Last Updated on October 24, 2022
Big and small food and beverage companies often experience cash flow issues due to unpaid invoices. Long payment terms lead to cash crunches, meaning companies usually have to take out loans with high fees to stay productive.
To keep your company growing and competitive in an ever-changing food and beverage market, you need cash to cover payments, make products, and meet payroll – this is where food and beverage factoring comes in.
In this article, we discuss how invoice factoring for food and beverage companies work, its benefits, and how it compares to other financing options. Read on to learn how altLINE can improve your cash flow and promote business growth with invoice factoring!
What Is Food And Beverage Factoring?
Food and beverage factoring is a process that involves selling your invoices to a third-party company like altLINE for a cash advance. Factoring is especially useful if you often sell on credit, which typically results in frequent payment delays that may hurt your business. Food and beverage factoring is generally used to access working capital when necessary, so you do not rely on customer payment timelines.
Benefits Of Invoice Factoring For Food And Beverage Companies
Food and beverage factoring offers cash advances to unlock funds when customers delay payments. Check out how food and beverage factoring can help you access cash when you need it:
Get Your Accounts Receivable Invoices Paid In Days, Not Months
The best food and beverage factoring companies fund your invoices within 1 or 2 days. This means you can get up to 80-90% of your 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 sometimes must sacrifice equity to pursue growth opportunities, but invoice factoring can set them up for long-term success. Factoring your food and beverage invoices gives you a cash advance to pursue business growth, pay debts, and meet payroll while keeping equity intact.
Get Cash When You Need It Most
Overdue invoices and delinquent customers put extra stress on your finances. Cash advances from invoice factoring offset late payments and increase cash flow to ensure your business stays financially healthy.
How Does Food And Beverage Invoice Factoring Work?
altLINE’s food and beverage invoice factoring services work by turning unpaid invoices into cash to cover operating expenses and fuel business growth. Submitting invoices to factoring companies also softens the financial blow of late customer payments. Instead of waiting for customers to pay, you can use invoice factoring to get cash whenever you need it.
Here is how you can apply for altLINE’s food and beverage factoring services:
Submit Your Unpaid Invoices
altLINE accepts all types of unpaid customer invoices for factoring, though we generally favor invoices for creditworthy customers and large or medium-sized companies. Additionally, we do not factor invoices for customers who consistently fail to pay their debts.
If your 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 typically expect a factoring advance rate of 80-90% of each invoice’s face value and receive the cash advance between 24 and 48 hours after submission to altLINE. The exact timing of your deposit may vary depending on when customers receive your goods.
altLINE Helps Collect Payment For Your Outstanding Invoices
Our team assists you in payment collections by providing a secure lockbox to store customer payments and report progress through a customer portal. If issues arise, we communicate with customers to resolve them professionally, so you can maintain good business relationships.
altLINE Pays Out The Remaining Unpaid Invoice
After payment collection, we deduct our factoring fee (typically 1-5% of your invoice) and transfer the remaining invoice balance to your bank account.
Uses For Your Factoring Cash Advance
Receiving cash advances from food and beverage wholesaler factoring services means you do not have to wait on customer payments to fund your business. Instead, you can avoid lengthy payment cycles and unlock growth capital sooner to accelerate business growth.
Here are some ways you can use invoice factoring cash advances:
Paying your employees on time is one of the best ways to keep them happy and productive. Unfortunately, late customer payments often lead to delayed payrolls, causing dissatisfaction and reduced morale. Food and beverage invoice factoring improves your cash flow so you can make punctual employee payments even when customers take a long time to pay.
Take On New Orders
You should not be forced to wait on customer payments to take new orders and grow your business. Cash advances from food distribution factoring companies help you buy the needed items for production without sacrificing assets or equity.
Pay Operating Expenses
It is tough to pay for transportation, factory maintenance, and other operating expenses with a negative cash flow. Factoring for distribution companies helps you pay those expenses without waiting for your invoices to clear or selling equity.
Food And Beverage Businesses We Fund And Finance
altLINE provides various factoring services to grow businesses in the food and beverage sector. Here are just some of the services you can get from altLINE:
- Food and beverage wholesale factoring
- Food and beverage distributor factoring
- Food transportation service factoring
- Catering business factoring
- Restaurant factoring
- Food packaging factoring
Factoring Your Food And Beverage Invoices vs Other Funding Options
In addition to food and beverage factoring, you have a few other alternatives to improve your business cash flow. What are they, and how do they compare against invoice factoring? Here is a look into common choices for financing in the food industry:
Related: Small Business Financing Solutions
Food And Beverage Factoring vs Bank Line Of Credit
A bank line of credit is usually the first financing alternative chosen by businesses. While food and beverage companies may have an easier time qualifying for a line of credit, they may not get enough funds to develop their business.
Banks usually determine your line of credit lending limit based on your credit profile and fixed assets. As a food and beverage manufacturer, you likely have many fixed assets to collateralize, giving you higher lending limits. However, a line of credit may not provide enough funds or be harder to qualify for if you’re a new company without many fixed assets.
Food and beverage factoring is generally the better option for newer companies because factors look at your customers instead of your fixed assets. If you work with an established and creditworthy customer base, invoice factoring will give you enough working capital when banks cannot.
Food And Beverage Factoring vs ACH/MCA Loans
You can get approved for an ACH (automated clearing house) or MCA (merchant cash advance) loan within one or two days simply by providing bank statements for review.
While they are fast and easy to qualify for, ACH and MCA loans often offer unreasonably high interest and lender fees that can reach up to 60% of your initial loan. Coupled with frequent renewals and loan stacking, mismanaging ACH and MCA loans can land you in deep financial trouble.
Food and beverage factoring is typically safer because you are getting cash advances on invoices that are likely to be paid. This way, you can focus on growing your business instead of stressing over debt repayments.
Food And Beverage Factoring vs Quick Pay Discounts
Quick pay discounts are a way to accelerate cash flow when necessary by encouraging them to pay ahead of time. However, the success of quick pay discounts depends on your customers’ priorities. If your customers prioritize having more cash on hand over saving money, they will not take your discounts, leaving you low on cash and unable to develop your business.
Invoice factoring is typically more reliable because as long as your invoices are approved, you’re guaranteed to get a cash advance.
Typical Factoring Rates And Fees
Your factoring fees depend on how much you plan to factor and how long customers take to pay. Factoring more amounts and getting customer payments faster generally result in lower factoring rates. Factoring companies may also consider other criteria like how long you have been in business, customer base diversity, and overall customer credit quality.
When factoring food and beverage invoices, we charge two types of fees:
- Initial fee: This fee covers your processing expenses for a set initial duration (typically the first 30 days) and costs up to 3.50% of your invoice value.
- Incremental fees: These fees cover factoring expenses after the initial fee period and cost up to 1.50% of your invoice value per charge.
Requirements To Apply For Food And Beverage Factoring
You must apply for invoice factoring before you can be eligible for a cash advance. Here are the documents you need:
List Of Existing And Potential Customers
altLINE needs a list of your existing and potential customers as part of the invoice factoring approval process. We need this list to review your customers’ credit profiles and determine their eligibility.
altLINE requires all applicants to complete a form as part of the factoring process. Enclose these documents with 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 your outstanding invoices based on their due dates. We use these reports to research customer payment behaviors and determine factoring eligibility. We still consider invoices that are 60 to 90 days outstanding, but invoices for customers who state an inability to pay may be ineligible for factoring.
Frequently Asked Questions About Our Factoring Services
Here are some common questions about food and beverage factoring answered:
Do you need to run a credit check before getting started?
altLINE runs a credit and background check on all food and beverage 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 food and beverage factor that is willing to help.
Do you require UCC filings when factoring food and beverage 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 food and beverage factoring a debt or loan?
Food and beverage 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 food and beverage factoring?
altLINE only offers recourse food and beverage 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.