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Don't let unpaid invoices impact your cash flow. Get the funds you're owed quickly with accounts receivable factoring.
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Editor & Senior Staff Writer
Last updated onUpdated
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Lead Staff Writer
As a B2B or B2G business, having unpaid invoices can lead to cash flow issues that can prevent you from growing your business or even covering everyday operational costs.
If you need extra capital for your business as a result of unpaid invoices, there’s a solution: accounts receivable factoring. Also known as invoice factoring, this type of small business financing leverages your outstanding invoices and helps you get the money you need in just days. Best of all, traditional qualifying criteria, such as credit score and annual revenue, may not come into play for approval.
If outstanding invoices are causing cash flow problems with your business, read on to learn more about invoice factoring, whether your business qualifies, and our recommendations to find the best factoring companies for small businesses.
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Start your search for the best accounts receivables factoring companies with these four options. These options were hand-picked for high advance rates, good customer support, and to provide options for new and established businesses of all sizes.
| Credit Limit | Advance Rate | Contract | |
|---|---|---|---|
| Breakout Finance | $10 million | 95% | Unknown |
| Lendio | $10 million | 90% | Varies |
| P2Binvestor | $10 million | 70% to 80% | |
| Riviera Finance | $2 million | 95% | Undisclosed |
Pros
Cons
Breakout Finance offers an invoice factoring program that can help you get up to $10 million for your unpaid invoices. The company's only listed requirement is that you have invoices for delivered work. With no time in business requirements, this is a great choice for new businesses and startups.
Breakout Finance makes it easy to get the funding you need with your unpaid invoices. Simply submit your invoices online, and once they are verified, Breakout sends the agreed upon cash advance. Once Breakout is paid by your customer, the additional funds -- less the advance rate -- is sent to you.
Get Started With Breakout Finance
Pros
Cons
If you want to compare your options before choosing a lender, Lendio has you covered. With one application, you can receive multiple options for accounts receivable factoring, accounts receivable loans, and even other funding options like lines of credit and short-term loans.
Through its lending network of 75+ partners, you can receive up to $10 million for your unpaid invoices. Advance rates of up to 90% are available. And if you need funds fast, you may be eligible to receive funding in as little as 24 hours based on the lender you're paired with.
Pros
Cons
P2Binvestor works with larger businesses to provide up to $10 million through an asset-backed line of credit that's secured with A/R and/or inventory. You can draw on up to 70% to 80% of the value of your assets. Daily non-compounding interest is charged only on the funds that are used. Certain customers may also be eligible for a term loan to supplement their line of credit.
P2Binvestor has an easy application process, and you'll work with a dedicated account manager that offers support throughout the process. It's worth noting that the application process can be a bit lengthy, with underwriting taking an average of five to ten days. The company does have stricter eligibility requirements, making this a suitable option for established businesses with high annual revenue.
Pros
Cons
Through Riviera Finance, you can receive up to $2 million for your unpaid invoices. The company provides up to 95% of your invoices upfront and has relaxed eligibility requirements, so even new businesses may qualify. Riviera offers non-recourse invoice factoring services, which means that the factoring company -- not you -- is responsible if clients don't pay their invoices.
Riviera promises fast funding within 24 hours of verifying and approving invoices. However, the overall application process can be lengthy (several business days). However, businesses that are willing to wait a few days for funding will like what Riviera has to offer.
Get Started With Riviera Finance
We spend hours researching and evaluating each business loan and funding product that we review at Merchant Maverick, placing special emphasis on key characteristics to generate our ratings.
When rating lenders and funding providers, we use a 31-point rubric that looks at rates and fees, services, eligibility requirements, application, sales and advertising transparency, customer service, and user reviews. We weigh each section differently to calculate the total star rating. This rubric is applied to traditional term loans, as well as short-term loans, start-up loans, lines of credit, online lending products, merchant cash advances, and equipment financing products.
Each section is further broken down into granular, weighted subsections, in which we examine specific attributes like terms lengths, conditions of repayment, credit score and revenue requirements, ease of application, length of time to funding, the ethics involved in promoting the lending product, customer support, and the overall reputation of the lender or funding provider.
Read more about how we rate small business lenders.
Invoice factoring, also called accounts receivable factoring or debt factoring, is a sales agreement where a business sells their qualifying unpaid invoices (accounts receivable) ton invoice a factoring company at a discount for instant cash. Invoice factoring is best for B2B and B2G businesses that want to resolve cash flow issues due to slow-paying customers.
Typically, you’d send out your invoices, wait for the customer to pay, and receive cash only when the customer pays. In this case, you’re responsible for collecting the payment.
With invoice factoring, you sell your unpaid invoices to a factor. You’ll receive an upfront payment of typically 85% to 95% of the invoice total. Then, the factor collects payment from your customers. Once the customers pay, the factor remits the remaining funds to you — minus any fees charged for the service.
The fees you’ll pay will depend on the factor you select. Most factors have a set daily or weekly factoring fee that gets charged until customers pay their invoices. On average, you should expect to pay between 1% and 6% of the invoice value per month.
Let’s look at an example to make invoice factoring easier to understand.
In this example, $300 was paid for the invoice factoring service. You may have to pay higher or lower fees based on the factoring company you select, which is why it’s essential to shop around. In some cases, you may even find that an alternative financial route makes more sense for your business.
Whether you’re choosing between a few of our recommended lenders or you’re comparing options on your own, it’s important to know what to look for when selecting a factoring company. Before signing your agreements, consider the following:
Fast approvals and quick funding can be alluring, but these conveniences may come at a cost. Shop around to ensure you receive the most affordable factoring fees for your situation.
Even if the factoring fees are very low, keep an eye out for additional fees, which can drive up the cost of your financing.
In addition to factoring fees, some commercial factoring companies charge other fees for their services. These include but are not limited to:
Over time, these fees can pile up, so it’s essential that you understand all the costs associated with the product before signing a contract or opening an account.
If you only need funds to clear a temporary financial hurdle, spot factoring may be the right choice for you. With spot factoring companies, you get to choose the invoices that get factored, and you aren’t locked into a contract. However, this often comes with higher factoring fees.
If you have multiple invoices that you’ll use to secure capital over a more extended period, consider contract factoring. In this case, you’ll sign a long-term contract — typically six months or longer — that will require you to sell all or most of your invoices to the factor. Contract factoring fees are often lower, but you usually must meet specific volume requirements each month. There may be additional fees if you don’t meet this volume or you end your contract early.
From time to time, a customer may not pay their invoice. You may have policies in place for when this happens, but what if you’ve sold the invoice to a factor? The process depends on the arrangement of your agreement.
If you have a recourse agreement, the responsibility falls back on you to purchase the unpaid invoice. If you have a non-recourse agreement, the burden of handling the unpaid invoice falls on the factoring company. However, it is important to note that a disputed invoice may still be your responsibility, even under a non-recourse agreement.
If unpaid invoices are throwing a wrench in your incoming cash flows, invoice factoring can certainly help. However, as with any other financial product, it’s important to weigh the benefits and drawbacks, consider short- and long-term costs, and explore other options for getting the capital you need, including business credit cards and unsecured lines of credit.
Consider the long-term effects of financing, then determine if invoice factoring is the right choice for your business.
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The vendors that appear on this list were chosen by subject matter experts on the basis of product quality, wide usage and availability, and positive reputation.
Merchant Maverick’s ratings are editorial in nature, and are not aggregated from user reviews. Each staff reviewer at Merchant Maverick is a subject matter expert with experience researching, testing, and evaluating small business software and services. The rating of this company or service is based on the author’s expert opinion and analysis of the product, and assessed and seconded by another subject matter expert on staff before publication. Merchant Maverick’s ratings are not influenced by affiliate partnerships.
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