Best Invoice Factoring Companies to Consider in 2022

Businesses need continuous income to operate and grow, but unpaid invoices can create significant cash flow problems and restrict your business. When you work with an invoice factoring company, that company will do the hard work of getting those invoices paid.

The company will also offer you an advance on those balances, so you don’t have to wait to get paid. And compared to a small business loan, invoice factoring is typically easier to qualify for. Our team of financial experts reviewed and ranked the top invoice factoring companies to help you get funded.

It’s important to choose an invoice factoring company that’s right for your business. As you explore your options, you’ll need to consider multiple elements of each company and decide if it meets your business funding needs.

In this review, we highlight the terms, rates and fees of each company and explain what makes them a good option. We also share potential downsides of each lender, and provide a methodology you can use to select the best option for your needs.

Best Invoice Factoring Companies for 2022 - Full Overview

If you’re thinking about invoice factoring for your business, you’ll want to consider these top invoice factoring companies.

How To Choose Best Invoice The Factoring Companies

• Loan features - What are the invoice factoring terms? How long will the company attempt to collect on your invoices? 
• Application process - How complicated is the application, and how much documentation do you have to provide? How quickly are applications approved, and when will you receive an advance? 
• Factor rates and fees - Are the company’s factor rates competitive? What percentage of your balance will the company offer as an advance? 
• Qualification process - Do you need a minimum credit score to apply? What other qualifications do you need to meet, like a business history, invoice balance amount, or invoice type requirement? 
• Customer support - Can you get help from a live customer service representative? Is multi-channel support available, and are there supplemental information and tools available to help you? 
• Online user reviews - What are other customers saying about the company on independent review sites like Trustpilot? 

Best Invoice Factoring Companies - Main Features

What Is Invoice Factoring?

Invoice factoring describes the sale of unpaid invoices to a lender as a means of expediting the payments.. In essence, lenders are buying those invoices from you, usually at a healthy discount, in exchange for cash. The outstanding invoices are then paid to the lender, rather than your business. Once they get the payment, the lender pays you the difference.

If a discount approach is not employed (meaning the lender purchases 85% of your invoices, for example, versus the entire amount), the invoice factoring company charges a percentage-based fee on the aggregate amount of the invoices. Usually, it is applied upon receipt from the customer.

How Does Invoice Factoring Work?

When you apply to an invoice factoring company, you’re essentially selling your accounts receivable to that third party with a promise to repay the fronted money, along with an additional fee, upon collection. This fee can range from 0.05% to 5%, on average.

For example, if you sell $10,000 of invoices with a fee of 2%, you’ll pay $200 in charges. Some invoice factoring companies will chase the debts for you, while others expect you to handle the invoice collection.

This type of funding is specifically designed for businesses that have cash flow issues, which oftentimes stems from late-paying clients or clients with 30-, 60-, or 90-day payment agreements. It enables organizations to stabilize their cash flows and continue operations as normal.

Most lenders will offer between 80% and 100% of the total value of your outstanding invoices. You should bear in mind that the percentage fee will be on the value of the total invoice, regardless of how much you borrow. For example, the factoring company may only lend you up to 80% of a $10,000 invoice and charge a 2% fee. This means you only receive an $8,000 loan but will be charged a fee of $200, not $160.

Invoice Factoring Rates and Fees

The rates and fees you can expect with invoice factoring are as follows:

• Factoring fee - This is the percentage of your invoices that the factoring company will take as a total. On average, this ranges from 0.05% to 5%.
• Processing or origination fees - This is a one-off charge at the start of your borrowing period, structured as a percentage of the total value of the pertinent invoices. This usually ranges from 1% to 3%.
• ACH and bank wire fees - As funds will be moving between several different banks (yours, your customers, and the factoring company’s accounts), you might be charged additional fees
• Monthly minimum fees - If your client still hasn’t paid by the invoice deadline, you may be charged additional monthly fees. However, this won’t always be the case because when it bought your accounts receivable, the factoring company assumed the risk of non-payment.

Which Businesses Can Benefit from Invoice Factoring?

Any business that provides services to other businesses and receives invoices on a delay, such as 30-, 60-, or 90-days, can benefit. Types of businesses that apply include:

• Manufacturing - Manufacturing companies often need to buy supplies well in advance of being paid the final invoice for a finished product
• Companies with large amounts of inventory - Stocking up for seasonal demands, buying new products, and having inventory on hand for emergencies requires cash. E-commerce and retail businesses, for example, use invoice factoring to get their hands on cash.
• Transportation and logistics - Invoice factoring covers daily expenses like fuel and salaries, while you wait for your clients to pay you
• Staffing agencies - It can take several months for staffing agencies to get paid for placing new hires. Here, invoice factoring becomes an invaluable tool
• Contractors - Many contractors are paid at least 30 days out from project completion. Invoice factoring can come in handy to front the expenses of the next project while waiting to be paid on the previous one.

Invoice Factoring Loans Pros and Cons

Invoice Factoring Pros

• High rates of approvals - Invoice factoring has high approval rates, as credit scores and time in business aren’t as important.
• Fast access to cash - Approvals are fast and you can usually get funding within 24-48 hours of approval.
• Acceptance might not affect your credit score - Since the value of the invoices are the most important factor, some agencies may not even need to perform a credit check.
• All financing is unsecured - The factoring company has shouldered the risk of any non-payment when it agreed to buy your receivables. This means all lending is unsecured and your assets aren’t at risk.
• Open to most small businesses - You usually don’t need to be making significant amounts of cash each month to be eligible.

Invoice Factoring Cons

• Loss of invoicing control - In most cases, the factoring company will take control of your invoicing. This leads to a small reputational risk and can make it harder to keep track of clients.
• 1% - 5% of all invoices will go to the factoring company - Like any other form of lending, invoice factoring comes with a cost. Make sure you can afford the hit in order to manage your cash flow.

Final Thoughts

Invoice factoring is a fast, safe, and simple way to secure funding for businesses that struggle with cash flow. If you’re wrestling with a funding dilemma and have multiple unpaid invoices, inquire with one of the platforms on our list. You’ll find some impressively low factor charges, lenient eligibility requirements, and a variety of flexible lending options to consider.