What is Invoice Factoring and How Does It Work?

Acquiring funding so your business can facilitate growth can be a challenging task. Inadequate funding may limit your ability to realize growth expansion goals such as expanding your product line, implementing marketing campaigns, or hiring additional employees. Invoice factoring is a useful tool that can improve your business’s cash flow. so you can accomplish your goals. 

Kickfurther is an innovative inventory financing platform that offers businesses an alternative way to access funding when conventional sources are unavailable. It connects businesses with third-party partners to provide the necessary funds to manage their inventory.

By linking brands to a network of buyers who are eager to contribute funds for inventory, we offer business owners the freedom to reimburse the borrowed amount as they receive cash from their sales.

With higher funding limits,  Kickfurther allows you to sell new inventory before paying for it. You can retain control and choose flexible payment options while receiving up to 100% of the funds you need. This eases the cash flow pinch so your business can scale quickly allowing for financial flexibility to expand your inventory.

What is invoice factoring?

Invoice factoring involves selling your accounts receivable at a discount to a third party, which retains a percentage of the original invoice amount. The decision to provide you with invoice factoring is based on your accounts receivable values and invoices. You select which invoices to include in the factoring process. The factoring company then collects payment on your invoices from your customers. This is a faster way to get working capital than waiting for loan approval from a bank. 

How does invoice factoring work?

Invoice factoring can provide fast, needed capital to cover a gap due to slow-paying customers. Invoice factoring is unsecured credit so it doesn’t require collateral It is better for B2B customers instead of those who sell or work directly with consumers.
Factoring solves cash flow obstacles during slow periods, especially for businesses with slow-paying customers and limited resources. 

Benefits of Invoice Factoring

Several benefits of invoice factoring include:

1. Improved Cash Flow: Invoice factoring offers a quick and effective solution for business owners to access fast cash, which can help ease financial limitations and provide funding for day-to-day operations, like paying suppliers, employees, and other expenses.
2. No Debt Incurred: Invoice factoring differs from traditional loans because it is not a loan, and does not create any debt on the balance sheet. Instead, it is a sale of accounts receivable, which allows a business to get needed capital without accruing extra debt. Banks can provide loans but the process is often more time-consuming and cumbersome. 
3. No Collateral Required: Businesses can get the funding they need without having to put up any assets as security because invoice factoring does not require collateral.
4. Flexibility: Invoice factoring is a flexible financing option that can be customized to meet the specific needs of each business. Business owners choose which invoices to factor in, which means they control the amount of funding they receive and when they receive it.
5. Improved Credit: Invoice factoring can help businesses improve their credit by providing them with a reliable source of cash flow. This helps business owners pay their bills on time, improves their credit rating, and makes it easier to access future financing.
   
6. Time-Saving: Invoice factoring saves businesses time and resources by outsourcing accounts receivable to a  factoring company. This frees up time for businesses to focus on other areas of their business that need attention.
   Easy Qualifications: Invoice factoring usually involves a quicker and easier process than a traditional bank loan. Your clients need to meet specific qualifications but your requirements are often minimal.
   

Invoice Factoring vs. Inventory Financing

Instead of selling your invoices to a factoring company, inventory financing uses your inventory as collateral to get a cash advance. The business owner is responsible for collecting payment on the invoices. 

Inventory financing is a way to handle delayed payments from customers and access immediate cash, avoiding cash flow problems. Companies and startups seeking a faster route may also prefer to avoid the traditional loan process. 

While invoice factoring may cost more than other types of financing, some business owners prefer the assurance factoring provides when they want to get funding quickly. Invoice financing usually has a lower fee than invoice factoring. 

Companies with limited funds often need to make short-term decisions that could restrict their options or opportunities. Both small business inventory financing and invoice factoring provide cash flow solutions to overcome financial constraints.

By using both inventory financing and invoice factoring simultaneously, a business can access funds at different stages of the cash flow cycle.  They can use invoice factoring to obtain funds when they need to pay their suppliers and subsequently use inventory financing to buy more inventory and meet other expenses. Using both will ensure the business has the necessary capital to operate and grow. 

How to Leverage  Invoice Factoring for Cash Flow Management

If your business is experiencing a cash flow crunch then invoice factoring may be one way to fill a short-term gap in funding. Factoring involves selling the value of your outstanding invoices to a third-party company before your customers pay them. By doing this, you will generate immediate cash instead of having to wait until your customers pay you. The factoring company also manages all collections,

Leveraging Inventory Financing in Conjunction with Invoice Factoring

Combining inventory financing and inventory factoring can be a winning strategy. for a business that is struggling to generate cash flow and purchase inventory. A recommended approach is to combine inventory financing and inventory factoring to optimize the benefits of both. This approach can help businesses acquire the funding required to purchase inventory, meet customer demand, enhance production capacity, and facilitate long-term expansion.

Inventory financing provides businesses with the funding they need to purchase inventory. It can assist businesses in meeting customer demand, increasing their production capacity, and achieving sustainable long-term growth by providing them with the necessary funding to purchase inventory. This type of financing can be beneficial for businesses that need to purchase inventory but don’t have the cash on hand to do so. It is a form of asset-based lending that uses the inventory as collateral for the loan. When a business secures inventory financing, it can use the funds to purchase inventory from its suppliers. 

Tips for Choosing the Right Invoice Factoring Company

• Find a reputable and experienced factoring company.
• Check the company’s ratings and reviews on websites and forums. 
• Make sure the company specializes in your industry or business type.
• Ask for references and contact them. 
• Understand associated fees and make sure the company is transparent and reasonable. 
• Consider the factoring company’s flexibility and willingness to work with your specific needs. 
• Select a factoring company that uses modern technology and tools to manage your account and save time.
• Ensure the factoring company has a smooth, simple application process and funding timeline.
  

How Kickfurther can help

Kickfurther funds up to 100% of your inventory costs on flexible payment terms that you customize and control. With Kickfurther, you can fund your entire order(s) each time you need more inventory and put your existing capital to work growing your business without adding debt or giving up equity.

Why Kickfurther?

• No immediate repayments: You don’t pay back until your new inventory order begins selling. You set your repayment schedule based on what works best for your cash flow.
• Non-dilutive: Kickfurther doesn’t take equity in exchange for funding.
• Not a debt: Kickfurther is not a loan, so it does not put debt on your books. Debt financing options can sometimes further constrain your working capital and access to capital, or even lower your business’s valuation if you are looking at venture capital or a sale.
• Quick access: You need capital when your supplier payments are due. Kickfurther can fund your entire order(s) each time you need more inventory.
• Kickfurther puts you in control of your business while delivering the costliest asset for most CPG brands. By funding your largest expense (inventory), you can free up existing capital to grow your business wherever you need it – product development, advertising, adding headcount, etc.

Closing thoughts

By combining inventory financing and invoice factoring, businesses can get the best of both worlds. They can use inventory financing to purchase inventory and then use inventory factoring to get cash quickly to pay for that inventory. This can help businesses improve their cash flow, boost their production capacity, and ultimately grow and expand their operations.

Whether you are considering invoice factoring, inventory financing, or both, It’s wise to evaluate which financial product is best for your business needs. Explore our Kickfurther website for more information about how we can help you find the funding you need.