September 28, 2022

What Are the Advantages of Invoice Factoring

Even if you’ve ignored the power of invoice factoring in the past, there are reasons to change your mind in the future. As you learn more about the advantages—especially when compared to your current approach to cashflow financing—you may come to find that it’s the perfect way to regain control over your finances.
Close up of a paid invoice

Experts Answer: What Are the Advantages of Invoice Factoring?

Even if you’ve ignored the power of invoice factoring in the past, there are reasons to change your mind in the future. As you learn more about the advantages—especially when compared to your current approach to cashflow financing—you may come to find that it’s the perfect way to regain control over your finances.

Still not sure if invoice factoring is right for your business? Here are five benefits you can take advantage of.

1. Quick Cash for Your Business

Accessibility is one of the top advantages of invoice factoring, as it’s available to companies of all sizes and industries. 

According to Olga Baldin, Senior VP of Business Development at REV Capital, access to fast funding is one of the reasons why invoice factoring is so popular.

“The application process is simple; only basic information about the business is required including registrations, licenses and permits, and the personal information about the owners. Once the application is received, it’s processed very fast, and the client is ready to be funded.”

Additionally, invoice factoring isn’t a one-time financing option. It’s an ongoing form of financing that allows you to send invoices as often as you want. This can be daily, weekly, monthly, or any other cadence that works for your business. 

2. Easier Approval Than a Traditional Loan

One of the primary drawbacks of a traditional loan—such as a small business loan—is the approval rate. Unless your finances are in tip-top shape, you may not receive the approval you were hoping for.

But that’s not the case with invoice factoring.

“The approval rate is very high, especially for some industries, such as transportation, where it can reach 99%,” said Baldin. “For some other industries, the approval rate of the deal will depend largely on the nature of the business and the strength of the debtors and can still be as high as 95%.”

When you combine this approval rate with the speed at which you can get funded, it’s easy to see that invoice factoring is at least worth your consideration. 

An account manager discussing invoice factoring with her client

3. More Flexibility for Your Clients

There’s no denying that most companies look into invoice factoring as a way to improve their business. For example, it provides fast access to funds that are due to your company, thus allowing you to speed up the pace at which you scale.

But that doesn’t mean that invoice factoring has nothing to offer your clients. As suggested by Baldin, it can go a long way in improving customer relations.

“In most cases, factoring improves customer relations because it improves communication and adds another communication channel—the one between the factoring company’s Client Manager and the debtor.”

Baldin went on to add, “In some cases, it may end the relationship with some debtors, but for good reason—those who are slow payers or going bankrupt can seriously hurt the success of our clients in the future. Factoring companies avoid dealing with those types of debtors and advise their clients accordingly.”

Invoice factoring is the most flexible type of financing, as it follows the cycle of the client’s business and allows for increases or decreases in funds advanced, choice of currency, and funding frequency. 

Simply put, when you provide more flexibility for your clients, it improves your day-to-day and long-term relationships. 

4. Limited Risk for You

Traditional loans, such as one from the U.S. Small Business Administration can be risky if you’re unable to stay current with payments. This can lead to a damaged credit score, regular debt collection calls, and in the worst case scenario, seizure of your collateral. 

Invoice factoring is generally a low-risk form of financing because funds are advanced only after the job is completed and accepted. Even though the risk is minimal, it still exists.

“Factoring does not provide a 100% guarantee and security for the payments of invoices, because there are a number of situations where disputes may arise between the client and the debtor,” said Olga Baldin of REV Capital. “In those cases, the risk of non-payment will be switched back to the client until the situation is resolved.”

Overall, invoice factoring is still less of a risk than other forms of financing. Risk exists, but it’s minimal when compared to a bank loan, line of credit, or credit card that may ask you to put personal assets on the line. 

Two coworkers reviewing financial statements

5. Ability to Outsource This Task

On the surface, it’s easy to believe that adding a factoring company to the mix will complicate matters. The “too many cooks” in the kitchen adage may be weighing on your mind.

You’re right that you’re adding another party to the process of collecting from your clients. But as explained by Baldin, that’s not necessarily a bad thing.

“The factoring company’s involvement in the invoice verification and collection process allows for an early discovery of any problems associated with the invoicing, identifying possible remedies and communicating those to the client, and following up on the actions till the matter is resolved and payment has been received.”

Passing off invoice collection to a factoring company gives you one less thing to worry about. When you pass off the task of invoice collection to a factoring company, this is one less responsibility on your plate. You can use the extra time and resources to concentrate on obtaining more clients, managing your team, and growing your business

Take Advantage of the Benefits of Invoice Factoring

Are you ready to learn more about the advantages of invoice factoring as they relate to your specific company and circumstances? Check out our website to find out if you are eligible for factoring, how the process works, and how REV Capital can help you collect invoices effectively.