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Every Company That Accepts Credit Cards Is Factoring Their Invoices So Why Don’t You?

0 Comments | Aug 26, 2013 | Written by:

invoice factoringThere has been a growing crisis facing small business owners. This crisis has gotten worse since The Great Recession hit, and as we slowly see the economy begin to turn around, this crisis has yet to get better. What’s the problem? Bigger businesses are taking longer to pay smaller businesses.

We all say that Cash Flow is King for small businesses. Well, according to the National Federation of Independent Business, 45% of small-business owners say their most significant problem of getting paid is slow or late payments.

While I totally support some of the efforts such as the 10 Day Pay Plan being proposed by Ami Kassar from Multifunding, there is a solution that might make a lot of sense for your business. If you cannot go to a bank and get a healthy line of credit to finance your receivables at 4-5% over prime, then you may want to consider factoring.

Keep in mind that factoring is like just about anything else; you can do it the right way or the wrong way. Let’s say you are owed $250,000 from a handful of your customers. If you’re lucky, they pay you in 30 days. That is ideal, but if you are one of those businesses, then you know that you may not get paid until 45 or 60 days after you issue the invoice. In fact, the “good guys” who pay within 30 days are usually getting those funds to you somewhere between day 25 and day 30.

I realize that it’s an unrealistic option, but what if you could get paid in 3-5 days by letting the company pay you with a credit card? The company paying the invoice doesn’t hurt their cash flow because they won’t get their credit card bill for another 30-60 days. It may often mean that this would give the business an even longer float time before the money flows out of their account. For you, it means you would be getting paid in 3-5 days instead of in 30-45 days.

If that could be done then I’ve rarely had a business owner tell me they would not like to get paid in 3-5 days rather than 30-45 days. There is the issue of paying a merchant fee for accepting credit cards but this is normal, and if your cash flow was awesome you certainly could wait to get paid if you prefer.

Accepting Credit Cards Is Factoring:

If you find a quality factoring company, then you could turn those invoices into cash. You can also do it for a cost that is similar to, or in some cases less than, the cost of getting paid with a credit card.

There are very large factoring companies like Bibby Financial Services and smaller companies like Durham Commerical Capital. Bibby does a lot of volume and requires Personal Guarantees (PG’s). Durham is smaller, makes their own independent decisions, and does not require PG’s. Many factoring companies work off of bank lines of credit so they cannot approve certain deals as per the banks’ restrictions. Ask your factoring rep if they are lending to you from a line of credit from a bank, hedge fund, or other lender who places restrictions on them.

As for PG’s many people say, “Why would we lend you our money if you’re not willing to personally guarantee it?” I think that’s a fair question. My answer is simple. If I can get that same approval from a lender with similar or better terms who does not require my PG, then why shouldn’t I work with the company who does not require me to sign personally? This gets back to the point of finding the right factoring facility and setting it up properly. You can possibly avoid excessive fees and PG’s.


If you can get all the funding you need from your local bank, then that’s always the best and lowest cost option. If you cannot get your funding, or can’t get enough funding from your bank, then consider factoring as a way to solve your cash flow challenges. It’s been done for a long time and there are thousands of companies who are growing and thriving while they factor their receivables. If you do it the right way, you may actually pay less than you would pay to accept Visa and Mastercard.

[Photo Credit: Crestmark]


Tom Gazaway is the founder and President of LenCred. He is widely known as the country's foremost expert in unsecured lending solutions for small-business owners. He has written many blogs, reports, white papers, and eBooks about small-business credit and financing. Tom has extensive training and over a decade of experience in a variety of debt creation and debt management strategies that allow his clients to protect, preserve, and improve their credit profiles as they obtain funding. He is a Certified Credit Expert Witness (CCEW), and also has his FICO Pro Certification. He is one of the few people in the country who holds this particular combination of credit certifications. Hawkeye Management was named as one of the 50 fastest growing companies in the PA, NJ, DE tri-state area by Smart CEO Magazine in December 2012. His company helps both startup and established small-business owners to obtain the capital they need to start, build, and grow their companies so they can achieve their business goals and dreams. They offer a variety of small business loans and working capital solutions for small-business owners. Tom grew up in Marshalltown, Iowa and received his B.A. degree in Economics & Finance from Westmont College in Santa Barbara, CA. Currently, Tom lives in Blackwood, New Jersey with his wife Melanie and their three sons Aiden, Zander, and Micah.