Single invoice factoring is a business financing option that lets you advance the payment of your customers’ pending purchases. This type of financing is helpful when you are waiting for a large payment from a customer but need the money immediately. Single invoice factoring differs from regular factoring services in the way that only one invoice is advanced instead of a contracted amount of invoices. This lets you factor purchases on an as-needed basis.
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How Single Invoice Factoring Works
The money that a customer owes you is considered an “outstanding invoice” – also referred to as an “accounts receivables.” In factoring, when you need the money before-hand, a third party, called a “factor,” comes in and essentially purchases your outstanding invoice. Depending on the business and the nature of your transactions, typical accounts receivables take up to 30 to 90+ days before the customer’s payment is received.
From there, it is up to you to make sure the transaction is completed. Sometimes, depending on the service you choose, the factoring company itself might manage collecting on the invoice.
Factoring Rates and Terms
Factors will typically advance only 70-90% of the receivables. With smaller sized deals, the advance is less.
Single invoice factoring is technically not a loan, and it is therefore not bound by the same government regulations that traditional bank loans are bound by. Instead of interest rates, the factor charges fees of anywhere from 5% to 15% of the invoice. Depending on the level of risk, some companies charge 30% or more in fees. That said, it is important to shop around and find the best rates before you decide to factor your invoices.
Pros and Cons of Single Invoice Factoring
Because factoring companies assume a lot of financial risk, their fees can be quite pricey. In fact, it is one of the more expensive business financing options.
On the other hand, one of the benefits of single invoice factoring is that the lender is less concerned about credit score and more focused on cash flow; while banks turn you down based on overall creditworthiness, a factor will focus on the quality of an invoice itself.
In the end, a traditional loan from a bank is the better route, but that doesn’t always work. If your business really needs the money and needs it fast, single invoice factoring helps you get financing that other lenders are not willing to grant. Through Lendio’s free loan match tool, you can easily find out which loans are the best fit, and we match you with the best rates.