of the best invoice factoring companies, altLINE offers cash advances to unlock funds when your customers are slow to pay. These cash advances give you benefits like:
Get Your Accounts Receivable Invoices Paid In Days, Not Months
The best professional service factoring companies approve your application within 1 or 2 days. With altLINE, you can earn up to 80-90% of your hard-earned money without delay.
Access Capital To Grow While Maintaining Equity
Business owners often sacrifice equity to fuel growth, but there is an alternative – invoice factoring can set them up for long-term success. Factoring professional service invoices improves your cash flow, ensuring you can pursue business growth, pay debts, and cover expenses without selling equity.
Take The Guesswork Out Of Payments
Delinquent customers and consistently late payments hurt your company’s finances. Professional services factoring makes up for the financial damage by providing cash advances on those late payments.
How Does Professional Consulting Factoring Work?
Factoring professional consulting invoices through altLINE works by exchanging unpaid invoices for cash, which can then be used to fund business growth and pay expenses. Our cash advances soften the financial blow of late customer payments – instead of waiting on late customer payments, you can use invoice factoring to get cash anytime you need it.
Here is how to apply for funding with altLINE’s factoring services:
Submit Your Unpaid Invoices
We accept any unpaid invoices for processing. altLINE prefers invoices for creditworthy customers and large or midsize companies. While most invoices are eligible, we do not factor invoices for customers with limited credit profiles or a history of delinquency.
If your typical invoice turnover time is between 30 and 90 days, your receivables are well-positioned for factoring.
altLINE Advances Up To 80-90% Of The Invoice Face Value
You can expect a factoring advance rate of 80-90% of each invoice’s face value, and you’ll receive the cash advance between 24 and 48 hours of submission to altLINE. However, the exact timing of your deposit may vary depending on customer receipts.
altLINE Helps Collect Payment For Your Outstanding Invoices
Our team will help you monitor and collect customer payments. We provide a secure lockbox to take payments and report collection updates through a customer portal. If issues arise, we will work with you to communicate with customers to resolve disputes on your behalf, so you can maintain good business relationships.
altLINE Pays Out The Remaining Unpaid Invoice
After collection, we will deduct our factoring fee (typically 1-5% of your invoice) and send the remaining invoice value to your company.
Uses For Your Factoring Cash Advance
Receiving cash advances from professional service provider factoring means you do not have to wait on customer payments to fuel business growth. Instead, you can avoid long-winded payment cycles and unlock growth capital to accelerate business development.
Here are some things you can do with factoring cash advances:
Whether you are a law firm, business consultancy, or industrial services provider, your employees are the key to your company’s success. Unfortunately, customers often delay payment which leads to late payrolls. Professional services factoring accelerates your payment schedule, so you’ll never miss payroll schedules again, even when customers do not pay on time.
Take On New Jobs
As a professional service provider, you don’t have to wait for customers to pay to prepare for new jobs. Factoring invoices for professional services give you the cash necessary to take on more work and grow your company – all without sacrificing your business equity.
Pay Operating Expenses
Aside from equipment and payroll, you must pay expenses like transportation and office maintenance. Professional services factoring improves your cash flow, so you can pay these obligations without sacrificing assets or equity.
Professional Service Businesses We Fund And Finance
altLINE provides invoice factoring for all kinds of small businesses in the professional service sector. Here are some example businesses that can benefit from our services:
- Professional finance services
- Law firms
- Janitorial services
- Business consultancy firms
- Technology / communications consulting firms
- Staffing agencies
- Accounting firms
- Industrial services
- Advertising agencies
Factoring Your Professional Services Invoices vs Other Funding Options
In addition to invoice factoring, you have a few other options for professional service financing aside from invoice factoring. Here are three alternative professional service industry financing methods and how they stack up against invoice factoring.
Professional Services Factoring vs Bank Line Of Credit
Many companies seek a bank line of credit as their first business financing solution. While some professional service companies can qualify for a bank line of credit, it may not provide enough funds to fuel their businesses.
Banks typically look at your fixed assets when approving your line of credit application. You may get lower lending limits as a professional services company because you don’t have many fixed assets. If you don’t have enough fixed assets, qualifying for a line of credit may be tougher.
Invoice factoring is typically a better option for professional services companies because factors look at your customers instead of your assets to provide cash advances. If you work with an established customer base, factoring companies are more likely to give you enough working capital – even when banks cannot.
Professional Services Factoring vs ACH/MCA Loans
ACH (automated clearing house) or MCA (merchant cash advance) loans boast easy qualification and fast approval. ACH and MCA lenders only need your bank statements to qualify you for a loan within one or two business days.
However, ACH and MCA loans offer much higher interest and lender fees than other options, often reaching up to 60% of your original loan. Moreover, ACH and MCA lenders may offer loan stacking and renewals that can put your company in a debt spiral.
Professional services factoring is typically safer because customers will eventually pay their invoices. Since you do not have to worry about repaying any debt, you can focus on growing your business.
Professional Services Factoring vs Quick Pay Discounts
To accelerate cash flow, some businesses offer discounted rates to customers that pay before their invoices are due. These quick pay discounts are meant to encourage customers to pay faster, but this method has one crucial limitation. Many customers prioritize their cash flow over immediate savings, so they may pass on your offer and pay their invoice later – this leaves you low on cash and unable to grow your business.
Invoice factoring is typically more reliable because a third party provides the cash advance, so you don’t have to rely on customers taking your offer.
Typical Professional Services Factoring Rates And Fees
Invoice factoring fees depend on how much you plan to factor and how long customers take to pay. Factoring higher amounts and getting customers to pay faster often lead to lower factoring rates.
Professional services factoring companies charge two fees on every invoice submitted:
- Initial fee: This fee covers the factoring company’s invoice processing expenses for a set initial duration (typically the first 30 days) of your cash advance. Expect to pay 0.90-3.50% of your invoice value.
- Incremental fees: These periodic fees cover your expenses when the initial fee period passes. Expect to pay 0.25-1.50% of your invoice value per charge.
Requirements To Apply For Professional Services Factoring
You must apply to be eligible for professional services factoring. Here are the documents you need to submit:
List Of Existing And Potential Customers
altLINE needs a complete list of your existing and potential customers. We need this list to review their credit profile and verify factoring eligibility.
All factoring applicants need to complete a form. We also need you to enclose 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 contain a record of all your invoices, organized by due date. We need this aging report to research your customer’s repayment habits. We still consider invoices that are 60 to 90 days outstanding for factoring, but invoices where customers say they cannot pay may be ineligible for factoring.
Frequently Asked Questions About Our Factoring Services
Here are some common questions about factoring for service professionals answered:
Do you need to run a credit check before getting started?
altLINE runs a credit and background check on all professional service 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 a professional services factor that is willing to help.
Do you require UCC filings when factoring professional services 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 professional services factoring a debt or loan?
Professional services 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 professional services factoring?
altLINE only offers recourse professional services 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.