If you’re looking for a business loan, you may have come across invoice financing in your research. While this type of financing may have had a bad reputation in the past, due to less-than-reputable lenders, that’s no longer the case. Today, there are many trustworthy lenders offering invoice financing—also known as accounts receivable factoring—solutions that can help businesses maintain cash flow and cover operating expenses.
One such lender is AltLINE.
What is AltLINE? It’s the commercial financing division of The Southern Bank—an Alabama-based bank that got its start back in 1936. Today, The Southern Bank and AltLINE service businesses across the country with their invoice factoring product.
“Invoice factoring is a great way to grow a business with very little investment involved,” says Chas Justice, business development officer at AltLINE. “You’re essentially letting the business fund itself.”
In this review, we’re going to break down AltLINE’s invoice factoring product to determine if it’s a good solution for your business’s financing needs. But first, let’s learn about what invoice factoring is.
Invoice factoring is a form of accounts receivables financing in which an invoice factoring company purchases the accounts receivables (or invoices) you’re owed and takes over the collections process.
With invoice factoring, the lender will pay you a percentage of the total outstanding invoice amount upfront. Then, they’ll take responsibility for collecting the full amount from your customer. Once they collect the full amount, they’ll advance you the difference, keeping an agreed-upon percentage for their services. With invoice factoring, your clients will deal directly with the factoring company to make their payment.
While invoice factoring and invoice financing are actually very similar loan products, there is one key difference. With invoice financing, the business owner retains full control of the collections process. With invoice factoring, the factoring company purchases the unpaid invoices and takes over collections.
Typically the initial advance amount and fee are similar with invoice financing and invoice factoring, but sometimes the factor fee can be higher with invoice factoring.
Now that we understand what invoice factoring is, let’s take a closer look at AltLINE’s invoice factoring product. We’ll touch on loan amounts and fees, how to apply, the types of businesses that qualify, and pros and cons.
According to Justice, AltLINE can factor up to $4 million a month and up to 90% of an invoice’s amount. On average, Justice says AltLINE’s clients factor around $500,000 per month. He notes that, at a minimum, clients must be willing to factor at least $15,000 per month with AltLINE.
Factor fees for AltLINE invoice factoring range from 0.5% to 3% for the first 30 days that the invoice is outstanding. If your customer fails to pay within the first 30 days, the factor fee increases incrementally every 15 days thereafter. Justice notes that factor fees max out at about 5%.
The only other fee AltLINE will charge is if a client wants funding expedited. For this service, AltLINE charges an additional 1%.
To apply for invoice factoring from AltLINE, you’d start by filling out and submitting an application through the AltLINE website. Justice says the application takes no longer than 10 minutes to complete. Once AltLINE receives your application, they’ll request the following forms: an accounts receivables aging report, a sample invoice, and a copy of the driver’s license for anyone who owns at least 10% of the business.
Once AltLINE receives this paperwork, their team can put together a proposal in as little as 24 hours. Part of the underwriting process includes looking at the credit quality of the debtors (in this case, your customers). In particular, AltLINE will look at their Dun & Bradstreet report and their credit insurance reports. In order to qualify, AltLINE either wants to see that your business is working with several large accounts or a lot of smaller accounts.
“We don’t care about debt service ratio or liquidity; all we’re looking at is accounts receivables and your customers,” Justice says.
If you agree to the proposal, AltLINE will provide a credit memo and approve within 24 hours. Once approved, you’re expected to factor at least $15,000 per month of your invoices with AltLINE. However, you’re not required to factor all their invoices.
“The more they use us, the more comfortable we can get with their customers’ payment behavior,” Justice says. “That helps create a stronger long-term relationship.”
Keep in mind, AltLINE offers year-to-year contracts.
To qualify for invoice factoring from AltLINE, you need to have a minimum 500 FICO score and the ability to factor at least $15,000 of your invoices per month. According to Justice, 65% of AltLINE’s portfolio is staffing and consulting firms. However, AltLINE also works with manufacturing businesses, distributors, and government contractors.
The list of businesses AltLINE won’t work with is as follows:
Furthermore, AltLINE does not work with businesses that have had two or more bankruptcies, a previous loan default, or a large tax lien against their business. In addition, AltLINE does not work with a business if they can’t have the first position lien.
There is no annual revenue or time in business requirements needed to qualify for AltLINE financing.
Relative to other invoice factoring companies, the main advantage with AltLINE is that you’re actually borrowing from a bank. Because of this, you’ll receive better pricing and more transparency than if you were to go with an alternative lender, according to Justice.
“We are regulated and audited regularly… Because of that, you won’t get hit with miscellaneous fees or be charged a higher price than what you were quoted,” explains Justice.
Generally, invoice factoring can also help smooth out cash flow issues. The risk to your business is also limited—once the factoring company takes over responsibility for collecting the receivables and you have your cash in hand, they’re taking over the risk that your clients won’t pay.
The main drawback to invoice factoring, with AltLINE or any other lender, is that payments aren’t coming directly to you. While some business owners like the idea of not having to worry about chasing down outstanding invoices, others don’t want someone else dealing with their customers.
Furthermore, because of the stigma around invoice factoring, some customers may think your business is in trouble if you’re working with a factoring company. While these fears are often unfounded, it could have a negative impact on the relationship.
Lastly, you are essentially paying to access your own money, and therefore, will not receive the full amount you’re owed. However, many business owners find the tradeoff of receiving their money sooner rather than in full to be worth it.
Along with invoice factoring, AltLINE offers two additional kinds of accounts receivables financing, Let’s take a look at both.
The AltLINE accounts receivable financing product allows a company to receive an advance between 70% and 90% of an invoice’s value that they will then repay to AltLINE, plus interest, as their invoices are paid. The difference between this product and the invoice factoring product is that accounts receivable financing is structured as a loan and comes with an annual interest rate and processing fee.
According to Justice, the interest rate on accounts receivable financing ranges between the market prime rate plus 1% to market prime rate plus 4%. Similar to a business line of credit, you’ll only pay interest on the number of days the balance of your loan is outstanding.
The processing fee ranges between 0.15% and 1%. This type of financing is typically suited for larger companies with at least $3 million to $30 million in annual revenues. Loan amounts range from $500,000 to $4 million, and qualification standards are similar to that of the invoice factoring product.
AltLINE’s asset-based lending product is a revolving line of credit collateralized by a business’s accounts receivables. Similar to accounts receivable financing, you’ll pay an annualized interest rate between the market prime rate plus 1% and the market prime rate plus 4%. There’s also a flat monthly monitoring fee between $500 and $2,500.
The qualification standards for asset-based lending from AltLINE are similar to the invoice factoring product. This product is best for businesses with large customer bases and borrowing needs.
For AltLINE invoice factoring, you have an appealing option because it is secured by a bank. Therefore, you can be sure you’re getting the lowest possible rates you qualify for and no hidden fees or deceptive terms.
While AltLINE only deals with specific types of businesses, their qualification standards are minimal. So if you fall into AltLINE’s target market, they could be a great financing option for your business.