6 Best Accounts Receivable Factoring Companies For Small Businesses
As a B2B or B2G business, having outstanding (as in not-yet-paid) invoices is typically a good sign. It shows that you actually have customers, and your business is technically bringing in money. Depending on your invoicing policy, however, these outstanding invoices can lead to cash flow issues. For example, if your company policy is to bill with net-60 terms, your customers have up to 60 days to pay. If you have invoiced multiple customers, all of whom wait 60 days to pay, your incoming cash flow could take a big hit in the meantime — which is not ideal for your business.
If you need extra capital for your business as a result of unpaid invoices, there’s a solution: invoice factoring. This type of small business financing leverages your outstanding invoices and helps you get the money you need in just days. Best of all, traditional qualifying criteria, such as credit score and annual revenue, may not come into play for approval.
Sounds intriguing, doesn’t it? But before you move forward with invoice factoring, read on to learn more about what it is, whether your business qualifies, and our recommendations to find the best factoring companies for small businesses.
Other Featured Options:
- Riviera Finance: Best non-recourse factoring company.
Read more below to learn why we chose these options.
Table of Contents
What Is Invoice Factoring?
Invoice factoring, also called accounts receivable factoring or debt factoring, is a sales agreement where a business sells their qualifying unpaid invoices (accounts receivable) to an invoice factoring company at a discount for instant cash.
Let’s break down exactly how it works.
Typically, you’d send out your invoices, wait for the customer to pay, and receive cash only when the customer pays. In this case, you’re responsible for collecting the payment.
With invoice factoring, you sell your unpaid invoices to a factor. You’ll receive an upfront payment of typically 85% to 95% of the invoice total. Then, the factor collects payment from your customers. Once the customers pay, the factor remits the remaining funds to you — minus any fees charged for the service.
The fees you’ll pay will depend on the factor you select. Most factors have a set daily or weekly factoring fee that gets charged until customers pay their invoices. On average, you should expect to pay between 1% and 6% of the invoice value per month.
Let’s look at an example to make invoice factoring easier to understand.
- You sell an invoice worth $20,000 to a factor.
- The factor pays 90% of the invoice value immediately — $18,000 goes directly to you.
- The remaining $2,000 is held in reserve by the factoring company.
- The weekly factoring fee is 0.5% — or $100 per week.
- The customer repays the invoice in three weeks, so the factoring fee adds up to $300.
- This amount is deducted from the cash in reserve — $2,000 — so you receive $1,700.
- In total, you receive $19,700 on the $20,000 invoice.
In this example, $300 was paid for the invoice factoring service. We get it: No business owner likes to give up money. However, trading a small amount for instant payment could offer the relief your business needs when you’re in a cash crunch.
Of course, this is also just an example. You may have to pay higher or lower fees based on the factoring company you select, which is why it’s essential to shop around. In some cases, you may even find that an alternative financial route makes more sense for your business.
Best A/R Factoring Companies For 2021
We’ve presented a list of the best small business factoring companies for 2021 below. For each, we’ve also listed the niches they fill, and the type of business need they’re best able to support.
1. BlueVine: Best For High-Volume Factoring
BlueVine offers invoice factoring lines of up to $5 million, with rates starting at 0.25% per week. After filling out a short application, you can get approved for funding in just 24 hours. Once approved, you can upload your invoices or connect your accounting software to BlueVine’s dashboard. You’ll receive up to 90% of funds upfront and receive the remainder — minus fees — after the invoice is paid.
To qualify, you must have a personal credit score of at least 530. You must also own a B2B business that has been in operation for a minimum of three months and have at least $100,000 in annual revenue to receive funding through BlueVine.
If you’re looking for a different type of financing for your business, you can apply to receive a line of credit or term loan of up to $250,000 through BlueVine.
2. Breakout Capital: Best For Startups Expanding Their Business
One of Breakout Capital’s financial products is FactorAdvantage. Through this program, you can receive a lump sum of up to $500,000 in addition to factoring services for your unpaid invoices. Repayment terms for the loan can be up to 24 months, and fees start at just 1.25% per month. The lender charges a one-time origination fee of 2.5%. One thing to note is that Breakout Capital partners with third-party invoice factoring companies to offer the invoice factoring half of this product.
One of the best things about FactorAdvantage is the loan criteria. There are no requirements for time in business, personal credit score, or monthly revenue to qualify. Startups are welcome to apply.
Breakout Capital also offers additional financial solutions for your business, including but not limited to equipment leases, Small Business Administration 7(a) loans, and lines of credit.
3. Fundbox: Best For Low-Volume Factoring & Spot Factoring
Fundbox Credit is an invoice financing option that provides a business line of credit of up to $100,000. You won’t repay funds when the customer pays back the invoice; instead, you’ll make weekly payments to pay off the borrowed amount. Repayment terms of 12 to 24 months are available with advance fees starting at 4.66%.
To qualify, you must sync your supported accounting software to Fundbox. Your software should reflect activity from at least the last two months. The business must also be based in the United States or qualifying US territory. You will also need a minimum credit rating of 500, which puts Fundbox in reach of most potential customers.
4. Lendio: Best For Comparing Your Options
Lendio is unique from the other companies on this list because it is not a direct financer. Instead, it is a finance aggregator that connects you with more than 75 of the nation’s top business financers. Lendio is a great option if you want to shop around for the best rates.
Through Lendio’s network, you can get matched up with an invoice factor or financer suited to your business. Any business can apply, and you can receive multiple offers in just minutes with one application. However, to have the best chance of qualifying, you’ll need to have a credit score above 550 and have been in business for six months or longer.
If accounts receivable financing doesn’t seem like the best choice for your business, you can also apply for other financial products through Lendio, including short-term loans, SBA loans, and equipment financing.
5. P2Binvestor: Best For Large B2B Businesses
Through P2Binvestor, you can apply for asset-backed lines of credit from $250,000 up to $10 million. These lines of credit come with one-year revolving terms. There are no specific numbers listed by the lender but expect rates in the “high teens.”
P2Bi’s lines of credit are secured using accounts receivables and/or inventory. A personal guarantee is also required. This financial product is best for larger B2B businesses, and requirements include minimum annual revenue of $500,000 and six months in business minimum. According to P2Bi, the ideal borrower owns a business with at least ten employees, 10% annual revenue growth, and $2 million in annual revenue.
6. Riviera Finance: Best Non-Recourse Factoring Company
We consider Riviera Finance to be one of the best non-recourse factoring companies out there, which is why we gave it a 5-star review. Through Riviera Finance, you can receive up to $2 million for your unpaid invoices. The factor will pay up to 95% of your invoice value upfront, putting more of your own money in your pocket sooner. Riviera Finance works with companies of all sizes, and there are no time in business, credit score, or revenue requirements (there are some restrictions on industry, just a head’s up). Rates start at 2%, and a six-month contract is typically required.
Through this company, invoices for preapproved debtors are funded within 24 hours of receipt. Even if the debtor hasn’t been preapproved, Riviera Finance will work to get the invoice funded in the same time frame.
How To Choose The Right Factoring Company
Whether you’re choosing between a few of our recommended lenders or you’re comparing options on your own, it’s important to know what to look for when selecting a factoring company. Before signing your agreements, consider the following:
Consider The Factoring Fees
When you need money quickly, it’s easy to lose sight of the big picture and think only in the short term. Fast approvals and quick funding can be alluring, but these conveniences may come at a cost. Shop around to ensure you receive the most affordable factoring fees for your situation.
Even if the factoring fees are very low, keep an eye out for additional fees, which can drive up the cost of your financing.
Ask About Additional Fees
In addition to factoring fees, some commercial factoring companies charge other fees for their services. These include but are not limited to:
- Origination fees
- Servicing fees
- Monthly minimums
- Renewal fees
- Money transfer fees
- Early termination fees
Over time, these fees can really pile up, so it’s essential that you understand all the costs associated with the product before signing a contract or opening an account. Learn more in our guide to common invoice factoring fees.
Decide Between Spot Factoring & Contract Factoring
Before choosing your factoring company, consider the volume of invoices that you plan to submit for factoring. Will this be a one-time deal to get you over a financial hump, or do you need a more long-term solution to help with incoming cash flow?
If you only need funds to clear a temporary financial hurdle, spot factoring may be the right choice for you. With spot factoring companies, you get to choose the invoices that get factored, and you aren’t locked into a contract. However, this often comes with higher factoring fees.
If you have multiple invoices that you’ll use to secure capital over a more extended period, consider contract factoring. In this case, you’ll sign a long-term contract — typically six months or longer — that will require you to sell all or most of your invoices to the factor. Contract factoring fees are often lower, but you usually must meet specific volume requirements each month. There may be additional fees if you don’t meet this volume or you end your contract early.
Choose Recourse Or Non-Recourse Factoring
From time to time, a customer may not pay their invoice. You may have policies in place for when this happens, but what if you’ve sold the invoice to a factor? The process depends on the arrangement of your agreement.
If you have a recourse agreement, the responsibility falls back on you to purchase the unpaid invoice. If you have a non-recourse agreement, the burden of handling the unpaid invoice falls on the factoring company. However, it is important to note that a disputed invoice may still be your responsibility, even under a non-recourse agreement. Learn more about the benefits and drawbacks of non-recourse agreements.
Invoice Factoring FAQS
Choosing A Factoring Company: Final Thoughts
If unpaid invoices are throwing a wrench in your incoming cash flows, invoice factoring can certainly help. However, as with any other financial product, it’s important to weigh the benefits and drawbacks, consider short- and long-term costs, and explore other options for getting the capital you need, including business credit cards and unsecured lines of credit.
Consider the long-term effects of financing, then determine if invoice factoring is the right choice for your business.
In Summary: Best A/R Factoring Companies For 2021
- BlueVine: Best for fast high-volume factoring.
- Breakout Capital: Best for startups expanding their businesses.
- Fundbox: Best for low-volume factoring and spot factoring.
- Lendio: Best for comparing your options.
- P2Binvestor: Best for large B2B businesses.
- Riviera Finance: Best non-recourse factoring company.