by Steve Nicastro
December 4, 2015
originally posted on NerdWallet
If your small business needs working capital and has outstanding invoices from slow-paying customers, one option is to sell those invoices to a factoring company for immediate cash.
This is known as invoice factoring, and although it can be expensive, the speed and convenience could be worth the cost for your business. If you think invoice factoring — or accounts-receivable financing — may be a good fit for your company, here are three factoring companies to consider.
Factoring companies at a glance
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 |
 |
|
|---|---|---|---|
| Loan type | Line of credit | Line of credit | Asset-based line of credit |
| Loan amount | $500 – $30,000 | $5,000 – $250,000 | Up to $500,000 |
| Loan term | 12 weeks | 1 – 12 weeks | 6 months per draw |
| Qualifications | Minimum 6 months activity with a software application | Minimum credit score of 530, annual revenue of at least $70,000 | Minimum credit score of 600, at least 1 year in business, $12,500 in monthly revenue, profitable |
| Time to funding | 1 – 3 days | As fast as 1 day | Average of 10 days |
| Personal guarantee? | No | Yes | Yes |
| Cost of funds | 44% – 64% APR | 23% – 61% APR | 11% – 22% + prime rate |
Best for smaller invoices: Fundbox
Fundbox is a good choice for businesses that want to finance unpaid invoices to overcome a cash flow gap but need only $30,000. The more you use Fundbox to finance invoices, however, the more money you’ll potentially be able to borrow.
An invoice finance company, Fundbox gives you an advance on your outstanding invoices. But it does not take control of the collections process, so borrowers maintain full control over their invoices, meaning your customers will not be contacted by the third-party company. Borrowers typically receive money in one to three business days, and you’ll receive 100% of the invoice value upfront in the form of a line of credit, repaid weekly over 12 installments.
How to qualify: You must use and link online accounting software (QuickBooks, Harvest, Freshbooks, Xero or Wave) to the Fundbox website, and you must have a minimum of six months’ activity in one of these applications.
Best if you need fast cash: BlueVine
BlueVine is a good option for businesses that need cash immediately, as customers can get funding as fast as one business day after completing a two-page registration process. It’s also a good option for medium-sized invoices, as BlueVine provides up to $250,000.
The repayment process works a bit differently than with Fundbox: Instead of receiving 100% of the invoice value upfront, paid over 12 weeks, BlueVine advances 85% of the invoice amount upfront, and the rest of the money when your customer pays you, minus fees. The invoice must be due within one to 12 weeks.
How to qualify: Borrowers must have a personal credit score of at least 530, annual revenue of at least $70,000, and you must sign a personal guarantee, which puts your personal assets and credit score on the hook if you can’t make payments.
Best for larger invoices: Dealstruck
Apply on Dealstruck’s secure site (Read our Dealstruck review and learn more about the application process.)
Dealstruck provides an asset-based line of credit, which lets larger businesses borrow up to 85% of the value of their unpaid invoices up to $500,000. Each draw is repaid over a six-month period. Your customer’s payments are directed into a Wells Fargo bank account that is managed by Dealstruck but maintained in the name of your business.
How to qualify: You’ll need a minimum personal credit score of 600, at least one year in business and $12,500 in monthly revenue, and you must be profitable. A personal guarantee and a lien on your business assets are also required, which means Dealstruck can seize your business assets if you fail to repay the loan.
Factoring companies: The bottom line
Factoring companies provide working capital for businesses that have reliable but slow-paying customers. Finding the right company means taking into consideration the size of your invoices, the repayment term, the costs, the speed of funding and whether you meet the lender’s qualifications.
Find and compare small-business loans
If invoice factoring is not the right fit, check out NerdWallet’s list of small-business loans to meet your needs and goals. We gauged lender trustworthiness, market scope and user experience, among other factors, and arranged them by categories that include your revenue and how long you’ve been in business.
Steve Nicastro is a staff writer at NerdWallet, a personal finance website.
To get more information about funding options and compare them for your small business, check out NerdWallet’s small-business loans tool.
Image via iStock.