Flexible Business Financing

Get access to working capital with a line of credit.

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$26,000
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Invoice Factoring

Invoice factoring is a form of business financing, in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. Technically, invoice factoring is not a business loan. Invoice factoring provides an advance on payments for outstanding invoices. This way, you can have working capital to reinvest in operations and growth sooner than you could if you waited for your customers to pay you.

How Does Invoice Financing Work?

Invoice financing can be explained in five simple steps:

  1. You provide the goods/services to your customer and invoice them.
  2. You send the invoice details to the invoice finance provider.
  3. A certain percentage of the face value of the invoice is made available to you.
  4. Either your own credit controller or the invoice finance provider’s sales ledger service carries out the invoice collection procedure.
  5. When your customer pays the invoice, the rest of the value of the invoice is made available to you — minus a service fee.

Invoice Factoring vs. Invoice Discounting

Invoice finance can be set up in a few different ways, and this is often done by invoice factoring or invoice discounting.

With invoice factoring, the company that needs funding sells outstanding invoices to an invoice finance provider, who pays the company a majority percentage (70 – 85% for example) of what the invoices are worth up front. When the invoice finance provider receives the entire payment for the invoices, it will then send the remaining percentage of the invoice amounts to the business, and the business will pay interest and/or fees for the service. The business’s customers will be aware of this arrangement, however, which runs the risk that it will reflect poorly on the business.

Another form of invoice financing is invoice discounting. Invoice discounting is similar to invoice factoring except that the business — not the invoice finance provider — collects payment from customers, so customers are not aware of the business’s arrangement with the invoice finance provider. Invoice finance providers typically advance businesses up to 95% of the invoice amount with invoice discounting. When customers pay their invoices, the business repays the invoice finance provider, minus a fee.

Pros and Cons of Invoice Financing

Pros

Speed
You can get the money for your invoices before the invoices have been paid.

Chances of Approval
Because the invoices act as collateral, it’s often easier to get approved for invoice financing than it is for traditional loans.

Qualification
Whether or not you are approved for invoice financing is determined by the credit of your customers’ business — not yours.

Cons

Liability
You may be held responsible for unpaid invoices. Factoring companies aren’t collections agencies, so if your customers don’t pay, you’ll likely have to.

Lack of Control
You are turning over your invoices to another company, so you’ll want to make sure you’re doing business with a reputable company.

Cost
You have to determine if the percent the factoring company takes is worth the trade-off for immediate cash.

What Does Headway Capital Offer?

Headway Capital’s True Line of Credit™ offers an alternative to invoice financing that many business owners find to be a better fit for their ongoing financing needs. You can request funds at any time, and your money will generally be in your account as soon as the next business day. As you repay, the amount of credit available to you will replenish, so you can draw again without reapplying whenever the need arises.

Credit Line

Up to
$100,000

Loan Type

Business line of credit

Repayment Term

12, 18 or 24 months

No Hidden Fees

See our Rates & Terms for details

Payment Frequency

Weekly or monthly

Clear Cost

Clear payment terms, interest does not compound, no penalty for early payoff

See If You Qualify in Minutes

If you’re interested in learning more about Headway Capital, check out our FAQ page. Want to see if you qualify for a Headway Capital line of credit?