Quickly converting accounts receivable to cash is always a challenge for any company. It is also a necessity for young, rapidly growing companies that are short of capital and have not established a solid credit history yet. In situations like this the options for obtaining invoice financing are limited.


Banks are limited in the amount of lending they can do to companies with little capital and weak credit quality. It may be possible to obtain working capital financing with an asset based loan, but the terms are usually very restrictive. Commercial finance companies can be another source of working capital financing. Invoices, purchase orders or inventory may be used as collateral for a loan, but again the terms are usually restrictive and the cost is higher than a bank.


Under these circumstances, some companies will turn to invoice factoring to accelerate cash receipts from accounts receivable. Credit quality is much less of an issue with factoring, because you sell your invoices to a factor rather than borrow using invoices as collateral.

You sell your invoices to a factoring company for less than face value or a discounted amount, and may take cash advances which can be as little as 50-80% of the invoice amount. The factor holds the balance until the invoice is paid. The balance less factoring fees, disputed amounts and returns is then paid to you.

Invoice factoring can be a very expensive alternative. Factor fees can be over 5% of the invoice face amount for the first 30 days the invoice is outstanding, plus additional fees if the invoice takes more time to be collected. The true cost of invoice financing, however, can be much higher, because the factor fee is based on the invoice face amount, not the amount you are advanced.


There are 3 alternatives to invoice factoring, which companies have available from their own operations, to accelerate cash receipts from accounts receivable without incurring very expensive factor fees.


Don’t wait until the end of the month or batch transactions. With automated accounts receivable and invoicing you can invoice transactions as they happen, and email or text invoice copies. Invoice templates make processing less time consuming and error free. You can accelerate cash flow by weeks.


Don’t wait for your accounts receivable go past due. You can program text messages and emails to remind customers that invoices are due or past due. These reminders are more effective, and less time consuming and costly than calling or snail mail.


Provide online payment links on electronic invoice copies. Make it easy for your customers to pay promptly. Don’t give them an excuse to delay payment by cutting and mailing a check.

With automated invoicing, accounts receivable and collections you can take advantage of these alternatives and avoid costly invoice factoring.

Lockstep Collect is a leader in cloud-based and premise-based software solutions made especially for businesses selling on credit.

If you would like to learn more about how you can benefit from automating your invoicing, accounts receivable and collections, please contact Lockstep Collect at www.lockstep.io.

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Stop and consider automation before jumping to invoice factoring.
Check out these benefits real companies saw from automating.