What is B2B Factoring?

Last Updated September 18, 2024

Starting a business is an exciting yet demanding venture with inevitable challenges that get in the way of what business owners wish could be an entirely smooth process. However, knowing what roadblocks you could face beforehand to avoid being taken by surprise will help you overcome these obstacles.

Many common stressors small business owners struggle with can be attributed to problems with cash flow. In fact, one Quickbooks study showed that 69% of small business owners are “kept up at night by concerns about cash flow.” Thankfully, there are financing methods to combat these cash flow problems, one being B2B factoring. If you’re unaware of B2B factoring, which is just one branch of invoice factoring, continue reading to find out how it can benefit your business.

What is B2B Factoring?

B2B factoring, also known as business-to-business factoring, is a financial transaction in which a business sells its accounts receivables, or unpaid invoices, to a third-party company, known as a factoring company. In this transaction, the factor provides the business with immediate cash by paying them a percentage of the value of the invoices upfront (a cash advance).
The factor is then responsible for collecting the full amount of the invoices from the business’s customers. Once the customers pay the factor, the factor pays the remaining amount of the invoices to the business, minus a small factoring fee.

Five Reasons Small Businesses Use B2B Factoring

B2B factoring is a popular financing method for small businesses for many reasons, largely because in addition to providing funding, it reduces A/R responsibilities and helps streamline operations. Other reasons include:

1. To Improve Cash Flow

Factoring allows small businesses to quickly convert their accounts receivables into cash, even when their customers have yet to pay. This helps them improve their cash flow, pay bills, and settle other expenses in a timely manner.

2. Easy Access to Capital

It’s not uncommon for small businesses to struggle to qualify for financing from traditional lenders. Factoring provides an alternative lending option that doesn’t require collateral or a strenuous application process.

Related: Can You Get a Small Business Loan with Bad Credit?

3. Reduced Credit Risk

When small businesses factor their invoices, the factoring company assumes the credit risk of their customers, not the business itself. Not only does this make for a more lenient approval process, but it also prevents small businesses from having to deal with potential unwanted debt.

4. Quicker Payments

Factoring companies typically pay small businesses within 24 to 48 hours of invoice payment, preventing frustrating payment delays. This efficient payment process is a good example of how invoice factoring improves cash flow.

5. Outsourcing Collections

With B2B invoice factoring, a factoring company like altLINE takes over a significant portion of your A/R responsibilities, which frees up time and resources for you to focus on additional projects to support your business.

Uses For Your Factoring Cash Advance

Once you receive a cash advance from a factoring bank, you will be able to quickly shift your focus back to growing your business. This influx of working capital can prevent you from having serious cash flow problems due to waiting around during drawn-out payment cycles.

Here are some ways you can put your B2B factoring cash advance to use:

Pay Overhead Costs

Overhead costs can be frustrating to deal with, especially when you have many other pressing expenses that need to get paid as well. Getting a cash advance from B2B factoring can provide additional working capital that can help you manage overhead while still maintaining business operations.

Make Payroll

Keeping your employees happy is one of the most important aspects of running a business since they are the driving force behind success.
Since small businesses are often on a tight budget, slow-paying customers can put you at risk of missing payroll deadlines, leading to disgruntled employees. Getting an advance on your unpaid B2B invoices ensures you can stay on top of payroll, regardless of when your customers pay.

Grow Your Business

With invoice factoring, a cash advance prevents business owners from stressing about the ramifications from their customers not paying on time. This surge in financial freedom lessens concerns and encourages decision-makers to grow their team, scale the business, and take on new opportunities – all without having to worry about where you will get the funding to do so.

Is B2B Factoring Right for My Small Business?

If you think B2B invoice factoring can help your business grow, altLINE can help. Call us at +1 (205) 607-0811 to get a free quote or to learn more.