Invoice Factoring for Service Providers

All companies need access to working capital in order to operate, and in times when money is scarce, financing options are usually the first choice. However, it can be tougher forthose in the service industry to qualify to receive a bank loan than it would be for a business in another industry. This is mainly because business service companies usually have fewer assets, resources, or pieces of equipment that could be used as collateral. The lack of stock and inventory doesn’t help their case either.

An Invoice factoring service is a great option for businesses that need a quick injection of cash to facilitate growth initiatives or to fill cash flow gaps.

Plus, invoice factoring is debt-free, so your company credit score won’t be negatively affected! Invoice factoring is not a loan – it is a business transaction where you are essentially “selling” your unpaid invoices to a factoring company. So, instead of borrowing money against your physical assets, you are simply getting an advance on money your business would have received later on.

Running a service-based company is not an easy task. Keeping your service company solvent, profitable, and productive can be a lot more difficult without physical products to sell. 

Professional services firms are consistently plagued by hiring difficulties, schedule setbacks, and cash flow constraints. Getting ahead of your financial challenges is possible, but you need to be aware of them first. Some of the most common financial challenges faced by service providers include:

Innovation is a core skill for B2B companies, like service providers, because you will need to be creative about your strategies for client retention, cash flow management, expansion, and the management of your business as a whole if you hope to stay solvent. 

You are not selling a product, so your income comes from the services you provide. This means that your business management techniques and strategies need to be clever – they need to be targeted at three main pillars:

For most small companies and start-ups, cash flow is the biggest problem they face, especially when they’re growing. The same is true for service providers, but bank loans may not always be an option, and even if you do get approved, you will likely be hit with less-than-ideal repayment terms and interest rates. This is why many service providers rely on alternative financing options such as:

Debt Financing: Debt Funding (also known as debt financing or debt lending) is a way for a business to raise capital by borrowing money. It will be necessary to repay this funding at a later date, usually through regular interest-bearing repayments. Common sources of debt funding include:

Equity Financing: Equity Financing (or equity funding) is typically used by companies expecting rapid growth and quick returns on investments. It involves relinquishing shares in your company in return for a cash investment. The investor will own a stake in your company and benefit from its success. Types of equity funding include:

Invoice Factoring: Invoice factoring is one of the most flexible and convenient funding sources available for small businesses. The process involves selling your unpaid accounts receivable to a factoring company in return for a percentage of their value upfront. The factoring company will often handle collecting payment for the invoices, and once all of your customers have settled their accounts, the factoring company will reimburse you the remaining balance (minus a small factoring fee). 

Invoice factoring can help with an advance on money that is already owed to your business, but it also relieves strain on your collections department and gives you the immediate cash flow you need to cover essential expenses such as payroll, equipment, and growth. The application requirements are minimal, and payment is almost instant, so you can get the funding amount you need without jumping through the numerous hurdles of traditional financing. 

If you would like to learn more about invoice factoring for service providers, or you’re in the market for a factoring company to partner with, Factoring Companies Canada is a directory of the best factors in the country. 

Want to get started with invoice factoring for service providers? Request a factoring rate quote today.