how invoice factoring works

Refresher: What is invoice factoring and how does it work?

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how invoice factoring works

Invoice factoring is a type of financing available to businesses that sell to other businesses on account — invoicing clients, usually with 30, 60 or 90-day terms.

For businesses who haven’t established a track record with a major lender yet, or who don’t fit traditional bank lending qualifications, invoice factoring is a way to get faster access to working capital.

How does invoice factoring work?

After you establish payment terms and issue invoices to your customers, you may be left waiting to receive payment. Instead of waiting the full term, you can receive upfront payment from your invoice factoring partner, also known simply as a “factor.”

There are five key steps to the invoice factoring process:

  1. You sell products & services to your customer
  2. You sell your invoices to your factoring partner
  3. Your factor sends you the funds minus the reserve
  4. Your factor then will wait the required time to collect payment from your customer
  5. Your factor refunds you the reserves minus discount fee

Aside from improving cash flow, a major benefit of this invoice factoring process is that your factor will assume, manage and collect the financed debts for you. A good partner will also provide transparent, accessible reporting to keep you up to date on the process.

Learn more about invoice factoring

Access these resources and articles to brush up on the ins and outs of invoice factoring.

 

At Liquid Capital, we understand what it takes for small, medium and emerging mid-market businesses to succeed – because we’re business people ourselves. 

Our company is built on a network of locally owned and operated Principal offices, so whenever you’re talking to Liquid Capital, you’re talking directly to your funding source — and a fellow business person.

 

Up Next: Medal-winning ways to leverage invoice factoring

Global Aviation and Invoice Factoring

Global Aviation: Above and Beyond

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Discover how Global Aviation leveraged invoice factoring to reach new heights of business success with the help of Liquid Capital.

Short on time? Read this 30 second summary

You’ve likely experienced Global Aviation’s exceptional service from one of their customer service agents at one of the many North American airports they service.

Since its inception in 2009, Global Aviation has committed itself to providing high-quality airline staffing services for PAX (passenger, baggage and load control), cabin cleaning, aircraft detailing, ramp handling and mobility assistance. And with the help of Liquid Capital, the company has swiftly evolved into a top competitor in the industry. 

However, when business really took off in 2016, Global Aviation sought additional financing. At first, the bank was able to provide enough funding, but as new heights of success were reached, so was the need for additional cash flow—which the bank could not provide.

Like emergency oxygen masks on an airplane, Liquid Capital has been there when Global Aviation hit funding turbulence, ensuring a soft landing by accessing $40 million since 2016 through invoice factoring, and ultimately helping them become bankable. Now, Global Aviation is ready for takeoff again in a post-pandemic world.

Unlocking the secret to funding business growth

While Global Aviation was able to withstand the cash flow crunch in its first few years—and even experienced modest growth—by July 2016 the company realized it needed additional financing if it hoped to achieve its growth objectives. At that point, its main funding option was self-financing, which was not an ideal situation for Carm Borg, President and CEO of Global Aviation. 

“In this business, 90 percent of our costs are people-related. We have to make payroll every two weeks, but airlines only pay every 30 days,” says Carm, whose company offers a wide range of staffing services to airlines at airports across North America. “When you’re just starting out and ramping up quickly, it doesn’t take long to run into cash flow issues.” 

After a business associate recommended Liquid Capital to Carm, he knew there was another way to discreetly gain access to the working capital he needed to continue the flight path to business success that the company was on.

“Non-notification was a service not many factoring companies were offering—and it was a huge selling point for us. That, combined with the fact that Liquid Capital allowed us to get our money quickly and cleared us to get paid faster, made the decision to go with them a no-brainer.”

Carm Borg, President and CEO of Global Aviation

 

The company entered a unique alternative funding arrangement with Liquid Capital that gave it access to more than $40 million in working capital funding over the following years—money that was primarily used to make payroll every two weeks. Unlike the line of credit that Global Aviation had through the bank, which was capped at $1.5 million, Liquid Capital provided funding against the company’s $4 million in monthly invoices and its equipment. 

With the combination of invoice factoring and equipment financing/asset-based lending (ABL), the company was able to access the working capital it needed to keep growing. Understanding the need for discretion, Liquid Capital offered Carm the option of a non-notification factoring arrangement. In these kinds of arrangements, Liquid Capital operates in the background rather than collecting receivables directly. 

This arrangement allowed the company to grow in Canada and the U.S. from approximately 550 employees in 2016 to a whopping 2,500 in 2018—and from 20 airline contracts to 55.

With the help of Liquid Capital, Global Aviation swiftly evolved into a top competitor in the airline staffing industry. As it continued to land new contracts, the company also planned to add new people—between 800 and 1,000 and grew its annual revenue from $6 million to $12 million. Because the company could now prove three years’ worth of strong financials, it could make this move forward with a newly obtained traditional bank line by the middle of 2018.

 

Global Aviation and Invoice Factoring

New altitudes mean new funding needs

However, by 2019, the company had once again doubled its revenues to over $24 million and its new bank line was unable to handle the rapid growth. So, in October 2019, Global Aviation returned to Liquid Capital and once again leveraged invoice factoring and ABL to help fund their upwards trajectory. “They gave me the ability to grow the business twice as fast,” says Borg.

On track to bring in $70 to 80 million by the end of 2020, Global Aviation continued winning awards and contracts, adding new employees almost weekly. “We were basically doubling our growth every year, continuously, and 2020 was going to be our best year yet,” says Borg. 

Then, on March 23, 2020, about six months into its new arrangement with Liquid Capital, air travel came to a standstill as COVID-19 swept across the world.

While the pandemic affected every industry, it hit the aviation sector particularly hard. “We went to a bare-bones skeleton staff because there was minimal flight activity. It was basically survival mode,” says Borg. “Our goal at that time was to pay down our outstanding balance as receivables came in.”

“There’s a lot of financial crash and burns going on right now, but this allowed us to come in for a soft landing. Liquid Capital was instrumental in listening to us and coming up with a game plan on how we could repay our facility balance and right side the operations.”

Carm Borg, President and CEO of Global Aviation

 

Ready for takeoff when travel takes flight

Global Aviation has now weathered the pandemic storm and qualified for bank financing and government support so will be leaving Liquid Capital once again. “I’m sad to leave Liquid Capital, but we’ve survived the worst of the pandemic and are ready to stand on our own again,” says Borg.

When the world starts to travel again, and when the aviation industry takes flight once more, Global Aviation is well-positioned to continue its previous growth trajectory with the expertise, equipment and facilities ready for takeoff.

“The banks want three to five solid years of history, whereas factoring will base their funding solutions off of your current book of business. I’d definitely recommend the team at Liquid Capital—they’re very responsive, transparent and client-focused. You’ll always know exactly where every dollar is spent.”

Carm Borg, President and CEO of Global Aviation

 

Up next: Learn how a tree clearing company funded its growth and found a trusted business advisor by working with Liquid Capital.

Rayzor Edge Tree Services

Rayzor Edge: Clearing the way for reliable cash flow

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Rayzor Edge, a tree clearing company, funded its growth and found a trusted business advisor by working with Liquid Capital.

Rayzor Edge Tree Services

 

Short on time? Read this 30 second summary

When Ray Bowman, owner of tree clearing company Rayzor Edge Tree Service, expanded into commercial contracts, traditional funding options weren’t sufficient to support his growth plans.

Though he didn’t have experience with alternative funding at first, Ray partnered with Liquid Capital because they provided more than just cash. Unlike other factoring companies, his Liquid Capital Principal took the time to understand Ray’s business, his funding needs and helped him understand the ins and outs of invoice factoring.

With Liquid Capital’s help, Ray has doubled his sales over the past year, strengthened relationships with subcontractors, gained a trusted business advisor and accessed the working capital needed to fund his growth plans.


Tree trimming develops new growth

Rayzor Edge Tree Service provides professional, environmentally conscious tree services for commercial and residential properties in southern Ontario. But Ray Bowman, Owner and President, wanted to grow his business faster than his working capital allowed. As a small company, he was constrained by cash flow, which prevented him from taking on bigger jobs and taking his commercial tree services business to the next level.

When he first started the business, Ray mostly did residential jobs that took a day or two, so he was paid quickly and could move on to the next job. But two years ago he started moving into the commercial market, providing services such as tree-clearing for developers — which created some unexpected funding challenges.

“For a small company, longer invoice payment terms are a real problem. I didn’t have the cash flow capabilities to take back-to-back commercial contracts, especially with subcontractors working for me. If I can’t pay my team quickly, then I’m not going to have any faithful subcontractors that are willing to work with me.”

Ray Bowman, Owner and President, Rayzor Edge Tree Service

 

Cash flow crunch limits growth rate

A commercial job might take weeks or longer, and Ray would have to wait anywhere from 30 to 120 days to get paid by his corporate clients.

This limited the number of jobs he could accept and his line of credit with the bank wasn’t enough to support the growth of his commercial tree services business.

That’s when a business consultant he was working with recommended Liquid Capital. Ray did his due diligence and met with several invoice factoring companies, but after meeting with the other factors, he was wary of being treated like a small fish in a big pond.

“Liquid Capital stood out to me right away. My Liquid Capital Principal took the time to understand my business and my opportunities. There were no surprises and no hidden fees. Most importantly they treated me with mutual respect.”

Ray Bowman, Owner and President, Rayzor Edge Tree Service


Solution: New funding partner improves cash flow for accelerated growth

Ray started working with Liquid Capital in August 2020 — and he hasn’t looked back.

For larger commercial jobs, Rayzor Edge requires the services of several subcontractors. With this factoring arrangement Ray can pay subcontractors in a timely manner, resulting in improved relations, and as a result, improved service for their clients.

“Now, when I need a job done, my subcontractor is available — he’s getting paid so he’s willing to go out of his way to work with me.”

Liquid Capital has provided much more than cash to this growing business, with his Liquid Capital Principal advising Ray from a business perspective. And while doubling sales has been a game-changer, Ray also appreciates the counselling and support that saves him from unwarranted risk.

His Liquid Capital Principal also helped Ray negotiate a better arrangement with his bank.

Rayzor Edge had an operating line of credit that was secured by its accounts receivable, equipment and even Ray’s house, which far exceeded the size of the loan. Ray’s Liquid Capital Principal negotiated with the bank on his behalf to have them release his accounts receivable. This allowed Ray to factor his commercial invoices with Liquid Capital and use the extra working capital to help fund his rapid growth.

“As a small business owner, it’s helpful to know someone’s got your back because you’re so reliant on yourself for so many aspects of running the business. Having somebody that I can turn to for advice is worth a lot.”

Ray Bowman, Owner and President, Rayzor Edge Tree Service

Nowhere but up from here

Since working with Liquid Capital for the past year, gross sales are up 100 percent. “We pretty much doubled our sales,” says Ray. “And we’re just getting started.”

“Before working with Liquid Capital, we just didn’t have the cash flow to support our growth. We were confined to doing basically a job a month or so. Now with Liquid Capital behind us, we’ve freed up our cash flow to continue to grow — and there’s no ceiling on it.”

Most importantly, his bottom line has grown, allowing him to take on back-to-back contracts, which previously wasn’t possible.

“I fully intend for us to be partners for the foreseeable future as we maintain our upward trajectory. There are a number of pieces of equipment that I’d like to acquire, and our relationship with Liquid Capital can help us with that, too,” says Ray.

“There’s no question I would recommend Liquid Capital to anybody in the same predicament. Working with Liquid Capital has opened so many doors. I recommend that invoice factoring is not viewed as a last resort, but as part of a smart financial toolkit to help businesses grow.”

Ray Bowman, Owner and President, Rayzor Edge Tree Service

 

Up next: How this savvy entrepreneur, Claudia Serna, expanded her trucking company to become an integral part of her local economy — with the help of strategic funding.

Liquid Capital June Recent Fundings-Spanish

Financiamientos recientes – Junio 2021

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Liquid Capital June Recent Fundings-Spanish

clear cash flow hurdles with invoice factoring

Medal-winning ways to leverage invoice factoring

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Some business hurdles are easier to overcome than others, but cash flow related obstacles are sometimes the most difficult to clear. Avoid a false start and reach the finish line with invoice factoring.

clear cash flow hurdles with invoice factoring

Surviving the past year has been like winning an Olympic gold medal for most business owners. Even under normal circumstances, running a company is like running a marathon, but it takes another level of determination, grit, perseverance, and nerves of steel during an international health crisis.

Beyond those herculean entrepreneurial qualities, you need to have the cash flow to support your operations and growth plans to reach your business finish line. And since 82% of new businesses will fail because of cash flow, it’s the biggest hurdle.

Luckily, there are creative ways to leap over capital problems with more confidence. Invoice factoring is one of our go-to solutions since it allows you to sell your unpaid invoices and get cash upfront for whatever you need it for. We collect the invoice payment directly from your customer, and we work by your side to strengthen your cash flow planning. This tried and tested financing method can help you remove hurdles altogether.

Here are other ways that invoice factoring can take your business to the top of the podium:

1. Get a great coach.

Being an entrepreneur requires passion, sacrifice and exceptional focus on any given day. But entrepreneurs, just like athletes, need someone to guide them and encourage them to push through the setbacks to come out stronger and better at their business.

With invoice factoring, we partner with businesses and act as that coach and mentor role with many of our clients. We get to know your business, your personal goals, your strengths and weaknesses. And when we assess your business as part of the funding process, we make it a priority to help you develop a plan — like an Olympic training plan — so you know the hard work you’ll be putting into your business will pay off in spades.

Whether you work with us or any other lending company, you need to find that trusted ‘coach.’

2. Be quick out of the blocks.

When your business operations are flat, it’s time to make a bold move and act swiftly. The faster you can get sprinting, the further you’ll be ahead of any cash flow problem. But finding ways to achieve rapid growth at scale is another challenge. And if your growth is exponential, you may also see an equal increase in expenses — creating a need for more cash — fast.

By qualifying and finding the right invoice partner before a cash flow problem exists, you can start to rely on this method to access more cash when you need it — no more searching for capital in a crisis while your competitors are lapping you. Instead, you’ll now be the first to react out of the blocks.

Success Story: Here’s how one small business owner was able to embrace innovation to outlast the effects of the pandemic.

3. Create your own track record.

There’s an old saying that banks will only give you loans when you don’t need them. Factoring, thankfully, is impervious to old sayings and archaic banking restrictions. Where a bank won’t provide a loan to a small or mid-sized business for any number of reasons, factoring has a different structure and set of regulations, making it much easier to apply to businesses of all sizes.

Read: To get more on the specifics of invoice factoring, see how it works here.

4. What if it turns into a marathon?

Depending on your industry, you may have to wait 30, 60 or 90 days from the date of the invoice to receive payment. While this may be okay for the more established players, for a newer business or one under a cash crunch, waiting 90 days on an invoice (especially a large one) can be extremely difficult or even damaging. And offering early payment discounts can often cost more than leveraging invoice factoring.

5. A dropped baton doesn’t have to mean it’s over.

Nobody likes late payments, but every business has experienced the pain of waiting on accounts receivable. And no matter the size of the business, late payments can have far-reaching consequences. Factoring eliminates this problem and often shifts the responsibility of collections from you to the factor.

6. Sometimes it’s a sprint to the finish.

Stocking up your inventory often requires paying suppliers on the spot. It’s imperative to have cash upfront to keep inventory at the right level to meet demand. The flexibility offered by factoring means you can have the right working capital to keep inventory levels on target, avoiding supply issues before they happen.

Ask these questions to get on the inside track

If factoring could be the solution to your cash challenges, it’s crucial to find the right partner who understands your industry, the specific challenges you’re up against and can offer the best funding solution to advance your business.

But before signing an agreement, there are 10 important questions to ask any invoice factoring partner. The answers will help you quickly narrow down the pool of candidates and find the perfect match.

Do you have questions about invoice factoring? Get the answers to the most commonly asked questions in our Invoice Factoring FAQ guide.

Drive business results

Drive business results: Rely on your invoice factoring partner for more than just cash

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At Liquid Capital, your local Principal is more than just a source of capital — they’re industry and funding experts who want to help you drive business results.

Drive business results

When a business is experiencing a lack of sufficient cash flow, taking out a bank loan and offering clients early payment discounts are two common tactics used to fill the gaps. But there’s another solution that could be a better strategic decision: utilizing invoice factoring services from a commercial finance company.

Unfortunately, invoice factoring is often misunderstood among business owners who view it as a “last resort” financing option. In the right circumstances, however, invoice factoring can be the ideal strategic solution for business owners and CFOs who are looking to drive business results.

“The partnership has been really positive and Liquid Capital helped position us to grow the company. Last year, we grew around 20% and we expect to grow another 20% next year. With this funding strategy, we’re set up to keep expanding.”

— Claudia Serna, Owner of Serna’s Trucking

If you are a commercial finance professional, you know that your clients look to you for creative and strategic financing solutions, including solutions that might be a little bit outside the traditional box such as invoice factoring. However, you can build trust and strengthen client relationships by being proactive and presenting invoice factoring as a reliable option with them before they find themselves in a cash flow crunch.

Choosing the right financing partner to help drive business results

Who you partner with is important, and if you choose the right one, you’ll gain much more than just working capital. Your invoice factoring partner will have insights into your customers and your company’s financial records. They should also act as a trusted business advisor who can help guide you through various challenges and opportunities.

Learn key questions to ask to choose the right factoring partner.

Liquid Capital offers invoice factoring and other asset-based and alternative lending solutions to businesses throughout the U.S. and Canada. We go beyond a transactional approach with our business clients in order to help them with overall strategic planning when it comes to commercial financing.

Our local Principals are business owners, helping business owners.

“My Liquid Capital Principal is always just a call away. It’s so reassuring to know that I can ask them questions and get their advice. They’re a great wealth of knowledge on the business operations side as well as the financial side. It’s helpful to have someone in your corner, to have an advisor that you didn’t really expect to find, especially someone who’s so available that you can just give them a quick call.”

— Adelle Starin, Owner of Baby’s on Broadway

Come for the capital, stay for the partnership

Having a trusted invoice factoring partner as part of your extended team can also focus your entire team’s attention on positive cash flow. Review this solution with the appropriate team members and ensure you’re leveraging all its potential. Accountants, bookkeepers, office managers and other team leads can often contribute to budgeting, resourcing and cash flow conversations.
Naturally, CFOs and other leaders on your executive team should also be working invoice factoring into their financial planning as a key capability, to ensure that your business is never in a crunch.
For many of the business owners that we work with, their local Principal becomes an invaluable resource for information and advice on how to achieve business results. They can also work directly alongside your team to ensure everyone is on the same page.

“Sometimes I call my Liquid Capital Principal when I have questions and he is there to lend a hand. When we wanted to start working with a new company, he was able to advise me about the possible benefits and risks. It’s a really good relationship.”

— Claudia Serna, Owner of Serna’s Trucking

In short: Invoice factoring can be part of a strategic plan to keep a business’ working capital flowing, so you can get the results you need.

Want to read more about how invoice factoring can fuel business growth? Be sure to check out part 1 and part 2 of our series on making invoice factoring part of your business growth plan.