Get Your Invoices Paid Faster With Small Business Invoice Factoring

Last Updated October 22, 2024

For small businesses, one of the most common growth deterrents are slow-paying customers. Late customer payments lead to margins thinning, which can create a frustrating cycle of negative cash flow with mounting debt.

To grow your small business and stay competitive among your peers, you need to be able to afford to take on new business, continuously improve your products or services, and always meet payroll obligations – this is where small business invoice factoring comes in to help.

In this article, we discuss:

• What small business invoice factoring involves
• How the process works from start-to-finish
• Benefits of small business invoice factoring
• Uses for your factoring cash advance
• Specific types of small businesses and industries that altLINE can work with
• Other financing alternatives for your small business

Continue reading to learn everything you need to know about invoice factoring, an increasingly popular alternative financing solution.

What Is Small Business Factoring?

Small business factoring occurs when you sell unpaid invoices to a third-party company like altLINE for a cash advance. Small businesses usually use factoring when customers pay with invoices to shorten payment delays that may cause negative cash flow. Through small business factoring, you can access working capital when needed without waiting on customers to pay.

How Does Small Business Factoring Work?

Invoice factoring for small businesses through altLINE works by providing cash advances to finance your company’s initiatives. Submitting your invoices for factoring also softens the financial blow of late customer payments. Instead of waiting on customers to pay their invoices, you can use our factoring services to get cash whenever you need it.

Here is how to apply for factoring financing for small businesses with altLINE:

1. Submit Your Unpaid Invoices to altLINE

altLINE accepts all types of invoices from small businesses. That said, we will run a credit check on your debtors to ensure they are reliable to pay the outstanding invoices.

If your invoice turnover time is between 30 and 90 days, your receivables are well-positioned for factoring.

2. altLINE Immediately Advances Up To 80-90% of the Invoice Face Value

You can generally expect a factoring rate of 80%-90% of each invoice’s face value (or even up to 99% in certain industries, such as trucking business invoice factoring). You will receive your cash advance within 24-48 hours of submitting the invoice to altLINE. The exact timing of your cash advance deposit generally depends on when your customer receives the goods or services you sell.

3. altLINE Collects Payment for the Invoices You’ve Factored

Our team supports your collection efforts by providing a secure lockbox for the money and reporting payment progress through our customer portal. If issues arise, we can communicate with customers to resolve them, ensuring you maintain good business relationships.

4. altLINE Pays Out the Remaining Unpaid Invoice

After collection, we will deduct the factoring fee (typically 1-5% of your invoice, depending on factors such as your debtors’ creditworthiness and volume of factored invoices) and transfer the remaining invoice value to your bank account.

Benefits Of Invoice Factoring for Small Businesses

Small business factoring provides cash advances to unlock funds when customers delay payment. Check out how invoice factoring can help you access cash when necessary:

You Can Qualify Despite Bad Credit

One of the main reasons so many small business owners in particular are attracted to invoice factoring is the fact that bad business or personal credit (or nonexistent credit) is not a deterrent for qualifying. Factoring companies like altLINE are more interested in your debtors’ credit history rather than your own, making it an ideal solution if you’re looking for a loan with bad credit (though factoring is not technically a loan, which is the next benefit).

Factoring Is Not a Loan, So No Debt Is Incurred

Factoring involves literally selling your outstanding AR in return for an immediately cash advance against the value of each invoice. You won’t need to add another liability to your balance sheet and no collateral is involved (aside from the factored invoices). As long as your debtors submit payment to the factoring company, there’s no need to worry about paying anything back.

Related: Why Selling Accounts Receivable Isn’t a Loan

Get Your Accounts Receivable Invoices Paid in Days, Not Months

The best small business factoring companies fund your invoices within 1 or 2 days. This means you typically receive up to 90% of your money ASAP instead of waiting the 30, 60, or even 90 days that come with traditional invoice payment terms.

Access Capital to Grow Your Business While Maintaining Equity

As a small business owner, you may need to sacrifice equity or assets to fuel company growth. However, invoice factoring sets you up for long-term success. Factoring for small businesses provides quick cash necessary to pursue growth opportunities, pay debts, and fulfill payroll obligations while keeping your equity intact.

Get Cash When You Need it Most

Overdue invoices and late payments can create extra stress when your cash reserves are low. Invoice factoring offsets late payments to increase cash flow, ensuring your business stays financially healthy.

Uses for Your Factoring Cash Advance

Receiving cash advances from small business invoice factoring means you do not have to wait on customer payments to grow your business. Instead, you can eliminate long payment cycles and unlock capital to grow, accelerating business development.

Here are some ways to use small business factoring cash advances:

Make Payroll

Paying employees on time is crucial to running a successful small business. Late salary payments caused by delayed invoices often reduce productivity and increase staff unhappiness. Invoice factoring cash advances ensure you can fulfill payroll obligations on time, improving their productivity and satisfaction.

Take On New Orders

You should not be forced to wait on customer payments to take new orders and grow your business. Fortunately, invoice factoring provides the cash needed to buy the necessities to complete more jobs to grow your business – all without sacrificing assets or equity.

Pay Operating Expenses

Negative cash flow makes it hard to pay for business expenses like building maintenance, transportation, and permits. Invoice factoring offers cash advances so you can pay these obligations without selling assets or equity.

Small Businesses We Fund and Finance

altLINE offers factoring services for small businesses of all kinds. Here are some examples of small businesses that may benefit from our factoring services:

• Staffing firms
• Handyman and repair services
• Woodworking services
• Freelance programmers and web developers
• Landscaping and gardening services
• Photographers and videographers
• Car detailing services
• Janitorial and commercial cleaning services
• Consultation businesses
• Flower shops and delivery services
• Government contractors

Don’t see your industry listed? Don’t worry! Here at altLINE, we offer custom factoring solutions for a wide variety of small businesses. If you are interested in invoice factoring, fill out this quote form and a business representative will be in contact with you shortly.

Small Business Invoice Factoring vs. Other Alternative Solutions

Aside from invoice factoring for small businesses, you have a few other options when it comes to funding your business. What choices do you have, and how do they fare against invoice factoring? Here is a detailed breakdown and comparison:

Small Business Factoring vs. Bank Line of Credit

Many small businesses seek a line of credit as their first financing solution. However, small businesses may have a harder time qualifying for one because asset portfolio determines eligibility.

Most small businesses do not have many assets, so you may be stuck with lower lending limits that are not enough to fund growth. You may not even qualify for a line of credit altogether.

Invoice factoring is typically better for companies with few fixed assets because the financing company looks at your customers instead of your fixed assets. If you work with an established customer base, factoring companies will give you enough working capital when banks cannot.

Related: Differences Between Invoice Factoring vs. Bank Line of Credit

Small Business Factoring vs. ACH/MCA Loans

ACH (automated clearing house) and MCA (merchant cash advance) loans offer easy qualification and fast funding, making them popular for small businesses.

However, ACH and MCA loans’ speed and ease of qualification come with high interest and lender fees that can go up to 60% of your initial amount. If you mismanage ACH or MCA loans, you can get into debt that your company may not recover from.

Small business factoring is usually safer because you are putting invoices up as collateral, meaning customers will eventually repay your cash advance. Therefore, taking invoice factoring gives you peace of mind that you would not have with an ACH or MCA loan.

Small Business Factoring vs. Quick Pay Discounts

Offering discounted rates to customers who pay quickly can improve your cash flow when needed. However, this method heavily depends on your customers’ priorities.

If the customer prefers having more cash on hand or thinks your discount is too low, they will ignore the offer and pay when the invoice is due, leaving you low on cash and unable to grow your business. This uncertainty makes quick pay discounts a very unpredictable method of improving cash flow.

Small business factoring offers more certainty because as long as your invoices are approved, you will get cash advances on them.

Typical Factoring Rates and Fees

Small business factoring fees depend on how much you plan to factor and how long customers take to pay. We usually give you better rates if you factor more amounts and get customers to pay faster. We also consider other criteria like how long your company’s been in business, customer base diversity, and overall customer credit.

altLINE charges two types of fees:

• Initial fee: Your initial fee covers the invoice processing expenses for an initial period of time (typically the first 30 days) and costs up to 3.50% of your invoice’s face value.
• Incremental fees: Your incremental fees pay for the time altLINE’s cash is out the door beyond the initial period and cost up to 1.50% of your invoice’s face value per charge.

Related: Best Accounting Software for Small Businesses

Requirements to Apply for Small Business Invoice Factoring

Invoice factoring is considered a no-doc business loan, meaning very few documents are required to apply compared to the average form of financing.

Want to apply for our small business factoring service? Here is what you need to get approved for invoice factoring with altLINE:

1. List All Customers Whose Invoices You Plan to Factor

To qualify for small business factoring, we need a list of your existing and potential customers. altLINE needs this list to review their credit quality and determine factoring eligibility.

2. Fill Out a Factoring Application

When applying for a small business factoring contract, you must complete a form. We also require these documents enclosed with your application:

• Business ownership identification
• Personal identification
• Employer Identification Number
• Customer contracts
• Articles of incorporation and other relevant corporate documents

3. Submit Your Accounts Receivable Aging Report

An accounts receivable aging report records your outstanding invoices categorized by their due dates. altLINE needs this report to research customer payment behaviors and decide whether they are eligible for factoring. We will factor invoices that are up to 90 days outstanding, but invoices where customers state they cannot pay may be ineligible for factoring.

Frequently Asked Questions About Factoring For Small Business Owners

Here are some common questions about factoring for small businesses answered:

Do you need to run a credit check before getting started?

altLINE runs a credit and background check on all small business 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 small business factor that is willing to help.

Do you require UCC filings when factoring small business 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 small business factoring a debt or loan?

Small business 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 invoice factoring for small businesses?

altLINE only offers recourse small business 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.