Factoring Funding Speed: How to Accelerate Your Advance

Picture this: It’s Wednesday afternoon, and payroll goes out Friday morning. You’ve been nervously eyeballing your business bank account all week, knowing that you only need one or two customers to pay their invoices, and everything will work out just fine. Unfortunately, the clock is ticking, and you are not confident those payments will arrive in time. What are your options? Most business funding solutions aren’t viable at times like this, but invoice factoring is one of the few that shines. On this page, we’ll walk you through the typical factoring timeline, considerations that influence factoring funding speed, and how to select the right factoring company when speed is a consideration.

Why Factoring Funding Speed Matters

The speed at which funds are provided through factoring is crucial for several reasons.

Cash Flow Management

One in five small businesses say financial issues like cash flow are their greatest challenge, Canadian Federation of Independent Businesses (CFIB) surveys show. Quick funding through factoring allows these businesses to bridge the gap between issuing invoices and receiving payments, ensuring they have the necessary funds to cover expenses like payroll, rent, and inventory purchases.

Operational Continuity

Rapid access to funds helps businesses avoid disruptions when waiting for customer payments. For instance, a construction company in Vancouver can continue purchasing materials and paying subcontractors on time, avoiding project delays and maintaining client satisfaction.

Growth Opportunities

Fast funding allows businesses to take on new projects or larger orders without worrying about cash flow constraints. A tech startup in Toronto, for example, can use factoring to quickly access funds needed for scaling operations or investing in marketing to attract new customers.

Credit Management

By receiving funds quickly, businesses can pay their suppliers on time or even take advantage of early payment discounts, improving their relationships with suppliers and possibly reducing costs.

Financial Stability

Quick access to cash can prevent businesses from resorting to high-interest loans or accumulating debt, thereby maintaining a healthier balance sheet. This is particularly important for small businesses that might not have access to traditional financing options.

How Factoring Works: A Typical Factoring Timeline

It’s essential to familiarize yourself with the typical factoring process to understand why some factoring companies take longer than others to pay or why a specific invoice may take longer to pay.

Step 1: Application and Approval (1-5 Days)

The first step is to submit an application to the factoring company and provide necessary documents such as financial statements and customer invoices. The factoring company then conducts due diligence to assess your business’s and your customer’s creditworthiness.

While diligence checks will occur periodically throughout your factoring agreement, they typically only impact your payment timeline the first time you leverage factoring.

Step 2: Invoice Submission (0-1 Days)

Once approved, your business submits its invoices to the factoring company for funding. This can be done electronically, which usually takes just a few hours to process.

Step 3: Invoice Verification (0-3 Days)

The factoring company verifies the authenticity of the invoices and confirms with the business’s customers that the goods or services were delivered as stated. This step can be quick if customers respond promptly. Some factoring companies can even automate the process. However, it may take longer if the client isn’t responsive or additional follow-up is needed.

Step 4: Advance Payment (0-2 Days)

After verification, the factoring company advances your business a percentage of the invoice value, typically 60-95 percent. The payment method is a major determining factor here.

For instance, if the factor pays via an automated clearing house (ACH) transfer and sends the money directly to your bank, you will likely receive deposit credit within 48 business hours. However, the banks involved may still influence the speed of funding. Funding will be slower if other methods, such as a cheque by mail, are selected. It can also be much quicker. For instance, some factors will wire the cash to provide you with same-day funding.

Step 5: Collection and Final Payment (30-90 Days)

The factoring company collects the full payment from your customers according to the invoice terms, usually 30, 60, or 90 days. Once your customer pays the invoice, the factoring company sends you the remaining balance minus their fees.

Factoring Timeline Example

Let’s take a quick look at how the factoring timeline works in practice.

A small manufacturing business in Alberta might apply for factoring to improve cash flow. After submitting their application on Monday, they receive approval by Thursday. They submit their invoices the same day and receive verification by Friday. By the following Monday, the business receives an advance payment. This efficient process means that within a week, the company has the funds to continue operations smoothly.

Note that the manufacturing company already has approval the next time it factors, which speeds up the timeline. If the factoring company offers same-day payments, the business can submit an invoice on Monday morning and have cash deposited in its account by the end of the day.

How to Choose the Right Factoring Company When Speed Matters

Choosing a factoring company with speed as a primary consideration involves evaluating several key factors and understanding potential trade-offs.

Assess the Factoring Company’s Speed

• Turnaround Time: Inquire about the typical timeframes for application approval, invoice verification, and advance payments. Companies that can provide funding within a few days are preferable.
• Technology and Processes: To expedite funding, look for factoring companies that use advanced technology and streamlined processes, such as electronic invoicing and automated verification systems.

Evaluate Costs

• Factoring Fees: Faster funding often comes with higher fees. Compare the factoring fees, ranging from one to five percent of the invoice value per month.
• Additional Charges: Be aware of any additional charges, such as setup fees, wire transfer fees, or early termination fees. These can add up and impact the overall costs.

Consider Customer Service

• Communication and Support: Choose a company known for excellent customer service, ensuring smooth communication and quick resolution of any issues. Prompt and helpful support can make a significant difference in the overall experience.
• Client Reviews and References: Read reviews and ask for references to gauge other businesses’ experiences. Positive feedback regarding speed and reliability is a good indicator.

Understand Contract Terms

• Contract Flexibility: Look for flexibility in contract terms, such as no long-term commitments or minimum volume requirements. This allows you to use factoring as needed without being locked into unfavorable terms. Also, consider whether you can elect slower or faster payments on a case-by-case basis.
• Recourse vs. Non-Recourse Factoring: Determine whether the factoring company offers recourse (where the business is responsible if the customer does not pay) or non-recourse (where the factoring company assumes the risk). Non-recourse factoring may have higher fees but provides added security.

Evaluate Trade-Offs

• Higher Costs for Speed: While faster funding may incur higher costs, this trade-off can be worthwhile if your business needs immediate cash flow to maintain operations, seize growth opportunities, or avoid financial strain.
• Balancing Speed and Cost: Weigh the cost of faster funding against the potential benefits. For example, a seasonal business that needs to stock inventory quickly may find the higher cost justifiable if it increases sales and profitability.

Get Fast Factoring Advances

If factoring funding speed is a concern to you, it’s essential to work with a factoring company that leverages technology to expedite the process. Let us match you with a factor that offers same-day funding. To kickstart the approval process, request a complimentary rate quote.

Frequently Asked Questions