Charter Capital

Tag: Factoring

Factoring refers to the sale of receivable debts to a factoring company.

  • Factoring for Business: Enhancing Cash Flow & Growth

    Factoring for Business: Enhancing Cash Flow & Growth

    How Factoring Can Help You Run Your Business More Effectively

    Run Your Business More Effectively: Many business owners only hear about invoice factoring services when they face cash flow issues and need a source of financing for working capital. However, it’s a valuable financing tool for overall cash flow management and long-term growth. We’ll go over the basics of the factoring process and discuss the advantages of factoring in business below.

    The Factoring Process Explained

    Also referred to as receivable financing, invoice factoring converts outstanding customer invoices your slow-paying customers might ordinarily pay in 30, 60, 90, or more days into constant cash flow your business can use right away.

    Signing up with a factoring company, sometimes simply called a “factor,” is the first step. Once the relationship is established, you’ll send unpaid B2B invoices to your provider. They’ll advance you a portion of the invoice’s value, then wait for the payment from your customers. You can spend the money on whatever you feel benefits your business the most. Once your client pays, the factoring company will send you any remaining funds minus a nominal factoring cost.

    Benefits of Factoring: Running Your Business More Effectively

    By now, it’s clear to see how invoice factoring services can help you overcome cash flow challenges by accelerating payments or dealing with cash flow issues. Now let’s look at the benefits of invoice factoring in terms of the broader business landscape, particularly in managing late payments and improving cash flow management.

    Advantages of Factoring and Flexible Funding Solutions

    You can factor on-demand in most cases. So, you can choose to factor once and then never again, sign up and wait months to factor your first invoice, factor all your invoices, or just send in invoices occasionally as you need cash flow accelerated.

    Think of invoice factoring for small businesses as an ace in the hole. It’s not just a business loan alternative, but a cash flow factoring strategy that allows for an improved cash flow, giving you the power to seize growth opportunities whenever they arise. For instance, security businesses can greatly benefit from tailored factoring for security companies, ensuring they can manage operational expenses like payroll while maintaining a steady cash flow.

    Factoring Promotes Constant Forward Movement

    Many traditional business funding solutions create debt, along with interest and long-term repayment terms that can stall momentum. It’s easy for growing businesses to get trapped making minimum payments without reducing the balance. Invoice factoring offers a different path—advancing cash based on your unpaid invoices and repaid by your clients, so there’s no debt to carry forward. This makes it especially valuable in industries with long billing cycles. For example, accounts receivable factoring for service companies makes it easier to maintain steady cash flow between invoicing and payment, allowing these businesses to meet expenses and keep scaling without relying on credit.

    Streamlined Approval Process: The Ease of Qualifying for Factoring Services

    If you’ve ever applied for a bank loan, you know it’s a lengthy process. There are credit checks, digging into your business and often personal finances, then weeks or months of waiting. The invoice factoring process is not a loan, so you’re not forced to jump through the same hoops. You can find out your rate the day you apply and even get paid for an invoice the day you submit it. This simplicity is one of the key advantages of factoring in business.

    Making Informed Decisions About Your Clients

    Factoring companies put more weight on the credit history of your clients. While you’re still free to work with whomever you wish, your factoring company will provide insights about creditworthiness, so you can take on more work for clients who are financially responsible and mitigate credit risk by limiting work for those with weaker histories.

    Reducing Administrative Burden with Factoring

    Some factoring companies, like Charter Capital, offer free collections services. You’re relieved from the task of chasing payments from customers, eliminating any labor or other expenses associated with late payments. This contributes to a more steady cash flow.

    Speeding up Payments With the Factoring Process

    Factoring companies have systems in place that encourage faster payment. For example, it’s common for factoring companies to provide clients with ways to pay their invoices online. They’re more likely to have multiple communication methods as well, so clients catch their statements sooner. Little things like these increase the speed of payment overall, alleviating concerns about cash flow, so money comes to you quicker.

    Strengthening Client Relationships

    When you work with a factoring company, you have more freedom to extend terms that are favorable to your clients. They’re balancing cash flow just like you, so having more flexibility in payment can reduce strain on the relationship for you both. This often makes it easier for clients to place larger or more frequent requests, which creates extra revenue for you, contributing to a more steady cash flow. To illustrate this point, consider how a business like a staffing agency works. In a typical arrangement, the staffing agency covers all the expenses associated with finding quality talent and pays workers weeks or months before the client pays them. Maintaining this type of relationship is crucial for the staffing agency’s health and growth but is undeniably financially difficult for the agency. By partnering with a staffing factoring agency, the business can continue providing payment terms that work for its clients while improving cash flow.

    Increased Bargaining Power with Vendors

    First and foremost, stabilized factoring cash flow makes it easier to keep up with your vendor payments, so you’ll develop better relationships with them too. In addition to this, you may be able to work out better deals with your vendors, thus enhancing your business growth opportunities. For example, you’ll be in a better position to qualify for bulk discounts. Sometimes vendors will sell stock at a discount when another client cancels their order as well. Because you can tap into cash as you need it, you can jump on these opportunities as they arise.

    Building Better Credit

    Factoring doesn’t build your credit by itself, but it can help you address all sorts of situations that influence your credit, like making timely payments. Companies often use their factoring cash for growth-related expenses as well. For example, it can help you purchase the supplies necessary to accept a large order, purchase new equipment, or hire more employees. As your revenue grows and stabilizes, banks will look more favorably at you when you want to borrow.

    Streamlining Processes with Value-Added Factoring Services

    Although many factoring companies simply offer factoring services, others go above and beyond to support their clients. At Charter Capital, we offer perks like digital invoice processing, so managing invoices is a breeze. Your client credit reports are free too.

    We also offer industry-specific perks. As a freight factoring company, for example, our clients can tap into a free load board and fuel discount cards.

    Focusing on Core Business Functions

    You have a lot of jobs as a business owner. Chasing payments and constantly rebalancing things to make sure you have the cash to cover payroll and other vital expenses don’t have to be among them. By entrusting your collections and invoice processing to a factoring company, you’re able to focus on your core business functions and build a healthier company overall. This is one of the major advantages of invoice factoring.

    Run Your Business More Effectively with Invoice Factoring by Charter Capital

    With decades in the industry, full-service solutions to help your business thrive, and competitive rates that keep more money in your pockets, Charter Capital is America’s leading invoice factoring company. If you’d like to run your business more effectively through factoring, start with a complimentary rate quote from Charter Capital.

  • 3 Benefits of Combining Invoice Factoring and PO Financing

    3 Benefits of Combining Invoice Factoring and PO Financing

    Benefits of Combining Factoring and PO Financing
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    Very few things excite business owners more than receiving large purchase orders. Unfortunately, the joy is often short-lived as reality sets in. How can you accept a large order when your bank account doesn’t have enough to cover supply costs?

    Purchase order (PO) financing and factoring are two common ways businesses unlock working capital in these situations. We’ll explore how each works independently and how the pair can be used together to help growing companies get ahead.

    Purchase Order Financing vs. Factoring: What is the Difference?

    Purchase order financing and factoring are trade finance options, a special type of financing option used to facilitate domestic and international trade. That means four entities will be involved: the seller of goods or services, their supplier, a final buyer or customer, and a third-party financing company.

    Unlike other lending options, these solutions don’t necessarily rely on banks or load you down with long-term debt, so they can be a good resource when you want to grow by fulfilling a larger order but can’t due to the expenses involved.

    Purchase Order Financing

    Also known as purchase order funding, PO funding, or PO financing, purchase order financing is all about getting the cash necessary for supply purchases. It’s like selling POs, the documents given by buyers to sellers authorizing the purchase of products or services.

    There are five main steps involved in purchase order financing.

    1. You receive a purchase order from your customer.
    2. You request an estimate from your supplier and submit it with your application to a PO financing company.
    3. Your PO financing company pays the supplier or provides them with a letter of credit.
    4. Your customer receives their order and their invoice.
    5. Your customer pays the financing company. The financing company collects their portion and then sends you the remaining money owed.

    Purchase order financing companies will each have their own way of doing business. In some cases, your suppliers will receive cash. Other times, letters of credit may be used. This simply means that the financing company will guarantee payment to the supplier.

    Sometimes, a financing company will also circumvent you in the loop, which is somewhat common in manufacturing. In these cases, funders provide cash to suppliers, and the suppliers send the finished product straight to your customer. You’ll still receive a payment in the end, though.

    It’s also worth noting that sometimes finance companies will cover the total cost of your purchase order, and other times they’ll only pay a portion, so you should be prepared to cover at least some of the cost of supplies. PO financing rates vary quite a bit depending on the amount of the PO, terms, and other considerations, but typically fall between two and six percent of the value of the PO each month the balance is outstanding.

    Benefits of Purchase Order Financing

    Often referred to as purchase order factoring, or simply PO financing, this form of financing stands out as a strategic tool for businesses. One of the primary benefits of PO financing is its ability to provide swift capital, especially when compared to traditional financing. Businesses that use purchase order financing can access funds even before an order is approved, ensuring they can fulfill an order without unnecessary delays.

    PO financing works by allowing companies to use their purchase orders as collateral. This flexibility means that even if a business isn’t approved for PO financing initially, they might still have options like invoice factoring to help bridge their financial gaps. The synergy between purchase order financing and invoice factoring offers a comprehensive solution for businesses facing cash flow challenges.

    Moreover, PO financing can provide businesses with the necessary funds to seize growth opportunities, especially when traditional forms of financing might not be accessible. It’s also worth noting that PO financing is typically easier to secure, making it an attractive choice for many enterprises. When PO financing is used in tandem with other financial tools, like invoice factoring, businesses can overcome various financial hurdles.

    Which Criteria Matter Most for Purchase Order Finance Approval?

    When applying for purchase order financing, approval decisions are not solely based on your company’s credit history. Instead, lenders primarily evaluate whether the customer order and supplier arrangement present a low-risk, high-credibility transaction. A viable funding solution begins with establishing a financially reliable buyer relationship. Customers with demonstrated histories of timely invoice payments and consistent ordering patterns significantly increase the likelihood of transaction approval by financing companies.

    Supplier capability represents another critical evaluation criterion. Suppliers must demonstrate the ability to deliver goods accurately and according to established schedules. Purchase order financing frequently involves lenders making direct payments to suppliers for material procurement, making delivery delays or fulfillment issues potential threats to repayment security. Documentation serves as a fundamental component in this evaluation process. Financing providers conduct thorough reviews of purchase orders, supplier quotations, and total invoice amounts to establish appropriate funding terms and financing line structures.

    Profit margin requirements significantly influence eligibility determinations. Most financing providers establish minimum margin thresholds—typically approximately 15 percent—to offset financing costs and provide protection against potential repayment shortfalls. When profit margins fall below these established thresholds, financing companies may impose limitations on total financing amounts or decline applications entirely.

    Unlike traditional lending products, purchase order financing focuses specifically on individual transaction viability. Businesses receiving substantial volumes of purchase orders or operating under extended payment terms frequently utilize purchase order financing or factoring services to fulfill customer orders without assuming long-term debt obligations. In certain arrangements, financing companies deduct their fees directly from invoice payments, particularly when services are combined with third-party factoring solutions.

    Invoice Factoring

    Also known as accounts receivable factoring or accounts receivables financing, invoice factoring is all about accelerating payment after goods are delivered. Think of it as selling your outstanding invoices to a third party at a slight discount.

    There are four main steps involved in invoice factoring.

    1. You receive a purchase order from a customer, deliver goods, and send an invoice.
    2. You provide your factoring company with a copy of the unpaid invoice.
    3. The factoring company gives you upfront cash, sometimes even on the same day. You’ll typically receive somewhere between 60 and 80 percent of the value of the invoice to start, though some companies will advance as much as 100 percent under certain circumstances.
    4. Your customer pays the factoring company. The factoring company then sends you any remaining cash due, minus a nominal factoring fee.

    There are both recourse and non-recourse factors, meaning sometimes you’ll be responsible for paying back the factoring company if your customer doesn’t pay, and other times the factoring company accepts responsibility for non-paying clients. In any case, non-payment is rare because factors typically perform credit checks on your customers before accepting invoices and will let you know how creditworthy each client is.

    Factoring fees will vary based on several considerations, such as the number of transactions you do with your factoring company, the value of the invoice, and invoicing terms, but will usually land somewhere between one and five percent of an invoice’s value.

    Benefits of Invoice Factoring

    Invoice factoring offers several advantages to businesses. By selling unpaid invoices to a factoring company, businesses can quickly receive payments, improving their cash flow. This method is beneficial for businesses of all sizes facing cash flow challenges or seeking funds for expansion. Notably, invoice factoring is available even to those with imperfect credit histories. Unlike traditional bank loans, it doesn’t require collateral or personal guarantees, making it a preferable option. It provides immediate cash without adding debt, and the factoring company handles invoice collection, saving businesses time and effort. Overall, invoice factoring is a strategic choice for maintaining steady cash flow and improving working capital.

    Factoring Qualification Requirements

    Qualifying for PO financing and factoring is more about the strength of your customers and suppliers than your personal or business credit. That’s because the inventory or invoices are considered assets, which serve as collateral for you, and any debt involved is expected to be paid by your customer.

    With that in mind, your supplier and customer should:

    • Be creditworthy.
    • Be a viable business customer or government entity.
    • Have a profit margin of at least 15 percent.

    One of the benefits of invoice factoring, especially for small businesses or business owners with bad credit, is that neither your personal credit score nor that of your customers is taken into consideration when a factor in determining whether you qualify. Because the invoice factoring company provides you with an upfront cash flow and collects on the unpaid invoices, they are more concerned with your clients’ credit histories than yours.

    Companies That Use Purchase Order Financing and Invoice Factoring

    • Distributors
    • Wholesalers
    • Resellers
    • Importers and Exporters of Finished Goods
    • Outsourced Manufacturers/ Manufacturing Facilities

    Sometimes, even non-traditional businesses find ways to fuse these solutions effectively, adapting them to meet unique operational needs. For instance, a staffing agency might leverage staffing factoring to maintain steady cash flow by converting unpaid invoices into immediate funds to cover payroll expenses. At the same time, the agency could explore purchase order financing to manage costs associated with a large, time-sensitive staffing project, such as upfront training or onboarding expenses for a sizable temporary workforce. By combining both solutions, the company can ensure financial stability while scaling its operations to meet client demands.

    Qualification Requirements

    Qualifying for PO financing and factoring is more about the strength of your customers and suppliers than your personal or business credit. That’s because the inventory or invoices are considered assets, which serve as collateral for you, and any debt involved is expected to be paid by your customer.

    With that in mind, your supplier and customer should:

    • Be creditworthy.
    • Be a viable business customer or government entity.
    • Have a profit margin of at least 15 percent.

    One of the benefits of invoice factoring, especially for small businesses or business owners with bad credit, is that neither your personal credit score nor that of your customers is taken into consideration when a factor in determining whether you qualify. Because the invoice factoring company provides you with an upfront cash flow and collects on the unpaid invoices, they are more concerned with your client’s credit histories than yours.

    Combining Factoring with PO Financing

    PO financing and factoring can each help your business thrive in its own right, but pairing them together has unique benefits.

    There are seven main steps involved when you pair PO financing with factoring.

    1. Your customer sends you a purchase order.
    2. You connect with your supplier and get an estimate for the cost of goods to fulfill the order, then give the estimate to your PO financing company.
    3. The PO financing company pays the supplier, and the supplier sends you raw goods.
    4. You fulfill your customer’s order and send them an invoice.
    5. You provide your factoring company with a copy of the invoice.
    6. The factoring company pays your PO financing company and may send you upfront cash, too.
    7. When your customer pays the invoice factoring company, the factor pays you any remaining cash, minus a small factoring fee.

    By going this route, your company accelerates cash flow and can pay less in interest fees to PO financing companies, too.

    How Can Factoring and PO Financing Help Your Business Grow?

    Now that you know the basics of factoring and PO financing and the process of using them together, let’s take a look at some of the key benefits of this strategy.

    1. You Can Take on Larger Orders

    If you can’t afford to take on an order or want to be able to accept larger orders than you can now, factoring and PO financing are paths that can help you level up.

    2. Funding is Easier to Get Than a Traditional Bank Loan

    Traditional bank loans have all kinds of criteria that businesses need to meet to qualify for financing. Because of this, most small businesses don’t get the level of funding they need through traditional business loans. PO financing and factoring don’t work the same way. Again, it’s more about having strong customers and suppliers, and most businesses will usually qualify if they have them.

    3. Deployment is Fast

    It can take weeks or months to close on a traditional bank loan. If you’re relying on one to fulfill an order, there’s a good chance your customer won’t be willing to wait, and you’ll lose out on the business. Because trade credit is specialized funding designed specifically for these types of situations, funding is incredibly fast and sometimes happens on the day you submit documentation to your PO funding or factoring company.

    Solving Cash Flow Gaps: When to Use PO Financing vs. Invoice Factoring

    Businesses often encounter cash flow gaps at two key stages—before fulfilling an order and after delivering the product or service. Purchase order (PO) financing and invoice factoring address these gaps differently based on when the cash is needed.

    Before Fulfillment: Use PO Financing

    When a business receives a large purchase order but lacks the funds to buy materials or pay suppliers, PO financing bridges that upfront gap. It’s especially useful for:

    • Manufacturers and wholesalers with growing order volumes
    • Companies working with overseas suppliers that require upfront payment
    • Businesses facing long lead times between order and delivery

    With PO financing, the funding company pays suppliers directly so production can begin without draining internal cash reserves.

    After Invoicing: Use Invoice Factoring

    Once the order is fulfilled and the invoice is sent, the next gap begins—waiting 30, 60, or even 90 days for payment. This is where invoice factoring comes in. It allows businesses to:

    • Convert receivables into immediate working capital
    • Fund payroll, inventory restocks, or operating expenses
    • Maintain steady cash flow without taking on new debt

    By using both services at different points in the sales cycle, businesses can maintain momentum from order to payment without disruption.

    Take Your Business to the Next Level with PO Financing and Factoring

    If you’re ready to scale your business with factoring, Charter Capital can help. It doesn’t cost a thing to become established and find out your rate, so you can get set up now and be ready to take action the next time a large order heads your way. Request a complimentary rate quote now.

  • Top 10 Reasons For Invoice Factoring

    Top 10 Reasons For Invoice Factoring

    Top Ten Reasons for Invoice Factoring Companies

    If you are looking for fast cash flow solutions for your business, factoring your accounts receivables (invoices) can provide you with the funding you need to succeed almost immediately. Invoice Factoring is a financial transaction and type of debtor finance in which a business sells its invoices to a third party (factoring company) at a discount. The factoring company will then collect on the unpaid invoices for you, and once all of your clients have paid, the factor will reimburse you the remaining balance (minus a small fee). 

    Many small companies enjoy the benefits of accounts receivable factoring, so we have compiled a list of the most important reasons to factor invoices.

    1. It can turn your accounts receivable into immediate cash without giving up equity in your business.
    2. The process is much faster than a conventional loan and is simpler.
    3. Because your business receives funds up front, it enables you to offer better and more competitive credit terms to your customers.
    4. By using the cash you receive from factoring your invoices, it enables your business to take advantage of early payment or volume discounts from your vendors.
    5. It lets you concentrate on growing your own business instead of the Accounts Receivable and Collection process.
    6. It helps you to begin to build and improve your credit because your business is able to pay its creditors within terms. You no longer need to wait on customer payments so that you can pay your bills. Partnering with the best factoring companies ensures you not only get fast cash flow but also the support needed to manage your business effectively and improve credit.
    7. No new debt – Invoice Factoring is not a loan.
    8. It helps to get invoices paid faster – Having a professional and experienced company assist you in managing your Accounts Receivable and collections usually shortens the days that invoices remain unpaid.
    9. Monitoring and early detection of customer service issues – The factoring company can essentially be your outsourced A/R department and can alert you to any potential problems with your customers.
    10. Receive invoice processing assistance, credit screening & monitoring, as well as professional collections.

    If your cash flow is suffering and you are looking for a financing solution that will save you time and money while bringing about all of the above benefits, invoice factoring is for you.

    Invoice Factoring for Business Growth: A Top Financial Strategy

    Invoice factoring stands out as a top choice for business growth, offering a range of benefits that go beyond mere cash flow improvement. Invoice factoring empowers business owners to unlock the value of outstanding invoices, transforming them into a viable funding source that doesn’t require taking on new debt. Factoring for service providers, such as businesses in consulting, healthcare, and IT services, allows for a steady cash flow to manage business cash flow more effectively but also positions companies to grow their business by leveraging flexible funding solutions. For industries like staffing, where managing payroll is critical, staffing invoice factoring provides a reliable solution to ensure consistent cash flow and meet financial obligations without delays. Moreover, there are many advantages of invoice factoring, such as improved creditworthiness and access to working capital, that allow businesses to take advantage of early payment discounts and invest in business growth opportunities. This strategic move not only updates your choices for financing needs but also aids in maintaining a healthy cash flow, which is essential for new business ventures and established entities looking to scale. By choosing to factor your invoices, your company can navigate the complexities of traditional financing hurdles, update your financial strategy, and confidently secure a profitable future. To take the next step, request a free rate quote for your business.