Tag: factoring company

Maximizing Your Business Funding: Tips and Tricks
Did you know that just two in five small businesses that apply for funding are approved for all the funding they seek, according to the latest Small Business Credit Survey? Nearly a quarter are completely denied, and the rest land somewhere in between; in that awkward place where they get some of the cash requested, but not enough to do what they actually need to do. While this may seem grim, there are still lots of often-overlooked business funding tips and tricks. In this guide, we’ll walk you through what you can do before applying, while applying, and after funding to help ensure you get the most capital possible and maximize its use.

Business Funding Tips for the Preparation Stage

If you’re trying to improve your odds of getting a small business loan, start by ensuring your business looks like a responsible borrower on paper at least a few months before you begin applying.

Improve Your Credit Profile

Naturally, your credit score is a major deciding factor if you’re seeking traditional funding. Unlike personal credit scores that are managed by Equifax, Experian, and TransUnion, which range from around 300 to over 800, your business credit score can be anywhere from 0 to 100. You’ll still have different scores based on the credit bureau, but in this case, it will be Equifax, Experian, and Dun & Bradstreet (D&B).

To build small business credit:
- Register: Ensure you’ve selected a proper business structure and filed the paperwork to make your business a legal entity.
- Check Your Profiles: Check with each bureau to confirm the info they have about you is accurate and follow up on a regular basis to ensure it stays that way.
- Pay Bills Early: To get the best possible D&B score, you actually have to pay vendors and other creditors early, not just on time.
- Build Where You Can: Establish trade lines with your suppliers and leverage credit in small amounts that you can pay off quickly to begin building your score.
- Minimize Debt: Avoid taking on debt and reduce debt ratios whenever possible, so funding companies see you’re managing finances wisely and can afford payments.
Organize Your Financial Documents

Have clean, up-to-date records. Lenders and investors want to see tax returns, profit and loss statements, and cash flow forecasts.

Know Your Numbers

Build business financial literacy skills. This will help you improve your numbers and boost lender confidence. Explore key areas like tax planning, bookkeeping, budgeting, forecasting, and financial statement analysis.

Diversify Revenue Streams

Businesses with multiple revenue streams are typically more stable because they’re not reliant on a single area. If customer demand, supply chains, or other areas shift, you have something else to fall back on. Because of this, the perceived risk of lending to your business is often reduced, and you can often secure larger funding amounts.

Build Strong Banking Relationships Before Seeking Business Loans

It’s often easier to access lines of credit or negotiate terms if you build business relationships with key professionals like bankers before you need funds.

Funding Strategies for the Application Stage

Once you have a strong foundation, explore various funding options to find the right fit and start applying. The following tips will help improve your chances of success.

Match the Funding to the Need

Different goals call for individualized tools. Consider using lines of credit for short-term cash flow management, invoice factoring for similar purposes, as well as for slow invoices or seasonal cash flow concerns, and save term loans for equipment or expansion.

Apply For Small Business Funding Before You Need Working Capital

Explore working capital options before you’re in a bind and apply before you need funding. This serves two major purposes. First, your business will look better on paper when it’s financially strong, so you’re more likely to get approved and qualify for the level of funding you need. Secondly, this approach allows you breathing room to make informed choices. If you wait until you’re unsure if you can cover payroll or order supplies, you’re more likely to accept whatever terms you’re offered, even if they’re not great and won’t benefit your business in the long run.

An option like small business invoice factoring is often ideal in these situations, as you can get approved and ensure funding is available ahead of time, and then not use it or pay any fees unless you actually factor an invoice. This can help you manage costs better and speed up the funding timeline if you face an unexpected expense or hit a bump in the road later.

Have a Professional Business Plan

A well-written plan with market analysis, financial projections, and an outline of how you plan to use the funds speaks to your professionalism and demonstrates that any money invested in your company will be well spent, which boosts the confidence of lenders and investors. Alternative funding companies also appreciate seeing business plans.

Explore Alternative Funding Options

By default, most businesses turn to bank loans for funding. However, approval rates are even lower for traditional business loans than other options, with two-thirds of applicants receiving denials, according to the Small Business Credit Survey.

Moreover, there are some nuances between “good debt vs. bad debt.” For instance, if taking on debt allows you to increase the net worth of your business or has future value, it often fits in the “good debt” category. But if it doesn’t add to your net worth or could potentially leave you with nothing to show for your payments, it’s likely in the “bad debt” category. When these situations apply, consider alternative financing.

That might mean using venture capital for startup financing or tapping into merchant cash advances (MCAs). However, it’s important to be mindful of how these choices impact your equity and profitability, as equity dilution may hinder your ability to make decisions, and MCAs tend to come with high costs.

Invoice factoring also fits into the alternative funding category, but it’s different because it’s not a loan, so there’s no debt to pay off, and it doesn’t reduce your equity. It’s an advance on your unpaid B2B invoices.

Keep Personal Finances in Good Shape

Many lenders still look at personal credit scores. Especially for small businesses, your financial habits impact perceived risk.

Maximizing Business Capital Post-Funding

At this stage, you’ve strengthened your financial position, applied for funding, and received at least some of the money you needed. Here’s how to ensure that cash goes as far as possible.

Use Funds Strategically

It can be difficult to stay focused on your business goals as competing priorities emerge. However, it’s essential to use your funds for their intended purpose. It may help to use a project management system like Wrike or Asana to break your big-picture goals into smaller milestones, so you always have your goals at the forefront of your mind and stay on track.

Burnout and decision fatigue can also lead to unnecessary spending. Delegate tasks whenever possible to ensure you have the bandwidth to oversee your business activities strategically.

Reinvest in Growth-Generating Activities

Prioritize return on investment (ROI). Invest your funds in areas that will help you maximize profitability, tap into business growth resources, or expand your business.

Monitor Loan Covenants and Triggers

Some loans have reporting or financial performance requirements. Keep up with them to avoid defaults or higher rates.

Track ROI on Every Dollar

Measure the effectiveness of your funding use. This can help you justify the need for funding later and adjust your strategy in real time.

Maintain Communication with Lenders and Investors

Transparent updates build trust, which makes renewals, extensions, and future fundraising much easier.

Maximize Your Business Funding with Invoice Factoring

Invoice factoring is unique, so it helps businesses in lots of different ways. For instance, it’s accessible, even to businesses that don’t have strong credit or are just starting out. This means you can use it as your core source of funding even if other avenues are closed.

While you’re using it, it can help you maintain healthy cash flow and engage in activities that boost your credit, which may make it easier to qualify for traditional bank loans and other credit-dependent funding options down the road.

Many businesses also leverage it to fill gaps left by other sources. For instance, if you need $100,000 to purchase equipment but only get a $50,000 loan, you can factor $50,000 worth of invoices to reach the total sum needed and start generating more revenue faster.

If you’d like to make the most of your business funding and explore invoice factoring, request a complimentary rate quote.
August 4, 2025
10 Common Myths & Misconceptions About Invoice Factoring
“Beware of the half-truth,” as the saying goes. “You may have gotten hold of the wrong half.” While the quote is certainly appropriate in many situations, it hits home a common issue experienced by small businesses looking for business funding. Many “facts” you read are half-truths, and some don’t have a grain of truth to them at all. So, if you’ve been looking for business funding, no doubt you’ve found more than your fair share of “half-truths” about getting funded from invoice factoring as well. Below, we’ll break down ten of the most common myths and misconceptions about invoice factoring, so you can make an informed decision about what’s right for your business.

Myth 1: You can only qualify if you factor all your unpaid invoices.

Many business owners shy away from factoring because they’ve heard that they need to factor all their invoices or all invoices for a specific client. There’s no truth to it at all.

Truth: Each invoice factoring provider is different, but most offer flexible terms.

Generally speaking, factoring companies don’t tie you down. You can factor a single invoice and then never factor again, factor all the time, or anything in between.

Myth 2: You have to pay fees upfront before factoring your invoices.

If you’re facing a cash flow shortfall, paying upfront fees may be totally out of the question and prevent you from seeking funding altogether.

Truth: The fee is covered when your customer pays their invoice.

When you work with an experienced factoring company that’s dedicated to service like Charter Capital is, you don’t pay any upfront fees. Instead, you receive most of the invoice’s value as an advance. A nominal fee for the service is taken when your customer pays its invoice, and the remaining portion is sent to you. That means you’re never out-of-pocket anything under a typical arrangement.

Myth 3: Factoring companies delay the collection process to maximize their fee income.

Think of it this way: the factoring company only thrives when your business is successful. The more you can put into your business and the more you grow, the more they stand to make by retaining you as a client. It’s in the factoring company’s best interest to minimize collection delays and keep you well funded.

Truth: Factoring companies accelerate payments.

Oftentimes, factoring companies go above and beyond to accelerate payments by making it easy for your clients to pay and helping you manage your back-office processes more efficiently.

Myth 4: Using an accounts receivable financing or factoring company is more expensive than traditional bank financing.

True, factoring companies may cost more than conventional bank financing. However, funding from invoice factoring is designed to give you much greater financial leverage than you could ever gain from a conventional banking relationship. The amount you pay for invoice factoring is typically based on the level of service you require from the factoring company in order to meet your business needs.

Truth: Factoring is an affordable source of business funding.

At Charter Capital, some of our factoring rates are as low as one percent. However, if cost is your primary concern, it’s best to start with a complimentary rate quote.

Myth 5: Customers might leave if they see you partner with a factoring company.

Small businesses are built on relationships, so, understandably, many business owners would worry about perception. Thankfully, that’s rarely a concern with factoring. Particularly in this day and age in which your business customers are accustomed to third parties like factoring companies performing treasury management services for their vendors, like you.

Truth: Customer invoices are managed much the same way you would with a bent on helping you provide better customer service.

Streamlined billing and more generous payment terms to your customers are seen as a benefit by customers. Moreover, businesses that leverage factoring are able to offer more flexible payment terms and can often take on more work, which leads to better service overall.

Myth 6: I won’t qualify for factoring because of my credit history.

Most forms of business lending have stringent requirements related to your credit history, time in business, and cash flow. Factoring is different.

Truth: The creditworthiness of the business paying the invoice is the primary consideration. Most business owners qualify.

When you work with a factoring company, they’ll look into the creditworthiness of any customers whose invoices you wish to factor and then determine if that business is creditworthy and how much credit can be reasonably extended.

Myth 7: Factoring invoices means you lose control of your company.

Given the way approval works, business owners sometimes take a leap and assume that factoring means they can’t choose who to work with or which jobs to accept.

Truth: Invoice financing can give you more control over your company by helping you stabilize your cash flow.

For argument’s sake, let’s say your factoring company tells you that one of your clients doesn’t have strong enough credit for their invoices to be factored. You can still accept work or orders from them. You simply might not be able to factor those particular invoices. But, that would mean you’re extending credit to a high-risk customer—someone you know may not be able to pay. Most business owners wouldn’t do that unless under extenuating circumstances. Some factoring companies like Charter Capital will go out of their way to understand the extenuating circumstances and arrange to accommodate your funding needs accordingly.

At the same time, factoring stabilizes your income. You’re less likely to have customers who can’t pay, and your income becomes far more predictable. That leads to easier budgeting and provides an edge when you’re strategizing your next business move.

Myth 8: Receivables factoring is only for struggling businesses.

One of the biggest benefits to factoring is that it provides business funding when a business would otherwise be denied a bank loan. You can qualify with bad credit, a short credit history, or even if your existing debts or excessive growth prevent you from qualifying for the loan you need. That sometimes leads people to believe that only companies in financial distress use factoring.

Industries with lengthy payment cycles, like oil and gas, often turn to factoring to maintain steady cash flow. Oilfield factoring enables oil and gas service companies to convert their unpaid invoices into immediate cash. This not only helps them cover operational expenses but also positions them for growth in a competitive market.

Truth: New companies and SMEs often use invoice factoring too.

According to the annual Small Business Credit Survey, a whopping 30 percent of businesses with financial needs don’t even bother applying for loans because they’re debt-averse, don’t think they’ll qualify, or for other reasons. Of those who apply and qualify, only about half receive the amount of funding they need. In addition, high-interest rates, unfavorable repayment terms, and insufficient funding amounts cause 20 percent to walk away from loans on their own.

While it may be true that it’s notoriously difficult to get a bank loan, these figures signify that about half of all financially sound companies still can’t get the funding they need—cash for growth, expansion, and everyday expenses.

Myth 9: It can take too long to see the benefits of factoring.

People who don’t understand how factoring works or how to leverage it properly sometimes think it’s a lengthy process because the business factoring needs to be approved, and the company paying the invoice needs a credit check before cash is disbursed.

Truth: Factoring is designed to help with short-term cash flow issues.

First, it’s important to note that the steps outlined above—approval, credit check, and payment—all happen very quickly when you work with an experienced factoring company and you have basic business documents ready. From start to finish, everything can be completed in a couple of days. When you work with a company like Charter Capital, you can get same day funding on the day you submit your invoice too. None of this is possible with traditional bank loans.

Secondly, factoring is designed to help with short-term cash flow issues. It’s a cash flow accelerant that reduces the time between completing work or delivering goods and getting paid.

Myth 10: Other business lines of credit or traditional bank loans are better.

Business lines of credit and bank loans are very different from factoring, so the benefits and use cases will be different too. Bank loan rates will often be lower, but traditional banks leave a major funding gap that factoring fills. Plus, factoring helps in ways that banks can’t or don’t.

Truth: Factoring is a better solution for many small and midsize businesses.

Factoring may be the better solution for you if you:
- Need fast approval.
- Want same-day cash.
- Need flexibility
- Won’t qualify for a bank loan.
- Are a fast growing company and need greater financial leverage/ funding than a traditional lender can approve.
- Don’t want to take on debt.
- Appreciate a streamlined back-office solution.
Work with the Best Factoring Company: Charter Capital

With decades in the industry, fast approval, and same-day funding, Charter Capital can get your business the cash it needs through invoice factoring. Request a free rate quote now.
May 14, 2021
How Invoice Factoring Can Help You Expand Your Business

Invoice factoring or accounts receivable financing is often leveraged by small businesses as a way to get the working capital necessary for expansion. However, if you haven’t heard of the concept before, you’re missing out on all the benefits a factoring company can offer. Below, we’ll break down the basics, so it’s easier to see if invoice factoring is the right tool to help your business grow.

Why Invoice Factoring Matters

Each working capital solution is appropriate for specific situations, and invoice factoring is no different in this respect.

Best for Small Businesses That Need Cash Fast

Most working capital sources take weeks or months to process and approve your application. With invoice factoring, you get fast cash. Small businesses can usually get cash within a couple of days or even on the same day if they’re working with a factoring company like Charter Capital.

Best for Startups Expanding Their New Businesses

Startups normally have a very difficult time qualifying for financing because they haven’t been in business long. Time in business is not a major factor in qualifying for invoice factoring, so it’s much easier to get approved.

Best for Business Owners with Low Credit Scores

When faced with denials on a business level, many small-business owners turn to their personal scores and creditworthiness to get business funding. However, roughly 39 percent of small-business owners qualify as “credit ghosts” according to the Miami Valley Small Business Development Center. That means their personal credit score is 620 or lower and they have a limited credit history or no history at all. It’s all but impossible to qualify for traditional financing with this background.

The problem is further compounded by the very steps business owners often take in light of their credit woes and capital shortcomings. A full 51 percent of successful entrepreneurs have willingly denied themselves a paycheck to keep their business afloat, per a Business News Daily report. More than a quarter held off on their own pay for two to six months, while an almost equal portion went six months without an income. Meanwhile, CNBC reports that 21 percent use their personal savings. These things essentially lock in their status as credit ghosts, creating a cycle that drains their personal reserves and diminishes their personal creditworthiness even more.

However, invoice factoring doesn’t rely on personal credit and allows business owners to tap into cash without using their personal savings or trapping them in debt. This makes it easier to qualify and gives the business owner a leg up in establishing good credit, a twofold solution to this common business problem.

Why Would a Business Use Factoring?

Businesses use factoring to address a multitude of situations.

Cash for Expansion

Sometimes companies use their invoices to get the cash they need to purchase another location, tap into a new market, or expand in other ways.

Payroll and Other Daily Operational Expenses

Because payroll is often the greatest expense for small businesses, organizations often use their invoice advances to cover it and ensure their teams and employees are paid on time, even if customers aren’t paying in a timely manner. For example, staffing factoring is frequently used by staffing agencies to maintain steady payroll funding without waiting for client payments.

PPE

Businesses today are coping with a major unexpected expense—personal protective equipment (PPE). Although most don’t have a budget for purchasing things like masks, or even extra disinfectant, they’ve fast become a mandatory business expense.

Inventory and Supplies

Virtually all businesses must purchase goods from suppliers, including raw materials which are turned into an end product ready for sale or supplies, like fuel and printer paper. You can tap into your unpaid invoices to get cash for any of these vital purchases.

Equipment

From manufacturing equipment to trucks and tires or even office computers, invoice advances can supply the funds and provide a good financing option.

Paying Off Debts

Most business funding options rely on debt—you borrow money and then pay it back with fees and interest. When you’re working with a factoring company, there’s no debt to pay back, so it can be a good way to pay off high-interest loans or other debts with excessive fees.

Marketing

We talk about the importance of marketing in Top 7 Reasons Why Startups Fail. Suffice it to say, it’s important to keep up with your marketing efforts if you want your company to grow. Many organizations use the cash tied up in their invoices to enhance their marketing efforts, so they can build a healthier business.

Securing Better Deals or More Work

Oftentimes, vendors will offer better deals to companies that place larger orders or pay in advance, but you’ll need to have working capital at the ready to lock in a deal. Leverage invoice factoring for a quick cash flow injection.

Offering Better Payment Terms to Win More Business

When you know that you’re going to get paid promptly regardless of how long the customer takes, you’re free to provide better terms, such as a more competitive bid or a longer repayment term. Factoring will allow you to do this, so you can improve customer satisfaction and win more business.

How Invoice Factoring is Being Used to Improve Cash Flow

What are the benefits of invoice factoring? Invoice factoring works by providing you with an instant cash payout for your outstanding invoices. It shortens the length of time between performing work or delivering goods and getting paid for your efforts. That way, your cash flow is consistent, and your business operations aren’t held back by slow-paying customers.

Small Business Can Use Invoice Factoring as an Alternative Financing Option to Loans

Small business factoring is an ideal alternative to business lending in many situations, particularly when cash advances are required quickly. As demonstrated earlier, it works when businesses or business owners don’t qualify for traditional small business loans. However, it’s also beneficial when the organization simply doesn’t want to take on more debt. That might be true if you’re trying to build your credit in advance of a loan application or are trying to minimize your debt ratio for other reasons.

One of the primary benefits of invoice factoring is its flexibility across various industries. For example, security factoring helps security guard firms maintain stable cash flow to cover payroll and operational costs, allowing them to focus on providing top-notch security services without the financial strain of waiting for customer payments. This industry-specific approach demonstrates how factoring can be adapted to meet the unique needs of growing businesses.

What Are the Disadvantages of Invoice Factoring?

With so many benefits to invoice advances, it might be hard to see the downside. However, it’s worth noting that it’s not right for every situation.

You Must Submit Each Invoice to the Factoring Company to Obtain Funding

When you work with a factoring company, it’s usually up to you to decide which unpaid customer invoices to factor and when to factor them. That’s usually a good thing because it means you can process all your other invoices as you normally would and only leverage factoring when you have immediate cash needs or when you know a client will pay slowly. However, the flip side of this is that, to obtain funding, you do need to send your factoring company each invoice you want to factor.

Your Factoring Company Will Have Contact with Your Customers

The factoring company has the right to communicate with your customers to collect the invoices and to make sure all is OK. Most organizations are familiar with third parties in billing, so it’s generally not an issue, but it is worth mentioning. Make sure that when you select a factoring company, you choose one that is known for its customer service and its ability to work with you and your customers.

How Much Does Factoring Invoices Cost?

We dig into the cost of factoring a bit more on our website, but the short version is that it depends on things like the volume of invoices being factored, the total value of factored invoices on a monthly basis, and how long it takes your customers to pay. Charter Capital prides itself on offering some of the most competitive rates in the industry, with some factoring fees as low as one percent.

Get a Complimentary Rate Quote

If you think invoice factoring might be right for your small business, start with a complimentary rate quote from Charter Capital.

April 9, 2021
How to Finance an IRS Business Lien by Factoring

Already have an IRS business lien or worried the government will file one? Often the result of unpaid payroll taxes or other tax issues, liens can stall business growth and make it much harder to pay debts no matter how diligent or dedicated you are. We’ll break down what business tax liens are, why they happen, and how invoice factoring can help below.

What is a Business Tax Lien?

When the government determines that a business taxpayer owes and has concerns it won’t pay, one of the tools in its arsenal is to have a lien placed on the business and its assets.

If you’re a property owner with a mortgage, you probably already have a lien against your property. In these situations, your mortgage company will file a lien when they fund your purchase. The lien indicates the bank or lender is prioritized over other creditors where the property is concerned and grants it certain rights. For example, the bank gets the first claim on funds when you sell your home. The lien also allows the bank to act if you don’t make good on your payments, which can include seizing the property after certain processes are followed.

An IRS business lien works similarly. It’s the IRS’s way of saying the agency is prioritized over other creditors where your business is concerned and grants it certain legal rights. However, it’s not limited to just the business property. It covers all the company’s assets from the equipment through accounts receivables.

A federal tax lien is a legal claim that attaches to your business’s property, including any real or personal property, and becomes a matter of public record, which can severely damage your business credit and limit your ability to get new credit or sell the business.

When Does the IRS File a Business Lien?

The IRS does not generally file a lien right away, even with delinquent taxes. The agency has a process it follows that involves trying to work with you and get you on a payment plan before moving forward with a lien. Your best opportunity to correct the problem is during this window before a lien is placed. However, if you don’t comply or can’t meet the agency’s demands, and the IRS notifies you that a lien is being filed, you still have options.

Once the IRS files a public notice of lien, the lien attaches to all current and future business assets. If you’ve already paid or resolved the tax debt, you may be able to request a lien release using Form 12277.

How Does a Tax Lien Affect Your Credit?

On one hand, a lien means you can’t readily sell business assets. Unless specific steps are taken, the government’s claim to an asset remains even after it’s sold. This means that the government can still seize the asset regardless of who possesses it, even though the other party is not responsible for the debt.

This alone excludes you from asset-based lending options. Your receivables are considered assets, and the government is first in line for them. They can’t be used as collateral because the IRS would get them first.

Additionally, these types of liens raise red flags that other liens, like the one on your home, don’t. They signify financial distress. So, you probably won’t qualify for traditional bank loans either. It’s too risky for the finance company as it will have no recourse if you default because, again, the IRS comes first.

It’s also worth noting that IRS liens may stay in place even if the business files bankruptcy, so small business owners often prioritize paying the agency when push comes to shove. If a lender is willing to extend credit despite this, the fees charged are likely to be much higher than normal to compensate for the additional risk.

How Factoring Can Solve Business Tax Problems

Tax professionals can help you strategize and negotiate with the IRS, so it’s a good idea to consult with a specialist if you’re struggling. However, one solution they routinely recommend is factoring.

Think of invoice factoring like a cash advance on your unpaid B2B invoices or a form of receivable financing. It eliminates the wait for payment and gives you a quick injection of working capital. With that in mind, factoring can help you during the window before a lien is filed and assist you after too.

For example, let’s say the IRS sends you a notice of federal tax lien—a final notice explaining that you have ten days to pay off your balance or get it below $25,000 or it intends to file a lien. You’d love to, but your customers aren’t going to pay you for at least 30 days, and there’s no way you’re getting a traditional bank loan within ten days. You simply go to a factoring company and request an advance, then pay the IRS immediately. You’ve now avoided the lien entirely and are free to move forward.

Or, let’s say the IRS has already filed a lien, and your business is struggling. You’ve got payments to make to the agency and overhead to cover. You’re working as hard as you can, but cash flow is sluggish. At this stage, a factoring company can’t just jump in because the IRS now has first place on your customer invoices. However, IRS may consider subordination. Suppose you can demonstrate that the lien is damaging your ability to repay and demonstrate how factoring will help. In that case, the IRS may agree to take second place on your receivables and allow the factoring company to come in first place. Sometimes, the factoring company can even make payments directly to the IRS, alleviating any concerns it may have about non-payment. With the cash advances you receive, you can pay the IRS and level up your business by adding in more staff, purchasing materials and equipment, or accepting more work, so you can get your tax issues taken care of even faster and have a healthier business in the long run.

It’s also worth noting that the approval process for factoring is fast and easy compared to business loans. Even if your credit history isn’t great because of IRS issues or payment history, you can still qualify because factoring companies are more concerned with your customer’s ability to pay their invoice than your credit score.

What is the Invoice Factoring Process?

Factoring is simple. You simply choose which B2B invoices you’d like advances on and submit them to the factoring company. The factoring company then provides immediate payment for a portion of the invoiced amount—usually 80 to 90 percent of the invoice’s value (even higher for some industries) —and then waits for your customer to pay. When the final payment comes in, the factoring company sends you the remaining amount, minus a nominal fee for the service.

What Kind of Industries Benefit Most from Using a Factoring Company?

Factoring works for all kinds of businesses in the B2B sector. Businesses that leverage it most tend to be those with lengthier invoicing terms, those with seasonal shifts or other issues that contribute to cash flow problems, and those with significant expenses before completing an order or work that need to be covered to keep generating revenue. For businesses managing tax liabilities or dealing with financial obligations like IRS liens, factoring can offer a clear path to maintaining operations while reducing the impact of money owed.

Trucking & Freight Services

Factoring is a favorite for the trucking industry because trucking companies typically must pay their drivers in advance of receiving payment for their invoices. Also, carriers have fuel and equipment-related expenses that must be covered before drivers can hit the road. It can take months after a load is complete before payment is made. Factoring companies that serve trucking and freight businesses can provide payment as soon as a load is complete, so the business can cover the cost of taking on the next load. At Charter Capital, we also provide perks like fuel cards for trucking companies, so they save even more money.

Freight Brokers

Freight brokers are in a similar situation. They’re waiting for shippers to pay, but they need to get carriers paid promptly, or they may stop accepting work. With factoring for freight brokers, the factoring company pays the invoice right away and can even send cash directly to the broker or carrier as part of a QuickPay program.

Staffing

Staffing companies find talented people, vet them, and place them. When you add the time for invoicing and waiting on payment, months can pass before the company sees a return on their investment. With staffing factoring, when a staffing company chooses this method, they get paid right away, so they can keep searching for talent and pay employees promptly. Many also appreciate that factoring relieves them of the collections process, so they’re free to focus on the business.

Manufacturing

Oftentimes, manufacturing companies use factoring to cover the contract’s initial expenses, like purchasing supplies and equipment. However, many use it to speed cash flow during slow periods and cover operating costs like payroll.

Security Firms

Similar to staffing companies, factoring helps security firms find talent and cover payroll. Both may use their factoring cash to fund acquisitions and negotiate discounts with suppliers too.

Oil & Gas Services

Companies in oil and gas use oilfield factoring for a wide variety of things. Because they often support large corporations that can take ages to pay, the streamlined receivables process allows them to cover their daily expenses, grow, and position themselves more competitively.

Consulting & Service Firms

Like many of the others outlined here, consulting and service firms choose factoring to cope with delays between the output of their expenses and final payment from a customer. They often put the advances to work, covering recurring expenses, growth, marketing, and getting debts paid off.

Solve Your IRS Issues with Factoring

As a leading factoring company with experience helping businesses cope with their IRS troubles, Charter Capital can walk you through the process and your factoring options. To kick off the process, request a free quote.

Disclaimer: The author of this article, Charter Capital, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

March 17, 2021
Important Questions to Ask Before Signing a Factoring Agreement
Invoice factoring is a great way to get immediate cash flow, but much of your experience depends on the factoring company you choose. We’ll explore the basics of the factoring process below and highlight a few questions you can ask as a small business owner to help ensure you choose the best invoice factoring company and build a stronger business in the process.

Familiarize Yourself with Invoice Factoring Before You Begin

Known interchangeably as accounts receivable financing, invoice factoring is a distinct mechanism compared to other business funding solutions and transactions. Instead of waiting weeks or months for clients to settle their outstanding invoices, invoice financing companies can purchase your invoices and disburse the cash instantly

How do factoring companies make money?

Factoring companies usually only advance a portion of the invoice’s value upfront. The amount varies depending on your industry and other considerations, but it’s usually between 80 to 90 percent and can be even higher for transportation and staffing industries. When your customer pays the factoring company for the invoice amount, the factoring company deposits you the remainder, minus a factoring discount fee, which the company retains as payment for their services.

What is a factoring fee?

Factoring fees are usually represented as a percentage of the total invoice value. The amount charged will typically be a few percent. However, factoring rates vary based on the factoring company you choose, how long it takes your customers to pay, and how large your company is. Depending on the circumstances, some of the factoring fees at Charter Capital can even be lower than one percent. If you’d like a detailed breakdown of how much invoice factoring costs and how factoring fees are calculated, refer to our factoring cost breakdown for small businesses.

Do banks do factoring?

Banks are geared toward providing loans, which earns them payments for fees and interest. Since factoring isn’t a bank loan—you don’t borrow and don’t have a debt to pay back—it’s not a service banks typically provide.

Get to Know Each Factoring Company

Factoring companies all work a bit differently. You can do a bit of research before you connect with one to determine if your time will be well spent.

What kind of reputation does the factoring company have?

The best source of information is often customer testimonials when it comes to gauging a factoring company’s reputation. Have a look around the net to see what people are saying about any firm you’re considering. At Charter Capital, we make it easy by sharing factoring reviews on our website.

What services do they offer?

Even if a company’s sole focus is invoice factoring, they may provide additional services to help you build a stronger business. For example, Charter Capital offers fuel cards to freight factoring clients. Similarly, companies specializing in staffing factoring can provide tailored solutions to help staffing agencies meet their unique payroll funding challenges, ensuring consistent cash flow for weekly or bi-weekly obligations. For businesses in the security industry, specialized solutions like factoring for security companies ensure consistent cash flow to meet operational needs such as payroll, enabling companies to thrive in a competitive market.

By partnering with the right factoring company, businesses in various industries can access not only cash flow solutions but also industry-specific perks that simplify operations and support growth.

Top 10 Questions to Ask Prior to Signing a Factoring Agreement

Getting answers to the right questions before signing a factoring agreement will help ensure you choose the right one and know what to expect. Ask the ten questions below to any factoring company you’re considering so it’s easy to see which one is right for you.

1. How quickly can I get funding?

The timeline is different for each company, though a few business days is fairly standard. Charter Capital provides same-day funding upon request.

2. What kind of customer service do you offer?

It’s easy to feel like a number when you work with a large factoring company. However, you’ll have a dedicated account manager when you partner with Charter Capital. This person will be your main point of contact and will assist you as needed on an ongoing basis, so you’ll be working with someone who’s not only a factoring specialist but who also knows you and your business well.

3. Does the factoring company provide credit protection?

The level of credit protection you receive will vary from one company to the next too. At Charter Capital, we are interested in the creditworthiness of your customers, so we perform credit checks on them to verify they’re creditworthy in advance. That way, the likelihood of non-payment default due to bankruptcy is diminished, your cash flow remains steady, and your credit is protected.

4. How much is advanced?

Factoring companies usually advance 80 to 90 percent of an invoice’s value, which can be even higher for transportation and staffing. Naturally, the greater the advance, the bigger the cash flow boost your business receives.

5. What are the rates and fees?

Factoring fees covered earlier are only one expense a factoring company may charge. While Charter Capital makes a point of providing transparent pricing, be on the lookout for commonly hidden fees such as:
- Application and Startup Fees
- Servicing Fees (Also Called Administrative or Maintenance Fees)
- Invoice Processing Fees
- High ACH and/or Bank Wire Fees
- Monthly Minimum Fees
- Audit Fees
- Minimum Fee Per Invoice
- Check Clearing Days
- Termination Fees
- Penalties
These types of fees can make an otherwise low appearing factoring rate much more expensive than it would otherwise appear.

6. Do you manage accounts receivable for me?

It’s usually a nice benefit when a factoring company handles your accounts receivable for you because it frees you from chasing payments. It’s even better if they offer perks to your customers, like multiple payment options, as it boosts customer service. Also, make sure to discuss what type of contact the factoring company will have with your customers. Check the factoring company’s reviews and make sure you are comfortable that any customer contact will be handled in a professional way.

7. How are credit checks carried out?

If the factoring company runs credit checks on your customers before accepting their invoices, find out what the process is like. At Charter Capital, the process is quick and free, but this isn’t always the case with other companies.

8. What are the invoice factoring requirements?

The terms will vary for each company. Find out whether you can choose which invoices you want to factor, or if you’re required to factor all your invoices. You may also need to ask this on a per-client basis, whether you’ll need to factor all invoices for a specific customer or if you can choose only certain ones.

9. What is the contract period?

Some companies tie you into long-term contracts. Make sure you understand what your obligations are and choose a company that fits your needs.

10. What other services and support do you offer?

Dedicated account managers and free credit checks are things Charter Capital offers to all our clients. We also have industry-specific perks. For example, trucking companies may qualify for fuel advances and fuel cards. Freight brokers can do carrier Quick Pay too. Always ask what other services a factoring company provides, so you can maximize the benefits and get the most out of your relationship.

Connect with Charter Capital and Get a Free Rate Quote

If you have any remaining questions about factoring, factoring agreement, or how Charter Capital can help, our team is happy to assist. Simply provide us with a few details about your business, and we’ll be in touch with a complimentary rate quote promptly. Begin your journey with us now, and discover how invoice factoring services can provide cash flow solutions and maximize the benefits of factoring for your business.
January 18, 2021
Invoice Factoring vs Traditional Bank Loan – Which is Best for Your Business?
Not sure if a factoring company or a bank is right for your small business? Both can provide your company with working capital and help you cope with cash flow lulls, but factoring helps in ways loans don’t and can fill gaps left by traditional lending too. Below, we’ll break down how they’re different, what some advantages of factoring are, and go over a few scenarios when factoring might be more ideal than a bank loan.

How is Invoice Factoring Different from a Short-Term Business Loan?

Sometimes referred to as receivable financing, factoring involves selling your unpaid B2B invoices to a third-party, known as a factoring company. The factoring company provides you with immediate payment for the invoices and then waits for the customers to pay them.

A few of the things that make accounts receivable financing different from a loan are:
- There’s no debt. Because you’re not borrowing anything and your customers are ultimately responsible for paying their invoices, thus paying the factoring company back, there’s no non-recourse debt for your company to pay.
- Payment is faster. Companies like Charter Capital can provide you with same-day funding, unlike banks, which can take weeks or more to fund a loan.
- There’s greater flexibility. You can pick and choose which invoices you’d like to factor and how often you want to factor.
- It’s easier to get a qualification. Since credit checks and a minimum credit score aren’t as important compared to traditional loans. Your history and personal credit score are less of a concern because your customers are the ones responsible for repayment by virtue of paying their invoices.
Times When Factoring Services May be Better Than a Traditional Bank Loan

Given the benefits mentioned above, there are many times when factoring might be more ideal than a bank loan. A few common situations are outlined below.

You Have Slow-Paying Clients

As long as you’re invoicing customers after work is performed or goods are delivered, there will always be a payment gap. The problem is, sometimes customers can take weeks to pay their balance and still be within the letter of their contract. Factoring closes the gap for you and can work whether all your clients are sluggish or if you have a single customer who always seems to put your invoice off as long as possible.

You Want to Improve Cash Flow

Sometimes, the gap between completing work and getting paid isn’t a huge deal, but if a cash flow lull is preventing you from growing or paying your bills, it’s essential to address the issue. Factoring is a simple, no-debt cash flow solution.

You Require Liquidity to Take Advantage of a Discount

Venders often offer discounts based on volume or the ability to pay cash upfront. Factoring can provide you with the cash you need to take advantage of discounts and special pricing that will save you money.

You’re Unable to Qualify for Loan or Line of Credit

As Harvard researchers have pointed out, banks typically have the same overhead for large loans as they do for small loans. There’s minimal benefit for them to offer smaller ones because they’re not going to earn as much profit. With that in mind, banks typically start at $100,000 or $250,000 loans, but most small businesses need less than $100,000. Even well-qualified small-business owners don’t always make the cut because the profit margin is too small for a large bank to bother. Factoring companies are geared toward filling funding gaps like these, so it’s easier to get approved.

You Have Debt Covenants with Other Lenders

Debt covenants are rarely spoken about, but they can really throw a wrench in small business finances. In short, lenders can throw all kinds of stipulations into a contract. For example, they may require that you maintain a certain cash flow level or forbid you from taking out other loans, and companies usually have penalties for violating these debt covenants. They may raise interest, charge fees, or even demand immediate repayment in full.

If you have a loan with another company, you’ll need to check your contract to see which debt covenants apply and what the penalties for breaking them include. However, factoring is usually a safe bet that allows you to boost your cash flow as needed.

Your Credit History is Less Than Perfect

Although your factoring company will likely look into your credit history and business details, you aren’t the one paying the invoices—your customers are. Therefore, the factoring company will be more concerned with the history of your customers. You can qualify even if your credit history isn’t great.

You Have Recent Bankruptcies

You can almost forget about a bank loan of any kind if you or your business has recently been through bankruptcy. Again, though, factoring isn’t focused on your history, so bankruptcy isn’t a problem.

You Need Access to Cash Quickly

It can take weeks or months to get approval for a bank loan. With factoring, the approval process is incredibly fast, and you can get funding on the same day you submit your invoices.

How Much Does Factoring Cost?

Every factoring company will have different rates, and the rate you’re quoted will vary based on things like volume, the total dollar value of the invoices, and the length of time it takes your customers to pay. At Charter Capital, we take great pride in offering competitive rates to ensure your receivable financing more than pays for itself. Some of our factoring fees are as low as one percent.

Which Industries Use Factoring?

Generally speaking, factoring can be used by all B2B companies. So, if your business bills other businesses for goods and services after they’ve been delivered, it can work for you too. However, a few industries leverage it more often than others.

Freight

In trucking and freight services, it’s common for the business to wait 30-90 days for payment. That’s not always feasible for small trucking companies, let alone owner/ operator firms. Factoring companies are a huge help here, allowing truckers to keep their wheels on the road and keep running loads without worry about delayed payments. At Charter Capital, we also help freight brokers. Our expertise in transportation and logistics gives the companies we serve an extra edge.

Construction

Subcontractors are often in a tight spot. Supplies need to be purchased, and projects need to stay on track to meet deadlines, but unpaid invoices can leave firms without the capital necessary for either. Invoice factoring eliminates that cash flow gap, so that construction can continue without delay.

Real Estate

Sometimes referred to as a real estate commission advance, factoring helps agents and brokers shorten the gap between the time a sale is agreed upon and the day payment is made. Given that closing can take weeks or months depending on the number of hiccups, the advance helps ensure real estate professionals have access to working capital to apply to things like marketing so that they can move onto the next big sale uninhibited by the wait.

Staffing

Staffing agencies naturally have immense payroll costs and their own overhead to manage but often wind up waiting months after they’ve paid employees to receive payment from their clients. Factoring for staffing agencies helps meet these types of short-term needs and can also provide capital for bringing on additional employees.

Oil and Gas

Landing a contract with a large energy corporation can be a significant achievement for an oilfield service company. However, these big corporations often have lengthy invoice approval processes that require multiple approvers and weeks of waiting. With Oilfield Factoring Services, the cash comes in quickly, providing working capital for equipment, payroll, and other business needs.

Connect with a Leading Factoring Company to Help Increase Your Cash Flow

If your business is struggling with cash flow or needs a quick capital injection to fuel growth or cover an urgent expense, accounts receivable financing may be your ideal solution. Contact Charter Capital for a complimentary rate quote.
January 4, 2021
6 Ways to Compare Factoring Companies & Find the Best One

Getting ready to compare factoring companies? As with any financial product, it’s essential to become familiar with factoring and how terms differ from one provider to the next. Below, we’ll break down some of the most-asked questions people have when comparing factoring companies, areas to explore with each factoring company, and traits to look for as you make a decision.

Getting Started

Factoring can give your business an immediate cash injection by tapping into your unpaid B2B invoices. Often thought of as a type of accounts receivable financing, invoice factoring differs in that you’re not taking out a business loan, but rather, are essentially selling your unpaid invoices to the factoring company at a discount. After the factoring company pays you, they assume responsibility for collecting payment from your customer. That in mind, you can think of it as a no-debt cash flow solution intended to help with your organization’s short-term needs.

Do banks do factoring?

Banks offer accounts receivable financing, but they don’t generally offer invoice factoring services. Instead, they usually provide loans that leverage the invoices as collateral. You’re still responsible for chasing your invoices and you’ll pay the bank back over time with installments that include interest.

Can you have more than one factoring company?

You can only work with one factoring company at a time. The reason is fairly obvious—if multiple companies wind up giving you funds for the same invoice, untangling who gets paid would be a mess. This aspect is governed by the Uniform Commercial Code (UCC) which stipulates that a factoring company must file a UCC-1 financing statement when you enter into an agreement with them. The form essentially says that, as a financial institution, your factoring company has an interest in your “property,” which, in this case, is your invoices. It prevents other financial institutions from claiming rights to them. If you decide to switch factoring companies somewhere down the road, you can, but the new company needs to coordinate with you and your old company and file a new UCC-1.

Compare Each Factoring Company as a Business

Before breaking down the packages you’re being offered, evaluate each factoring company on the whole. Make note of details that distinguish the company, itself, from competitors, and whether they lead the pack with customer-friendly practices.

1. How long has the factoring company been in business?

Companies that stand the test of time usually have good track records for success and provide better factoring services. This is essential for you and for your customers, as the factoring company will become the face of your business in terms of collections. Reputable factoring companies have a long-standing history and proven track records, ensuring reliable service for your business.

2. Does the factor have clients in your industry?

Industry-specific expertise can ensure you’re getting a financial product that’s tailor-made for your niche and that the company understands your unique concerns. Oftentimes, invoice factoring companies specialize in a few key areas and build comprehensive solutions to serve that niche.

Industries like oil and gas have unique financial needs due to long payment cycles and substantial operational costs. Choosing a factoring company that offers oilfield factoring can provide specialized services tailored to these challenges. Such companies understand the intricacies of the oil and gas sector and offer solutions that improve cash flow, allowing your business to thrive even amidst industry-specific hurdles.

For example, one area Charter Capital specializes in is trucking and freight factoring. It means our representatives understand what carriers and freight brokers need, common payment terms in the industry, and provide other helpful services, such as fuel cards. There are unique features and benefits for each industry we support.

3. Can they handle your sales volume?

Factoring companies come in all sizes. Some may not have the ability to support your needs and you don’t want to find that out when you’re struggling with a cash flow issue and counting on your factoring company to come through. It’s also worth noting that you’ll generally pay less the more you factor, so selecting a company that can handle your sales volume can help ensure your costs stay low too.

4. Does the factor require minimum factoring fees?

Some companies tie you in with monthly minimums. For example, they may stipulate that you pay a certain amount each month regardless of whether you factor, or they may require you provide them with a certain volume each month. Small-business owners may look at these terms and think they’re doable, only to find their cash flow issues are reduced down the line and wind up paying for services they don’t really need.

5. Does the factor require a long-term commitment?

Don’t sign onto long-term contracts unless you really need to. As mentioned above, you may not need to factor for an extended period of time. Lots of businesses factor just to get through a seasonal lull, to get through an economic crunch, or to deal with an unexpected issue. Work with a company that lets you factor only the invoices you need to factor when you need to factor them.

6. Are the factor’s advance and fee structure competitive?

Get a general idea of advance rates and fee structures to ensure the company is competitive as a whole. For example, you’ll typically see advance rates ranging from 70 to 90 percent the invoice value and fees between one and five percent of the invoice value.

Pick the Best Factoring Company by Comparing Key Features

Once you evaluate factoring companies, you’ll want to take a look into the specifics of the package or product each of your leading choices offers. The best factoring company for your needs is likely to stand out.

Recourse vs non-recourse

Find out who is responsible if a customer doesn’t pay their invoice. Your factoring company will examine your customer’s creditworthiness, and thus likelihood of paying, prior to agreeing to factor an invoice, so non-payment is rare. However, in the event someone does skip a bill or go bankrupt, you’re ultimately responsible for their debt with recourse factoring. With non-recourse factoring, the factoring company assumes responsibility for the debt, though it’s usually in exchange for higher fees and/ or reduced advance rates.

Flexibility

Watch out for minimums and long-term contracts. Factoring is generally thought of as a short-term solution. Although large well-established companies may use it from time to time to avoid taking on debt while sorting out a cash flow issue, it’s more often leveraged by small and midsize businesses that eventually solve their cash flow issues or move onto bank-supplied solutions like lines of credit and term loans. If you’re tied into a minimum or a long-term contract, you could be forced to keep paying even when the model no longer suits your needs.

Factoring fees

Get an estimate to determine your actual rates so you can do a proper comparison. A lot of companies say they offer factoring fees of two percent or less, but your actual factoring fees will depend on a number of things, such as volume and the creditworthiness of your clients. You may not qualify for two percent even if its advertised. The same is true of advance rates.

Funding time

Find out how quickly you’ll get your cash and if there are additional fees for expedited service. Whereas some factoring companies offer same-day funding, others can take several days to a week or more.

Perks and value-added services

Explore what other benefits you qualify for by partnering with a company. As mentioned earlier, fuel advances are one way Charter Capital helps our trucking and freight clients. We also provide perks like free credit checks on your customers, 24/7 account access, and a dedicated account manager for clients in every industry, as well as other industry-specific perks.

Get a Free Rate Quote

As a leading recourse factoring company, Charter Capital provides competitive rates, flexible funding, same-day payment, and a wealth of perks, all with no long-term contracts. Explore how Charter Capital can help your business with a free rate quote.

September 30, 2020