The Best Factoring Companies for Small Businesses
Last updated Dec. 20, 2021
A factoring company is a third-party financial institution that offers businesses cash in exchange for ownership of their unpaid, outstanding invoices. After this transfer of ownership, the factoring company—also known as an invoice factoring company, an accounts receivable factoring company, or even a factoring receivables company—will typically take over the responsibility of collecting the invoice amount from a business’s customer. Thus making invoice factoring distinct from invoice financing
In essence, factoring companies help businesses open up their cash flow while they wait for customers to pay them for their services. Therefore, if you’re a B2B business (or any other business that invoices customers) and you need to free up capital held in unpaid invoices
In this guide, we’ll break down everything you need to know about invoice factoring—discussing some of the top factoring companies and what they can offer—plus, how to choose the right factoring company for your business.
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How Invoice Factoring Companies Work
Compared with other types of business loans
When working with an invoice factoring company, you “sell” your outstanding invoices to the company in return for an advance of cash—typically around 80% of the value of the invoices. Generally, the factoring company will then take over the collection of your customers’ invoice payments. In this way, the company’s ownership of the invoices is what distinguishes invoice factoring vs. invoice financing
It’s worth noting, however, that these two terms are often used interchangeably—meaning some factoring companies may not collect the payments directly from your customers, leaving that responsibility to you.
In either case, when your customer pays their invoices, you’ll receive the remaining amount of the invoice value that the factoring company held in reserve—minus the fees the company collects for each week it takes for your customer to fulfill their payment.
This is another common difference between invoice factoring and invoice financing—with invoice financing, you’ll have to pay your fees to the company after receiving the amount in reserve, whereas invoice factoring companies will take their fees and then distribute the remaining amount to you.
As an example, say you have an outstanding invoice of $100,000, and the factoring company you choose to work with advances you 85% of that invoice—this means that you’ll receive $85,000 right away, and the invoice factoring company will hold the additional $15,000 in reserve.
Now, say it takes your client two weeks to pay their invoice—this means that the factoring company will charge fees on the reserve amount for two weeks. Usually, accounts receivables factoring
Additionally, it’s worth noting that sometimes a factoring company will charge a processing fee at the point of the sale, usually around 3% of the total invoice amount, so let’s assume that the factoring company in question charges a processing fee of 3%.
With all fees considered, the factoring company will end up taking 5% of the invoice value—or $5,000—from the reserve amount. At the end of the day, then, you’ll receive $10,000 back from the original reserve amount of $15,000—meaning you’ve received a total of $95,000 of your $100,000 invoice.
3 Best Invoice Factoring Companies
Now that you have a better sense of how invoice factoring works, you should have an idea of whether or not this type of financing is right for your business’s needs.
If you are seeking quick financing
Once again, however, invoice factoring and invoice financing are frequently used interchangeably, and therefore, you’ll want to be sure you understand the specific terms of any company you work with—so you know whether it’s truly invoice factoring and whether or not you’re responsible for collecting customer payments and paying your respective fees to the company.
Here are some of the top invoice factoring companies you might consider.
altLINE
AltLINE is the commercial financing division of The Southern Bank, which has been in operation for over 84 years. Although they work primarily with staffing and consulting firms, altLINE can also provide financing to businesses in the manufacturing and distribution sectors, as well as government contractors. You can apply for invoice factoring from altLINE online—qualified businesses can receive funding in as little as 48 hours.
With this in mind, altLINE can factor up to $4 million per month and up to 90% of an invoice amount. On average, however, they fund customers about $500,000 per month. Along these lines, it’s important to note to work with altLINE as your invoice factoring company, you must be able to factor at least $15,000 per month with them.
This being said, altLINE is a true factoring company, in that they will purchase your outstanding invoices and take over the collections process. Once they collect the outstanding invoice, they’ll advance you the difference, minus their fees. Typically, factor fees from altLINE range from 0.5% to 3% for the first 30 days the invoice is outstanding. After 30 days, altLINE will increase the factor fee incrementally every 15 days—altLINE fees max out at 5%.
To qualify for financing with altLINE, you must have a minimum credit score of 500; altLINE does not have an annual revenue or time in business requirement. During the underwriting process, altLINE will evaluate the credit quality of your customers. Ideally, altLINE either wants to see that your business is working with several large accounts, or a lot of smaller accounts.
altLINE will not work with businesses that have had two or more bankruptcies, a previous loan default, or a large tax lien
Payplant
For an invoice factoring company with no contracts, no minimums, and no hidden fees, you might look into Payplant.
Payplant is an online lender that offers on-demand invoice factoring through their “Pay Me Now” program. Through this program, you can choose which invoices to finance (generally up to $1 million) and Payplant will advance you up to 90% of the invoice amount.
Like altLINE, Payplant is truly a factoring company, and therefore, they’ll handle payments from your customers. When your customer pay, they’ll transfer the remaining amount, minus their fees. Payplant’s factor fees start at 1.2% per month, with a minimum duration of 30 days.
You can apply for invoice factoring with Payplant online and a representative will follow up by phone to discuss your application. Payplant can fund you in as little as 72 hours.
Although Payplant doesn’t list specific requirements on their website, they do state that small private companies or startups may face higher rates, as it’s simpler to evaluate the creditworthiness of larger companies.
This being said, however, with no monthly minimums and no long-term contracts, Payplant can be a great option for fast accounts receivable financing
Triumph Business Capital
Backed by a publicly traded bank, Triumph Business Capital actually offers a range of financing products. For small businesses, however, the most accessible product will be their invoice factoring.
Triumph can fund invoices up to $5 million, allowing you to initiate the application process online and receive capital in five to seven days. Using Triumph as your factoring company, you won’t have to worry about collecting payments from your customers—but you will be able to track progress through online statements and an online dashboard.
This being said, to qualify for invoice factoring from Triumph, you’ll need $100,000 in annual revenue, a minimum credit score of 500, and at least one year in business. Additionally, it’s important to note that Triumph charges a $300 origination fee
Although Triumph doesn’t specify their factor fees on their website, they do write
Plus, as your business grows, Triumph gives you the option to consider their other financing products and if necessary, work with you to find a better solution as your business’s financing needs change.
How to Choose the Right Factoring Company for Your Business
If you’re looking for an invoice factoring company, chances are you’ve already decided that invoice factoring is the right business financing
If that’s the case, you want to make sure you’re choosing a factoring company that will be a partner to your business and help you combat any cash flow issues that come from outstanding invoices.
When evaluating any factoring company, therefore, you can ask the following questions to ensure that you find the best one for your business.
- Will you require that I use accounting software? There are factoring companies, especially those with advanced technology, that might require you to use accounting software to work with them. Therefore, you should be sure to ask this question first before proceeding with any invoice factoring company.
- What percentage of my invoice value will I be advanced? As we’ve discussed, every invoice factoring company will be able to advance you a certain amount of your outstanding invoice. Some will be able to advance more than others. You’ll want to make sure the company you choose to work with is concrete in their offer and that the advance solves your cash flow needs.
- What fees do you charge? As we’ve seen, most factoring companies will charge you a certain percentage rate for each week it takes your customers to pay their invoices. This being said, however, some companies may charge different fees, or additional ones on top of the standard factor fees. Some invoice factoring companies might charge servicing fees, renewal fees, money transfer fees, termination fees, or monthly minimums. You’ll want to make sure you completely understand any and all fees you’ll be charged before proceeding with a company.
- When do I have to pay the advance back? Some factoring companies will require you to pay back the advance in a certain time frame, whereas others will be repaid when your customer pays. If you find yourself evaluating a factoring company that operates with a set payback period, you’ll want to make sure you know how you’ll repay the funds in case your
customer pays late
- Who will own the debt? Some factoring companies will take over the collection of the invoice and own the debt outright, whereas others won’t. You need to figure out what type of invoice factoring company you’re evaluating and therefore, who is responsible for invoice collection. Many business owners don’t like having a third-party contact their customers for outstanding payments. If you don’t want this type of situation, you’ll want to make sure you’re only comparing scenarios where you will own the debt.
- How easy will it be for us to work together again? One of the benefits of working with a factoring company is developing a lasting relationship. Cash flow problems will likely come up again and it’s nice to have somewhere to go when they do. Some factoring companies make it easier than others to work together again, so you’ll want to be sure to ask what that relationship would look like in the future.
How much do you need?
No cost to you
Your credit score won't be impacted
Compare multiple lenders with one application