- Good Fit: Manufacturing, wholesale, logistics, staffing agencies, and any industry with long invoice cycles.
- Not Ideal: Businesses with low margins or those with irregular invoicing practises.
An In-Depth Guide To Invoice Factoring
What Is Invoice Finance?
Invoice factoring, also known as invoice financing, is a financial service that helps businesses improve their cash flow by converting outstanding invoices due within 30 to 90 days into immediate cash.
This solution enables businesses to access funds without waiting for clients to pay, offering a lifeline for managing expenses, payroll, and growth opportunities.
By selling your invoices to a factoring company, like FundTap, you receive a significant percentage of the invoice value upfront, with the remainder paid upon client settlement, minus a small fee. This on-demand financing tool is a strategic move for businesses looking to maintain steady operations and leverage growth without taking on debt.
How It Helps Your Business
Invoice factoring turns the money you’re waiting to get from invoices into cash you can use right now. This means you don’t have to wait days or months for customers to pay you.
It’s great for keeping your business running smoothly, like making sure you can pay your staff on time or buy what you need without waiting. It also lets you take advantage of new opportunities without stressing about having enough cash.
What the Invoice Factoring Process Looks Like
- First Step: You Invoice Your Customer – Just do your business as usual, sell your product or service, and invoice your customer for it. Then, decide which invoices you want to turn into cash.
- Second Step: Choose a Factoring Company – Pick a company like FundTap to help turn your invoices into cash. You can usually do this through the accounting software you already use for your business, making it super easy.
- Third Step: Get Your Money – The factoring company checks out your invoice and then gives you most of that money upfront, often on the same day. This money is now yours to spend on whatever your business needs.
- Fourth Step: Your Customer Pays Up – Instead of paying you, your customer pays the factoring company according to the usual payment terms. After the factoring company gets the money, they give you the rest of it, minus their fee.
- Fifth Step: Use It Again When Needed – The best thing about invoice factoring is that you can use it whenever you need it. There’s no big commitment. Just choose invoices to factor whenever you need the cash.
Is Invoice Factoring Right for My Business?
Invoice factoring can be an excellent financial solution for many businesses, but it’s important to determine if it’s the right fit for your specific situation. Here, we break down the key factors to help you decide.
- Good Fit: Small to medium-sized enterprises (SMEs) needing immediate cash flow to manage operations and growth.
- Not Ideal: Large corporations with substantial cash reserves and access to cheaper financing options.
- Good Fit:
- Startups needing working capital.
- Businesses experiencing rapid growth.
- Companies with reliable, creditworthy customers but long payment terms.
- Seasonal businesses with fluctuating cash flow.
- Not Ideal:
- Businesses with high debt levels.
- Companies with customers who frequently default on payments.
- Organisations looking for long-term financing solutions.
- Good Fit:
- Businesses needing to bridge cash flow gaps.
- Companies looking to avoid taking on additional debt.
- Not Ideal:
- Businesses looking to finance major expansions.
- Companies requiring a more stable, long-term financing strategy.
Frequently Asked Questions
Invoice factoring is a financial service that allows businesses to sell their accounts receivable (invoices) to a third party (a factoring company) at a discount. Businesses receive an advance on the majority of the invoice value upfront, providing immediate cash flow.
Any business that operates on a B2B model and issues invoices with payment terms can use invoice factoring. It is particularly beneficial for small to medium enterprises (SMEs) that need to manage cash flow and cover operational expenses.
With FundTap, you can connect your accounting software in minutes and get your unpaid invoices paid within hours, offering one of the fastest turnaround times in the industry.
No, invoice factoring is not a loan. It is the sale of your outstanding invoices for immediate cash, so there’s no debt to repay. This makes it an attractive option for businesses looking to improve cash flow without increasing their debt levels.
The cost of invoice factoring includes a fee for the service, which is typically a percentage of the invoice value. With FundTap, fees are transparent and tailored to fit your business’s unique needs, ensuring affordability and convenience.
FundTap handles the process discreetly, ensuring your client relationships are not affected. The focus is on providing your business with immediate cash flow; how this is managed with your clients can be tailored to your preferences.
Yes, with FundTap’s flexible service, you have the control to select which invoices you want to factor. This on-demand approach allows you to manage your cash flow needs effectively, without long-term commitments.
How FundTap’s Invoice Factoring works
Select Your Invoice(s)
Receive Cash Within Hours
Repayment Is Automated
How does FundTap compare?
 | Online Invoice Factoring | Traditional Factoring | |
|---|---|---|---|
| Easy to establish |  |  | |
| Online and mobile | | | |
| Link to Accounting System | | | |
| Application approval | 1 hour | 48 hours + | 2 weeks + |
| Quick funding | Minutes | Days | Days |
| No Establishment fees | | | |
| No Admin or System fees | | | |
| Use only when needed, without penalty | | | |
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