Factoring services can be a powerful resource for companies of all sizes, especially those looking to improve cash flow without taking on more debt. Whether you’re managing a growing business, handling seasonal fluctuations or simply trying to bridge the gap between invoicing and payment, this financial tool can help keep operations running smoothly. Even so, it remains a mystery to many businesses.
At Central Bank, we believe the more you know about available tools, resources and approaches, the better equipped you are to position your business for success. Here, we cover what you should know about factoring services, available through our affiliate companies, Advantage Business Capital and Far West Capital. Read on to learn what factoring is, how it works and tips for ensuring you’re approaching it in the smartest, most strategic way for your business.
What is Factoring and How Does it Work?
If you’ve ever asked yourself “What is factoring?” rest assured you’re not alone. Factoring is the process of selling your accounts receivable — or outstanding invoices — to a factoring company at a discounted rate. This arrangement eases cash flow by allowing companies to receive a majority of money owed up-front, without having to wait for clients to pay. Here’s how it typically works:
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Your company issues an invoice to your customer for goods or services provided.
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You sell that invoice to a factoring company such as Advantage Business Capital or Far West Capital.
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The factoring company advances you a majority of the invoice amount. Funds are typically available within 24 hours of your request.
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Once your customer pays in full, the factoring company releases the remaining balance, minus an agreed-upon discount fee.
Companies have the option to factor all of their invoices or specific ones that make the most sense for current needs. This flexible approach offers improved control over cash flow.
Factoring Service Costs: What to Expect
One of the most common questions businesses ask regarding factoring is what it will cost out of pocket. The good news is factoring service costs are typically straightforward. Most factoring companies charge a discount fee — a small percentage of each invoice you factor. Your specific factoring service fee will depend on considerations such as:
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The total volume of invoices you plan to factor
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The length of time it typically takes for your customers to pay
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Your customers’ creditworthiness
Because factoring is not a loan, there are generally no interest payments, long-term debt obligations or hidden fees. You get predictable, upfront access to working capital, and the factoring company handles the collections process for the invoices sent to them.
Benefits of Factoring: How It Can Help Your Business
This financial tool can serve as a true game-changer for businesses across a range of industries, and the benefits of factoring go beyond simple cash flow. Factoring has the potential to help stabilize operations, fuel growth, save time and reduce stress. Here are a few real-world scenarios where factoring can make a difference:
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Manufacturing & Distribution: Large purchase orders can tie up resources. Factoring can help companies buy raw materials and keep production moving.
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Transportation & Freight Companies: With fuel costs and driver payment needs, freight and transportation operations can’t always wait for client invoices to be paid. Freight factoring offers quick cash to keep trucks on the road.
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Seasonal Businesses: Companies that experience significant swings in business from one season to the next can use factoring to create steadier, more predictable cash flow year-round.
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Growing Businesses: Expansion often means more accounts receivable — and more waiting. Factoring turns associated invoices into immediate cash for reinvestment.
Tips for Selecting the Right Factoring Company
Not every factoring company is created equal. Choosing the right partner can make the difference between a smooth, stress-free experience and unnecessary headaches. A reputable factoring company should offer transparency, flexibility and a genuine commitment to helping your business succeed. Here are a few tips to guide your search for a trusted factoring firm:
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Check Their Track Record: Look for a company with years of experience and positive reviews from clients in your industry.
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Understand the Fees: Make sure the discount rate and any additional charges are clearly explained. Ask about related costs or add-ons that could result in surprise charges.
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Ask About Contract Terms: Some companies require long-term contracts or minimum volume commitments. Make sure the agreement matches your needs.
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Evaluate Their Customer Service: A responsive, knowledgeable support team is essential for resolving issues quickly.
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Confirm Industry Expertise: Your potential factoring company should understand the specific cash flow challenges your industry experiences — and be able to offer proactive solutions that keep you ahead of potential issues.
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Ask for References: Speaking directly to current clients can give you a clear picture of what working with the company is really like.
Your Local Bank is Here to Help Encourage Healthy Cash Flow
Central Bank is proud to work with affiliate companies Advantage Business Capital and Far West Capital to give our clients access to trustworthy factoring services backed by years of experience. Advantage and Far West work closely with companies to understand their industry and unique operational needs — then provide custom solutions that make sense. Factoring solutions include:
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Asset-Based Lending: Borrowing funds secured by your business assets (inventory, receivables and equipment, for instance) to unlock working capital
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Freight Factoring: Fast payment for transportation and logistics companies to cover fuel, maintenance and payroll
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Invoice Factoring: Selling outstanding invoices to get immediate cash instead of waiting for customer payment
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Milestone Billing: Funding tied to the completion of key project stages, often used in construction or large-scale projects
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Progress Billing: Payment advances based on ongoing project progress, ideal for long-term contracts or service-based industries
With flexible options, Advantage and Far West can tailor a financing solution that works for a company’s unique cash flow needs. It’s all about providing the support companies need so they can focus on growth, instead of chasing payments.
Factoring services aren’t for every business, but they can be a helpful solution for those looking to gain access to needed funds more quickly. If your business serves creditworthy commercial customers and operates under 30- to 60-day payment terms, this option might be a great fit.
If you’re interested in learning more, please click through to our Factoring page — or visit Advantage Business Capital and Far West Capital’s sites directly. We take pride in serving our Houston friends and neighbors with factoring support and banking centered around you.