Invoice factoring and accounts receivable financing are both fast and simple ways for businesses to turn their I.O.U.s into cash, and generate extra capital to help cover the costs of materials, hire extra staff, and bridge gaps between slow payments.
Read below for an incredible success story about how National Business Capital helped Sharon Mora, a small yogurt business owner, grow and expand her business exponentially with these financing options.
3 Main Differences Between Invoice Factoring and Accounts Receivable Financing
- Type of Exchange
Invoice Factoring: A client sells their accounts receivable to a lender in exchange for cash.
Accounts Receivable Financing: A client’s purchase order as leveraged in exchange for a line of credit.
- Amounts Provided
Invoice factoring: The amount given by National Business Capital (NBC) covers up to 90% of a client’s overall purchase order.
Accounts Receivable Financing: The line of credit provided by NBC grows based on the amount of receivables outstanding, varying anywhere between $250,000-$15 million dollars.
- Who Gets Billed and Notified
Invoice Factoring: The client’s customer is directly billed by a lender for their purchase order. And so, the lender assesses the credit of the customer instead of the client before providing invoice factoring.
Accounts Receivable Financing: The client receiving accounts receivable financing is directly responsible for paying off the money owed. The client’s customer is not notified by the lender whatsoever.
Ok, so which one is best for your business? To help explain, here’s the success story of Sharon Mora, a once-small business owner who utilized these services from National Business Capital to grow her business exponentially:
An Opportunity Arises
Sharon Mora is the owner of a homemade strawberry yogurt business in rural Wisconsin. What started as a small business marketed mostly by word of mouth soon become something of a local sensation. Before she knew it, Sharon found herself staring down an invoice from a large wholesale distributor for an order of 100,000 containers of yogurt. Sharon’s business was finally getting the attention of the retail giants she worked so hard to achieve.
That’s a lot of yogurt. Sharon was suddenly tasked with purchasing enormous amounts of milk, strawberries, sugar, yogurt culture, and mason jars to get the job done.
And between producing and packaging all that yogurt, Sharon was going to need to hire some help. How in the world was she going to cover these material and labor costs, and still produce all this yogurt on time?
2 Options, 2 Easy Fixes
Fortunately, Sharon turned to National Business Capital, where financing advisors were able to offer her stellar financing options, regardless of her lacking credit score, and minimal time spent in business.
Among the many finance opportunities presented to Sharon, two of them really stuck out: invoice factoring, and accounts receivable financing.
Which Did She Choose?
After receiving useful advice from NBC’s financing advisors, Sharon decided to use both!
First, NBC secured Sharon an invoice factoring option that covered the costs of the materials needed to produce her yogurt, and used her extra capital to hire more staff.
Once she fulfilled and shipped her order to Costco, she then found out that it would be a full three weeks before she would be paid in full for all the yogurt she produced.
That wasn’t going to fly with Sharon.
After spending nearly everything she had in order to fulfill this purchase order, cash flow issues were sure to arise if she couldn’t find another means to cover her business until she was paid off.
Fortunately, the financing advisors at National Business Capital were able to equip Sharon with and additional round of financing within 24 hours of applying for an accounts receivable line of credit.
This gave Sharon the immediate access to cash on-hand she needed to pay her workers on time, and refill inventory, so she could get back to work making yogurt without having to worry about cash-flow issues between slow payments.
And with an accounts receivable financing, she only payed for what she used, so Sharon didn’t have to worry about any overhead issues, or holding unneeded inventory.
A Happy Ending
By securing these financing options from NBC, Sharon was able to grow and expand her business in ways she had only dreamed of.
And the best part—NBC made it fun! By taking over all the complicated paperwork and perfectly preparing underwriting, Sharon was able to focus less on financing her business, and more on making delicious strawberry yogurt.
So… Go for Both?
If that’s what works for you!
Securing both an accounts receivable line of credit and invoice factoring options is a fast and effective way to cover a business on both ends of a large purchase order, as it can cover the capital needed to produce product, as well as cover the gap between the oftentimes slow payments from distributors.
However, every business is different, and so this method may not be for everyone.
While Sharon took advantage of the fact that National Business Capital took the credit of her customer into account instead of her own through invoice factoring, and so was able to secure fantastic loan conditions, others are still cautious about the lenders they borrow from notifying their customers.
Some businesses owners worry that if their distributors receive word that their business needed help in fulfilling an order, it will reflect poorly on their business. This negative stereotype has proven to be more myth than fact, as time and experience has proven that distributors rarely care at all whether their clients use alternative financing to fund their orders.
For those that still don’t feel comfortable with this, securing accounts receivable financing is the perfect way to get immediate access to the capital they need, while protecting the reputation of their business, as their customers will not be notified by their lender.
Still Can’t Decide? Call NBC!
Dial (877) 482-3008 to speak with an expert financing advisor at NBC, on call 24/7 to listen to your story, and find you the perfect financing options to help overcome any challenge, and seize any business opportunity. Or, fill out NBC’s 1-page, 1-minute online application, and get access to funds in as little as 24-hours or less!