Best Factoring Companies of April 2024
Updated March 26, 2024 at 11:54 am
Factoring companies may offer an appealing solution to both startups and established businesses that need access to funds quickly—so how does it work?
If a business has outstanding invoices less than 90 days old, it can sell them to a factoring company at a discount. The factoring company advances the business a lump sum based on the invoice value, then it goes to work collecting the outstanding invoice on behalf of the business. Once the factoring company collects the balance, it releases the funds back to the business while keeping a portion as a factor fee.
This can offer a solution to a startup or established business with less-than-perfect credit, since creditworthiness of a business isn’t a factor. It may also present a solution for cash flow since a business doesn’t have to wait on a customer to pay a receivable, which can take 90 days or longer.
As many benefits as this process might offer, a factoring company can be an expensive solution. The best factoring companies offer transparent pricing, quick funding and excellent customer service.
Methodology Our research is designed to provide you with a comprehensive understanding of personal finance services and products that best suit your needs. To help you in the decision-making process, our expert contributors compare common preferences and potential pain points, such as affordability, accessibility, and credibility.
Our Picks - Best for Highest Advance Rate: Triumph
- Best for Fast Funding: FundThrough
- Best for Multiple Industries: altLINE
- Best for New Businesses: eCapital
- Best for Flexible Factoring Terms: Riviera Finance
5 Best Factoring Companies of 2024
Best for Highest Advance Rate
Triumph
Why We Chose It
Triumph (formerly Triumph Business Capital) specializes in the trucking industry and offers up to a 100% advance rate. It also includes the MyTriumph web portal, so the business can track the status of every outstanding invoice in real-time and stay on top of outstanding factor fees.
Pros
- High advance rate of up to 100% in some cases
- Can monitor all transactions through the MyTriumph portal
- Same-day funding may be available
Cons
- Limited to the trucking industry only
- Doesn’t disclose all fee information on its website
- Must call to get quote for rates and discounts
Best for Fast Funding
FundThrough
Why We Chose It
Not only does FundThrough offer up to a 100% advance rate, it can offer funding in as little as a day. FundThrough uses advanced technology and its proprietary platform so your business can quickly set up an account and submit invoices for funding.
Pros
- Transparent fee structure, which ranges from 2.75% to 8.25% per invoice
- No credit check required
- Quick account setup thanks to its innovative platform
Cons
- Requires at least $100,000 in outstanding invoices
- Excludes construction and real estate companies
- Invoices must be less than 90 days old
Best for Multiple Industries
altLINE
Why We Chose It
Most factoring companies deal with specific industries, such as trucking or manufacturing, which can limit availability to others. altLINE works with a variety of industries, including staffing, oil and gas, manufacturing and commercial cleaning.
Pros
- Works with a wide range of industries, including startups
- Part of a reputable banking institution
- Offers advances up to 90% and discounts as low as 0.5%
Cons
- Must contact for quote
- May place restrictions on the amount of invoices and annual sales
- Slower funding timeline
Best for New Businesses
eCapital
Why We Chose It
eCapital doesn’t place restrictions on the amount of time in business in order to provide invoice factoring services. Instead, it places more of an emphasis on working with clients unable to get funding from traditional lending institutions.
Pros
- Offers non-recourse factoring
- Same-day funding available
- Offers advance rates on the value of accounts receivable of up to 100% for transportation, up to 95% for staffing and up to 90% for other industries
Cons
- Doesn’t disclose factor fees
- Charges extra fees for instant fund transfers
Best for Flexible Factoring Terms
Riviera Finance
Why We Chose It
Riviera Finance offers a range of programs for startups and established companies of up to $2 million in annual revenue, including short-term options and increased factoring as your company grows. The non-recourse factoring option means your business isn’t responsible for the collections or if the customer doesn’t pay their invoice obligations, taking pressure off so you can concentrate on growing your business.
Pros
- Offers non-recourse factoring to a wide range of industries
- Works with startups and established companies
- Offers up to 95% of invoice value
Cons
- Only offers quick funding for 30-day invoices
- Funding takes between four and seven business days
What Is a Factoring Company?
A factoring company is a financing partner that purchases another business’ outstanding invoices at a discounted rate in exchange for an upfront cash payment, or advance. Once the factoring company purchases the outstanding invoices, it then becomes responsible for collecting payments from the original customers. A factoring company must also verify the invoices and creditworthiness of the client who owes money before funding an advance payment to the seller.
Once the factoring company collects the receivables, it releases the invoice back to the seller, minus the factoring fee. A factoring company is not a lender, even though it offers an advance. Instead, it’s a financing company that offers a short-term funding option for businesses that need a quick cash infusion for a more stabilized cash flow.
How Invoice Factoring Works
The invoice factoring process begins when a business, also commonly referred to as the seller, sells its outstanding invoices to a factoring company. The seller does this in exchange for a lump sum cash payment up front. Factoring companies offer anywhere from 60% to 90% of the total invoice value, which is known as the advance rate.
The factoring company becomes responsible for the collection of the outstanding payments from the original customers. It collects the balance and then releases the funds back to the seller. However, the factoring company keeps a portion of the invoice, known as the factor fee, which ranges anywhere from 0.5% to 5% of the invoice value. Note, the percentage can be fixed or variable depending on the terms of the factoring company. The factor fee starts out as a certain percentage, but it increases with each week, and the fee isn’t paid by the seller.
Going through the invoice factoring process requires extensive paperwork. Because of the risk the factoring company is taking on, it will require substantial documentation from the business. This documentation could include tax returns, financial records and the payment history of customers who owe money on the outstanding invoices.
How To Choose an Invoice Factoring Company
Invoice factoring companies have numerous variations from one to the next, which can make some factoring companies a better fit to work with versus others. Eligibility, advance rates and fees and turnaround times are a few of the major considerations worth reviewing before choosing one to partner with.
Business Qualifications
While qualifying for invoice factoring is typically easier for a business versus other forms of financing, each factoring company will have its own requirements the business must meet. Additionally, a factoring company must take into account the creditworthiness of the original customer that owes money on the outstanding invoice, since it’s the one now handling the collections process.
While this may vary slightly from one factoring company to another, it likely requires:
- A U.S.-based company
- Sells to a business and not to consumers
- Monthly sales minimums
- Outstanding invoices no more than 90 days old
- A business bank account
- Creditworthy clients
Advance Rates and Factor Fees
The advance rate is the percentage of the invoice value the factoring company will pay to the business. Advance rates typically range between 60% and 90% but can go higher. This number usually depends on the riskiness of the industry and how likely the original customers are to pay their outstanding balances. Less risky industries may mean advance rates as high as 97% to 100%.
The factor fee is the percentage the factoring company charges for each outstanding invoice. It’s expressed as a percentage, and it may increase the longer the fee goes unpaid (known as a variable rate). Factor fees range from 0.5% to 5% and, again, depend on the industry risk and creditworthiness of the original customer.
Recourse vs. Non-Recourse
There are two different types of factoring agreements: recourse and non-recourse. A recourse agreement requires the seller to purchase the outstanding invoice back from the factoring company if the original customer fails to pay the invoice. When the seller buys it back, the factoring company still charges factor fees. Because your business is taking on more of the risk and the factoring company has much less risk involved, it makes it the least expensive factoring option.
A non-recourse agreement means the factoring company takes on the entire risk of a non-paid outstanding invoice and the seller is no longer responsible for buying it back. While this takes the risk off your business, it’s also a much more expensive option compared to a recourse agreement.
Spot Factoring vs. Whole Ledger Factoring
Another decision a business must face when dealing with an invoice factoring company is whether or not it allows spot factoring or requires whole ledger factoring. Spot factoring means you have the option of only factoring one invoice at a time or a select number of invoices. This may be especially helpful for a business with one major outstanding invoice, for example.
Whole ledger factoring means the factoring company requires you to factor all outstanding invoices, or it may require all outstanding invoices from one particular customer. This type of agreement would likely benefit a company where most customers pay late or there’s an issue collecting payments across multiple customers.
Turnaround Times
If a business enters into an agreement with a factoring company in exchange for upfront payment, it likely means the business needs funds quickly and requires cash flow stabilization. Some factoring companies offer advances with fast turnaround times, such as within 24 hours. However, there are companies where payment can take several business days, which may factor into the selection process.
Frequently Asked Questions
Does a Business Need a Good Credit Score for Invoice Factoring?
Factoring companies will work with businesses with less-than-perfect credit, which is why it may be a desirable partnership for a business that struggles to qualify for traditional business loans or lines of credit. Invoice factoring doesn’t rely on creditworthiness of the business seeking funding, but rather the creditworthiness of the clients you’re trying to collect money from for your outstanding invoices. If you’re a business with outstanding credit and you don’t need cash right away, a business loan or line of credit may be a less expensive option and a better fit versus invoice factoring.
Is Invoice Factoring the Same As Invoice Financing?
The main difference between invoice factoring and invoice financing is that invoice factoring is a sale of the outstanding invoices while invoice financing is a loan. With invoice financing, the business has to make payments to the lender and still has to collect outstanding payments from customers who owe the business money. Invoice factoring takes on the collection responsibilities and releases the funds back to the business, minus a factor fee, which is why it’s not considered a loan.
What Is a Good Factor Rate?
Factor rates vary greatly from one factoring company to another. The typical rate lands anywhere from 0.5% to 5% per month. Each factoring company has its own calculations for factor rates, including what industry it’s working with, the size of the invoices and the credit profile of the original customer. It also depends on whether you choose a recourse or non-recourse agreement and the number of invoices involved in factoring. It’s essential to look for factoring companies with upfront fee structures and transparent pricing.
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