July 2019 | INVOICE FINANCE

Thursday, July 25, 2019

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Small Business Invoice Factoring

How to choose an invoice factoring company for your small business
If you are looking for ways to improve cash flow or increase funds for your small business, consider invoice factoring. Discover how it could help you

Small Business Invoice Factoring - Choosing an invoice factoring company that’s right for you can seem like a daunting prospect for many small business owners. To make this easier we have created the ultimate guide covering everything from how small business factoring works to the costs involved.



At this stage, it’s likely you have some queries about invoice factoring. In this article, we’ll provide you with the information you need to decide if invoice factoring could work for your small business.

What is invoice factoring for small businesses?
Invoice factoring is a way for small businesses to raise capital and improve cash flow. You sell your unpaid bills, or invoices, to an invoice factoring company in return for a cash advance.

The cash advance usually equates to around 80% of the invoice value which you receive within 24-48 hours of factoring your invoice. The remaining value of your invoice is paid back to you minus the factoring fees once it has been collected.

Small Business Invoice Factoring - A good way for entrepreneurs to inject cash into their business, options for small business factoring depend on a number of factors but also bring advantages and disadvantages. Weighing these up in the context of what options are available to you is important when choosing a factoring company.

Find out more on our what is invoice factoring page now.

How does small business factoring work?
The nature of the invoice factoring arrangement will depend on your particular invoices. However, there are some basic concepts to understand.

Factoring companies will look at certain variables which will allow them to work out how they will determine the risk of taking on your unpaid invoices.

These variables include:

The invoices you wish to hand over responsibility for
The time scales, size, and likelihood of receiving timely payment
Your standing, longevity, and reputation
Once this process is complete, which is usually quite fast, they will come back to you with their factoring agreement and terms.

Typically, the next steps will follow the below process:

You sell your invoice(s) to the factoring company
You are then advanced the majority of the invoice amount, usually around 80%
Once the invoice is paid, the outstanding balance (the remaining 20%) is forwarded to you, less the factoring fees

Factoring companies for small businesses
Once you have decided that invoice factoring is the best option for your business you need to start considering which invoice factoring company in the UK will suit your needs most appropriately.

In addition to their fees, you will also need to compare different companies based on their application process, how they evaluate your business, their reputation, and how they will safeguard your reputation with customers and clients.

For some small business factoring companies, you will need to have been in business for a certain amount of time, or to have a minimum turnover. You can self-select some companies based on these factors alone.

From here you will need to consider how much of the unpaid invoices that the factoring company will advance you (usually 80%) and how quickly you can get the funds (usually between 24-48 hours).

To help you consider which factoring company is best suited to you, we have reviewed some of the top UK small business invoice factoring companies and brokers. The table below contains a quick side-by-side comparison, with more information about each company included further down.

What to look for in an invoice factoring company
After understanding what invoice factoring is and comparing companies, it’s worthwhile to consider some other aspects to help you find the best option for your small business. Additional features to consider include:

Small Business Invoice Factoring - Financial regulation: Is the company recognised by, or a member of, a trusted financial body or organisation, such as the Financial Conduct Authority (FCA) or UK Finance, if applicable
Industry recognition: Look at reviews from other small business owners who have used the company’s services; has the company been nominated for, or won, any awards?
Specialism: Think about choosing an invoice factoring company that offers expertise in your sector to better understand your business needs
Industry-specific invoice factoring
While some invoice factoring companies will accept small businesses from a range of sectors, others offer specialised services for specific industries. Examples of expertise and the industry-specific issues focused on include:

Construction

Time frame: Offer understanding of the unique timeframes that apply in the industry
Materials: Construction-specific factoring can help to make necessary materials available to you as soon as you need them
Subcontractors: Specialist invoice factoring can assist in any payment gaps between contractors and subcontractors
Logistics

Flexibility: If you require funds for a one-off hire or an ongoing job, industry-specific invoice factoring could be useful
Repairs: Ensure a smooth workflow by using funds for vehicle maintenance when you need it
Growth: Expand upon your logistics business offering to meet demands of the market with relevant knowledge
Recruitment

Balance: Invoice factoring specific to recruitment can help with ensuring balance between receiving a brief and placing candidates
Flow: Maintain continuity throughout the recruitment process
Payments: Manage the difference between weekly and monthly payment cycles
Will small business factoring help my cash flow?
Yes. Small business factoring will help you to improve your cash flow via cash advances from your unpaid invoices.

This is a major benefit of invoice factoring and is one of the main reasons why factoring is so popular among small businesses.

Small business factoring costs
The cost of invoice factoring is important to consider. Costs are variable because they depend on a number of criteria. However, you will usually find that they are negotiable.

The main cost you need to consider is the discount (factor) rate. This is the fee that the factoring company charge you, usually on a weekly or monthly basis, for taking on the risk of the unpaid invoices and advancing the cash to you. The factoring charges are calculated on a percentage basis of the invoice value which typically range between 0.5 – 5%.

However, there are ways that you can minimise factoring fees. For example, with lower risk and greater volumes you can expect the factoring charges to lower. On the other hand, with higher risk and lower volumes you can expect higher invoice factoring costs.

In addition to the discount (factor) fee there are other factoring costs which you should take into consideration. These will usually fall into either of the following two categories:

Administrative charges
Penalty fees

Benefits and challenges of factoring for small businesses
There are a range of both advantages and disadvantages to factoring. Before going ahead with an invoice factoring company, you need to be sure that the benefits to your business are greater than the potential downsides.

On the plus side, factoring can:

Increase your cash flow quickly, without waiting for customers to pay
Reduce administrative pressures on your business due to processing invoices
Help you grow by taking advantage of opportunities as they come, such as a new client or project
Enable you to make urgent purchases
Reduce the time involved in the cash flow cycle, which can be limiting to small businesses who are unable to wait long periods for payment
Offer some protection against non- or delayed payment, as the invoice becomes the factoring company’s responsibility
Remove responsibility, cost and stress of debt collection
Give you assurance over invoice payment
The drawbacks of factoring will depend on the nature of your business, and your outstanding invoices. However, disadvantages of small business factoring include:

Some customers may not like that you are using an invoice factoring company, which could potentially impact your business reputation. However, some invoice factoring companies will work with you to find the best way of collecting payments to maintain good relations with your clients
Some agreements can leave you liable if the customer doesn’t pay
Slightly reduced revenue because of the factoring fees. However, this can be outweighed by the advantages of immediate cash flow
Is invoice factoring right for my business?
Invoice factoring isn’t right for every small business, but for others it can be a lifeline and a way of maximising opportunity and growth.

Small Business Invoice Factoring - You need a flexible and fast source of cash and do not want the hassle of the administration work associated with the processing and collecting of unpaid invoices, invoice factoring is an ideal solution. Although there are other ways you can raise cash, these tend to be slower to access or not available to small businesses.


For example, small business loans are an alternative to small business factoring but they can be a much slower process. You may have also already ‘maxed out’ on bank or building society lending. Additionally, overdrafts do not tend to have the capacity that you require or favourable rates.

If you have reliable customers that pay their invoices by the end of the invoice period – let’s say 60 days – but your business struggles to keep up with other client requests or orders because you lack the cash flow to maintain the smooth operation of your business, then invoice factoring can provide a helping hand. Ultimately, invoice factoring can help you to grow, solve cash flow issues and take advantage of new business opportunities.

You have unreliable clients with poor credit history who consistently fail to pay the invoice amount by the due date then invoice factoring may not be the best option for you as you could face late payment fees from the invoice factoring company.

In addition, if you are raising international invoices or collecting funds in multiple currencies, then invoice factoring is less suitable. If this applies to your small business, export finance is worth considering.

Compare small business invoice factoring quotes
The information on this page should help you to understand what kind of things you need to look for when considering small business invoice factoring. For more detailed information though, you can speak to suppliers today – we can help with this process.

Small Business Invoice Factoring - To compare quotes from up to four invoice factoring companies, simply complete the form at the top of this page. The process is free, quick and easy, and it could help your business to save time and money.
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Invoice Scanning

What is Invoice Scanning?
Invoice scanning is the process where supplier invoices in different formats are scanned in order to digitize and capture the invoice information. Companies can manage invoice scanning internally using a scanner and a data capture solution, or outsource invoice scanning to an external party.
Invoice scanning and data capture are required in order to work with AP invoice automation, where supplier invoices are processed in a digital workflow that is fully or partially automated. Preferably, you would select an invoice scanning software that is included or integrated in your AP automation solution so that the entire invoice process is managed in a streamlined workflow.

Quick and reliable Invoice Scanning
Are you ready to digitize your accounts payable? MediusFlow can help you accelerate and automate your entire accounts payable process.



Manual sorting and archiving of documents could be a slow and prone to human error process, which sometimes leads to time delays and affects bottom lines. SmartSoft Invoice Scanning avoids such hurdles and optimizes the way you handle and store invoices, thus freeing time for other important tasks.

The Process Invoice Scanning
1. Scanning and Importing Invoices
Whether you receive invoices as paper documents, fax, PDFs or image files, SmartSoft Invoices handles all of them. You can scan paper invoices directly to the software or import PDF and image files.


2. Data Capture Invoice Scanning
Invoice Scanning reads two key fields from the document such as Vendor and Invoice Number, based on template recognition. Defining a new invoice template is easy - the software locates the text regions and identifies them. So, for each new invoice, coming from the same vendor from now on, the software extracts the data automatically.

3. Data Export Invoice Scanning
Once processed, invoice documents are saved as searchable PDF in a predefined output folder, sorted by the data extracted from the key fields.


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Invoice Funding

Funding Invoice – The simplest way to release the cash that’s tied up in your outstanding invoices. Thousands of businesses across use invoice finance to maintain a healthy cash position. Providing a cash advance on your unpaid invoices will help you take back control of your cash flow so that you can get on with growing your business



INVOICE FINANCE FOR YOUR BUSINESS

Funding Invoice offers a new take on an old method of funding your business.

Invoice finance allows you to release cash that is currently locked up in outstanding invoices. There are several SMEs and businesses that rely on their invoices to maintain a healthy cash flow, whether they are providing orders, consumer goods or offering a professional service. So rather than wait 30, 60 or 90 days for an invoice to be paid, Funding Invoice can provide up to 80% of the invoice value upfront within 48 hours of being approved.


Invoice Funding - By having access to your funds tied up in invoices, known as accounts receivables, you can use this finance effectively to maintain a healthy cash flow or improve working capital for things like staff, inventory and servicing new orders.

Invoice finance as an asset based loan has been around for several years and has sometimes been associated with only being used by struggling businesses. However, this has changed in recent years where businesses have started to really unlock the power of invoice finance to fund their growth and take their business to the next level.

Invoice Funding - You are not required to sell your entire ledger of invoices and you may choose to use pay-as-you-go invoice finance where you provide an invoice as and when you see fit.
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Invoice Financing for Small Business

Invoice Financing for Small Business - Small businesses, especially those who have not been existence for very long, will often find it difficult to secure a loan. Banks are often hesitant to lend money to businesses that don’t have a lot of income and assets. They also want proof of the viability of a business, and thus require that most operations, especially small ones, are in business for a certain amount of time before they are willing to hand over any money. Because of this, a small business often has a few cash-generating options when needs arise. One option available, but often overlooked, is invoice factoring. Invoice factoring is an excellent way for a small business to obtain cash.



Factoring invoices are advantageous for several reasons. It allows a company to raise money without acquiring new debt. While debt is sometimes necessary, most businesses would prefer to raise cash without borrowing money. Debt is risky, and when it cannot be paid back, assets can be repossessed. If the debt is large enough, it may even force a company out of business.

Invoice Financing for Small Business - Factoring doesn’t pose the same problems. Those invoices secure the money paid to the company selling their invoices. The work often has already been done, and the business is only waiting to receive payment.

Factoring invoices is also an excellent option because it is a way for a small business to get the money very quickly. More often than not, when a company is in a cash crunch, they don’t have much time to figure things out. Their employees have to be compensated, there are supplies to buy, and rent to be paid. These things often can’t wait, at least not for very long. Therefore, the time factor is critical. A small business will need to secure funds as soon as possible. Factoring allows them to do that. The company’s first experience with a factor may require they wait 4-7 days to get paid. However, from then on it is likely they will receive money in as little as 24 hours.

Invoice Financing for Small Business - The factoring process is pretty simple after all of the details have been arranged. A company will sell their invoices to a factor of up to 90% of its value.  For example, a $100,000 invoice may sell for $90,000. The company can use this working capital; however, they wish to use it. After they have paid for the invoices, the factor will collect on the invoices. The original terms of the invoices apply. After they have collected them, the money is returned to the company they purchased them from, minus the factor’s fee.  It’s as simple as that.
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Invoice Financing

What is Invoice Financing?
Invoice financing is a way for businesses to borrow money against the amounts due from customers. Invoice financing helps businesses improve cash flow, pay employees and suppliers, and reinvest in operations and growth earlier than they could if they had to wait until their customers paid their balances in full. Businesses pay a percentage of the invoice amount to the lender as a fee for borrowing the money. Invoice financing can solve problems associated with customers taking a long time to pay as well as difficulties obtaining other types of business credit.

Invoice financing is also known as "accounts receivable financing" or simply "receivables financing."




Understanding Invoice Financing
When businesses sell goods or services to large customers, such as wholesalers or retailers, they usually do so on credit. This means that the customer does not have to pay immediately for the goods that it purchases. The purchasing company is given an invoice that has the total amount due and the bill's due date. However, offering credit to clients ties up funds that a business might otherwise use to invest or grow its operations. To finance slow-paying accounts receivable or to meet short-term liquidity, businesses may opt to finance their invoices.

Invoice financing is a form of short-term borrowing that is extended by a lender to its business customers based on unpaid invoices. Through invoice factoring, a company sells its accounts receivable to improve its working capital, which would provide the business with immediate funds that can be used to pay for company expenses.

KEY TAKEAWAYS
Invoice financing allows a business to use its unpaid invoices as collateral for financing.
A company may use invoice financing to improve cash flow for operational needs or speed up expansion and investment plans.
Invoice financing can be structured so that the business' customer is unaware that their invoice has been financed or it can be explicitly managed by the lender.
Invoice Financing From the Lender's Perspective
Invoice financing benefits lenders because, unlike extending a line of credit, which may be unsecured and leave little recourse if the business does not repay what it borrows, invoices act as collateral for invoice financing. The lender also limits its risk by not advancing 100% of the invoice amount to the borrowing business. Invoice financing does not eliminate all risk, though, since the customer might never pay the invoice. This would result in a difficult and expensive collections process involving both the bank and the business doing invoice financing with the bank.

How Invoice Financing is Structured
Invoice financing can be structured in a number of ways, most commonly via factoring or discounting. With invoice factoring, the company sells its outstanding invoices to a lender, who might pay the company 70% to 85% up front of what the invoices are ultimately worth. Assuming the lender receives full payment for the invoices, it will then remit the remaining 15% to 30% of the invoice amounts to the business, and the business will pay interest and/or fees for the service. Since the lender collects payments from the customers, the customers will be aware of this arrangement, which might reflect poorly on the business.

Invoice Financing - As an alternative, a business could use invoice discounting, which is similar to invoice factoring except that the business, not the lender, collects payments from customers, so customers are not aware of the arrangement. With invoice discounting, the lender will advance the business up to 95% of the invoice amount. When clients pay their invoices, the business repays the lender, minus a fee or interest.
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Invoice Factoring Company Reviews

Invoice Factoring Company Reviews - If you’re frustrated by late payments, you’ve probably been less than thrilled at the recent popularity of extending payment terms. In fact, in some industries, long payment terms have become the norm. It is hardly surprising, then, that many small businesses experience cash flow issues when their capital gets stuck in unpaid invoices and cannot be funneled back into the business immediately.

Invoice Factoring Company Reviews - This can be a stressful situation for business owners, especially if the financial health of the company is at stake or when the company is having a hard time meeting its own financial obligations or maintaining its good credit score.



Naturally, business owners look for ways to improve their cash flow. One of the popular business funding options is invoice factoring, which gives you access to your capital without having to sell equity or take on debt.

Still not sure if invoice factoring is right for you? Read on to learn more about this creative debt

What is Invoice Factoring?
Invoice factoring is a kind of financing where you can get cash advance for your unpaid invoices. It can also be called a lot of other terms, such as accounts receivable factoring, receivables factoring, AR factoring, invoice financing, accounts receivable financing, receivables financing, AR financing or just plain factoring.
Take note, however, that even though many companies use the terms invoice factoring and invoice financing interchangeably, the two are technically different. We will discuss the difference later on in this guide.

How does invoice factoring work?
A factoring transaction involves three parties:

The client — the company that issues the invoices
The customer (also called account debtor) — the company that owes the client money for the goods and services received
The factor — the company that provides funding to businesses in exchange for outstanding invoices
After providing goods and services, a company (the client) sends their customer an invoice. The customer has a financial obligation to pay the client, who owns the invoice. The invoice is a financial asset that gives its owner the legal right to collect money from the customer.

The client then sells the invoice to a factoring company in exchange for an immediate cash advance amounting to a percentage of the invoice value (typically 70%-90%). The ownership of the invoice transfers to the factor, which gives the factoring company the legal right to collect the debt from the customer.

The factor gives the cash advance to the client, holds the remaining amount as reserve, and takes over payment collection from the customer. Once the customer pays the invoice, the factor takes out its fee (called the factoring fee or discount fee) from the reserve then forwards the rest (called the rebate) to the client.

The transaction benefits all the parties involved:

The client gets funds immediately
The customer enjoys better payment terms
The factoring company earns a fee
The factoring fee is a percentage of the invoice value and is usually calculated on a weekly or monthly basis. To illustrate simply, a 1% weekly factoring fee on a $100,000 invoice means that the factor will charge $1,000 every week the invoice remains unpaid. Some factoring companies also charge a processing fee, typically around 3%. Those fees are essentially the price you pay to have cash on hand now instead of weeks later.
Let’s look at a specific example to make things clearer.

Let’s say that you have an outstanding invoice worth $100,000, due in 4 weeks. You approach an invoice factoring company and apply for financing with your invoice as collateral. Your contract specifies that the advance rate is 85%, the factor fee is 1% per week, and there is a 3% processing fee.

This is what will happen: You immediately get 85% of the invoice value as advance ($85,000) and the factoring company holds the remaining $15,000 as reserve. If your customer takes 4 weeks to pay the invoice, the factoring company deducts the 3% processing fee ($3,000) and the 4% factoring fee ($4,000) from the reserve and sends you the remaining $8,000 as rebate. All in all, you get $93,000 from your $100,000 invoice.

Invoice Factoring Types
When it comes to invoice factoring, you have two options. Their difference lies on who takes on the risk.

Recourse Factoring
This is the standard kind of factoring. With recourse factoring, you take on the risk. If the customer does not pay for whatever reason, you will have to pay the factoring company its fees and the total borrowed amount.
Because this arrangement is less risky for factoring companies, they typically charge lower fees for recourse factoring transactions. If your customers are creditworthy, this will likely be the better choice for you.

Non-Recourse Factoring
With non-recourse factoring, on the other hand, the risk falls on the factoring company. The factor will shoulder the loss if your customer does not pay up. Because of this risk, the advance rate that comes with this arrangement is lower and the fees are a lot higher and may not be worth it.

Will Invoice Factoring Help My Business?
Now that you are more familiar with the concept of invoice factoring, you might be wondering if and how your business will improve from this kind of financing.

At one point or another, a business will need a quick cash infusion. Without enough cash on hand, the company might have a hard time paying for necessary expenses or grabbing opportunities that will take it to the next level. This is especially true for companies that invoice their customers for large sums of money and have especially delayed payment terms, such as in government contracts, corporate clientele, and multi-phase contracts. Moreover, many business owners have received a late payment from a commercial customer at least once. In fact, more than half of invoices are paid late.

As a business owner, you have several options for financing but many of them are hard to qualify for, not immediately available or insufficient for your needs.

This is where invoice factoring comes in.

Invoice factoring quickly frees up capital that is tied up in outstanding invoices, providing you with immediate capital that you can flexibly use for any business needs. Instead of waiting for weeks (or months) to get paid, you can use your invoices to have access to funds within a day or two. With improved cash flow, you can now operate your business more smoothly.

The fees associated with invoice factoring can sometimes be high, but many businesses still choose invoice factoring over other types of financing due to its speed and low risk. The products and services have already been sold, the work has been completed, and the invoice has been confirmed. You are just waiting for the payment. As long as you trust that your customer will fulfill its financial obligation to you, you do not have to worry about paying the advance. You can just focus on growing your business or settling your business expenses.
The following are just some of the issues and opportunities where the immediate funds from invoice factoring can help you:

Paying for unexpected expenses
Covering important and urgent expenses (such as payroll, rent, and taxes) during short-term cash flow shortage
Buying supplies and inventory
Paying off existing debt
Taking on new work or large orders
Expanding or improving your business
Investing on new equipment
Taking advantage of discounts your suppliers give for bulk buys and early payments
Hiring additional workers
Meeting seasonal needs
Reducing collections and administration costs
What Types of Businesses do Invoice Factoring Companies Work With?
Invoice factoring companies work primarily with business-to-business (B2B) or business-to-government (B2G) companies that invoice their customers. If you have a business-to-consumer (B2C) company or do not issue invoices to your customers, then factoring is not for you.
Industries that usually use invoice factoring are manufacturing, transportation, trucking, oil and gas, and wholesale. It is a lot easier for B2B companies to qualify for invoice factoring than traditional business loans. Compared to other lenders, factoring companies do not care as much about the company’s profitability, annual revenue or age of the business. Some will also look at your credit score and financial history but will still consider you even if those two are less than stellar.

This is because your outstanding invoices act as collateral. So, when making their decision, factoring companies are more interested in the amount and quality of your invoices and the creditworthiness of your customers than in your own financial qualifications. The more creditworthy your customers are, the more likely it is for factoring companies to approve your application for financing.

It is also very important that your invoices are not pledged to other loans. That means you cannot use the same invoices as collateral for other loans. In addition, your company should not have a history of serious legal or tax issues.
Some invoice factoring companies also decline companies that offer payment terms exceeding 90 days. This is because of a theory that customers are less likely to pay more than 90 days after the issuance of the invoice.

Invoice Factoring vs. Bank Loans and Other Kinds of Conventional Business Financing
Invoice factoring is similar to business loans in some ways, but it is technically not a business loan. Both options can help you get funding for your business needs but there are notable differences, such as:

Invoice factoring is not considered debt
Because factoring companies purchase your unpaid invoices, you are not taking on any debt. Unless your customer fails to pay the invoice, you do not have to worry about paying the factoring company. In contrast, business loans are debts, and debts can become a burden weighing down a business and a big source of stress for business owners.

There are more parties involved
Traditional business financing options involve only two parties: you and the lender. Meanwhile, factoring involves three: the factoring company, you, and your customer.

Funding decisions depend on different things
With traditional business loans, lenders decide if you qualify and for how much based on your financial and business history, such as your bank statements, credit score, and tax returns. On the other hand, the factoring companies’ funding decision depends on the credit quality of your customers. This means even relatively new or not very profitable companies can get funded as long as their customers are established businesses or the government.

The approval rates are different
According to a report published by Forbes, big banks now approve 25.9 percent of funding requests they receive, a post-recession high – but that still leaves many companies without the money they need. Invoice factoring has a higher approval rate compared to bank financing, so you can still qualify even if you have had a hard time qualifying for a bank loan or other types of traditional financing. As long as you have outstanding invoices issued to creditworthy customers, you are likely to be approved.

Application and approval speeds differ
Bank loan applications can take months and involve a lot of paperwork, which can be quite frustrating given their low approval rate. In contrast,applying for factoring is faster, simpler, and needs a lot less paperwork. Most factoring companies have an online portal where you can submit the requirements.

Approval is also quicker, typically within only 1-2 business days. You get the money right away, enabling you to immediately grab business opportunities that come your way or take care of problems caused by short-term cash shortage.

Advantages and Disadvantages of Invoice Factoring
There are many reasons to use invoice factoring to infuse capital into your business, but just like any other financing method, it is not the best choice for all kinds of businesses. So, before you enter an agreement with a factoring company, make sure that you have considered all the pros and cons of invoice factoring.

Advantages of Invoice Factoring
We have touched on some of the upsides of invoice factoring earlier. Now let us take a deeper look and discuss additional advantages.

You get business capital even though your customers have not paid yet
You do not have to wait for your customers to pay just to have money for your business needs. You can grab opportunities and take care of expenses now, instead of weeks or months later.

You are not restricted or stressed out by debt
Because you do not take on debt with invoice factoring, you can use the funds more flexibly. There are no restrictions on how you can use the money.You also do not have to worry about monthly payments. The monthly payments associated with business loans are stressful for business owners, who sometimes end up choosing between paying the bank or taking care of payroll or utilities.

Getting funds through invoice factoring is fast
With invoice factoring, the application process is simple, and you can secure funding for your business relatively fast. In some cases, the money will be in your business bank account the same day you apply. This is because factoring is a short-term, low-risk kind of financing, which encourages factoring companies to require less paperwork and speed up their process in order to be competitive, as well as be less thorough in their underwriting.

In contrast, bank loans and other traditional business loans can take weeks or even months to approve applications. If you need the funds urgently, then invoice factoring is obviously the better choice.

It is easy to qualify for invoice factoring
Banks and other traditional business lenders do not just take a long time to approve loans but also have very strict requirements and low loan approval rates. They also involve a lot of paperwork and will scrutinize your personal and business financial health and history.

In contrast, you can qualify for invoice factoring financing even if you do not qualify for traditional types of business loans. The outstanding invoices already serve as collateral, so you do not need to have additional collateral to even apply.

In addition, because the funding is secured by the invoices, the factoring companies will evaluate your application based on the credit history of your customers, not yours. This means as long as your invoiced customers are creditworthy, you can still get approved even if your business is still new or has less than impressive credentials.

You can reduce overhead by outsourcing collections
Because factoring companies purchase your invoices, they will take care of collecting payment from your customers. This can cut down your administration cost and lower your business overhead. You also won’t have to make repeated follow-ups on late payments, which can be a source of stress especially if you are busy or do not have the manpower to collect payments efficiently.

Take note, however, that in some forms of invoice factoring, such as invoice financing (more about invoice financing later), you — and not the factoring company — are the one responsible for collecting payments, so if outsourcing payment collections is an advantage that appeals to you, make sure to clarify that with the factory company.

Disadvantages of Invoice Factoring
Now that we have discussed the positive aspects of invoice factoring, let us talk about the downsides.
It is limited to B2B and B2G companies
Because invoice factoring depends on invoices, it is only available to businesses that issue invoices to their customers, i.e. B2B and B2G companies. In addition, there might be invoicing minimums, so if you have low outstanding payments you may not qualify.

The fees are higher compared to traditional business financing
Invoice factoring is more expensive than business credit cards and conventional lines of credit. This is because of the short repayment term and the high fees. The processing fee plus the factoring fee add up to a high percentage of the invoice value for just a short period of time, which translates to a high interest rate. The astronomical fees might be worth it, depending on your company’s circumstances, but before committing to an agreement with a factoring company, be sure that you completely understand the costs and are willing to pay them.

If your customer does not pay, you will have to pay
In most factoring agreements, you take on the risk of non-payment. If the customer does not pay, you will have to pay the factoring company the total borrowed amount plus the fees.

Approval and interest will depend on your customer’s creditworthiness
The creditworthiness of your customer is a double-edged sword. If your customer is reliable and responsible with its financial obligations, your application will be approved and the interest rate will be low. On the other hand, if your customer’s credit rating is not so good, you will have a higher interest rate.

The fees can add up quickly if the customer is slow to pay
The fees that the factoring company will deduct from the reserve will depend on how quickly your customer pays up. If your customer settles its financial obligation immediately, the factor fee won’t be too bad, especially if the invoice amount is high. However, you can end up paying a high fee if you have slow-paying customers. It is therefore important for you to review your previous transactions with your customers before making a decision about invoice factoring. It will not only help you decide if invoice factoring is a good option for you – it will also help you choose which invoices to sell. In general, it is better to sell invoices issued to customers that pay the full amount immediately.

The factoring company will be the one to collect payments from your customers
Because the invoice has been purchased by the factoring company, that company now owns the invoice. This usually means that company will take over payment collection and will thus communicate with your customers.

Whether this is a good thing or a bad thing will depend on you and your business, which is why this disadvantage is also listed as an advantage. If collecting payments from your customers is something you consider stressful or inconvenient, then the factoring company doing it will be a welcome relief.

However, this can be a deal breaker if you do not want your customers to know that you are factoring invoices. You also won’t be able to control the interaction between the factoring company and the customer, which might be an issue if the factoring company is not as professional and courteous as you are when collecting payments.

If the customers need to send their payment directly to the factoring company, this can also lead to confusion or negatively affect your relationship with your customers in other ways. Furthermore, customers that know about your factoring arrangement might assume that your business is having financial problems and is therefore at risk. This impression might cause existing customers to leave, while scaring off potential customers.

But worry not; if you are interested in invoice factoring but do not want another company collecting payments from your customers, you have another option: invoice financing.

Invoice Factoring vs. Invoice Financing
As mentioned at the beginning of this article, many companies use these two terms interchangeably. However, while the two are very similar, they have a few differences, the most important of which is that with invoice financing, you get the cash advance but still remain the owner of the invoices, so you are still in charge of payment collection. The factoring company will therefore not be interacting with your customers.

Another difference is that with invoice factoring, you will have to agree to let the factoring company do a credit check on your customers. If they fail these checks, your application may be denied. In contrast, with invoice financing, the creditworthiness of your customers is not the only determining factor. This is because fintech invoice financing companies use high-tech methods to evaluate businesses.

In addition, with invoice financing, you can get the whole invoice amount as long as you are okay with paying the associated fees. With invoice factoring, on the other hand, you only get a portion of the invoice value. You first get the advance then after your customer has paid, the factoring company deducts its fees from the reserve then sends you the rest. Lastly, while both invoice factoring and invoice financing are much faster than conventional business loans, invoice financing is typically faster than invoice factoring.

How do I apply?
Applying for invoice factoring is quick and simple. It usually takes only a few minutes and requires only a few documents. The most important thing in your application is the invoice, as that determines the funding amount as well as the terms of the agreement. Most factoring companies accept online applications. Some connect to accounting software, such as QuickBooks and Xero, enabling the client to easily enter the details of the invoices he is submitting. These are the documents needed to apply for invoice factoring:

Outstanding invoices
Driver’s license
Voided business check
Bank statements
Credit score
Applications are usually approved within a business day or two.

How To Choose the Best Factoring Company
There are hundreds of companies to choose from. How do you decide which one is the best?

As you evaluate and compare factoring companies, it is advisable to ask each company to provide information about all the fees that they charge. When it comes to fees, transparency is key. Check that all fees are clearly stated in the factoring agreement to avoid undesirable surprises.

Be careful with factoring companies that are not fully transparent with the cost of doing business with thh4. In addition, be wary of companies that advertise very low factoring rates then hit you with a lot of hidden fees. If finance is not your expertise, it might be better to consult an accountant or lawyer to be sure.

Other things to look out for are high fees and lack of adequate communication. High fees might mean the company underwrites so fast that they suffered losses that they are now trying to recover through their clients. An impersonal touch, meanwhile, can leave you clueless as to why certain things happen, such as why some of your invoices were rejected.

You can also evaluate the factoring companies by how long it takes them to approve applications and release the funds.
Also take note of the age and reputation of the companies. You can gauge the reputation of the factoring companies by checking the reviews they have received from their clients. These reviews will give you an idea on how satisfied their clients are and what your experience with the company will be like.

In addition, because invoice factoring companies will be contacting your customers during collection, it is also a good idea to ask the companies about their customer support. Find out how they will communicate with your customers and decide if that will be acceptable.

Another thing to consider when choosing a factoring company is if it allows contract factoring or spot factoring.

With spot factoring, the client can sell a single invoice to the factor. This is favorable to the client but not to the factoring company because a single invoice is inefficient considering the time and effort the factor spent in processing the application. An individual invoice might also mean a low amount, which makes the client a lower value client compared to others. In this case, the factoring agreement will have higher fees and stricter terms.

With contract factoring, on the other hand, there is a long-term contract and factoring companies take on invoices based on value, instead of picking single invoices. This means there might be a minimum volume per month or that the client needs to submit all invoices to the factor while the contract is active.

Contract factoring is common but rigid and not favorable for small businesses because their customers have different payment terms or changes in financing.

We also strongly recommend checking the factoring company’s familiarity with your industry. If you have a real estate business, for example, it is better to choose a factoring company that specializes in real estate factoring because it is trusted in your industry and is knowledgeable about how real estate companies do things.

Finally, you should make sure to read professional reviews of every potential invoice factoring company to get the scoop on how exactly the company works, its fees, and other things to expect during the application and funding processes. These reviews should give you a good idea which company is the best fit for yours.

BlueVine
With this popular small business financier, invoice factoring applications can be done completely online and takes only 5 minutes. The terms are simple and transparent and business owners can get factoring lines ranging from $5,000 up to $5 million, with rates as low as 0.25% per week. You can submit as many invoices as you want and get an advance amounting to 85% to 90% of the invoice amount.

BlueVine integrates with popular accounting software, such as Xero, FreshBooks, and QuickBooks but can also work with clients that do not use any accounting or invoicing software. The initial application is generally approved within 24 hours and subsequent ones within only a few hours. The expertise of BlueVine lies in multiple industries but the company does not work with clients from the gambling, firearms, car dealership, and adult entertainment industries. To qualify for financing, your business needs to be least 3 months old, with a credit score of 530 and $100,000 in annual revenue.

Triumph Business Capital
Triumph Business Capital provides invoice factoring services in the trucking, freight, staffing, oil and gas, and small business industries.

Its advance rate is around 90% while factor rates range from 1% to 4%.

Like BlueVine, Triumph typically approves applications within 24 hours. However, unlike BlueVine, Triumph handles the collection of payment and interacts directly with your customers.

Fundbox
Fundbox is another reputable business financing company. It has a TrustScore of 9.7/10 and an overall rating of “Excellent” on TrustPilot, as well as an A+ rating with the Better Business Bureau.

Unlike the previous two companies, Fundbox advances the full invoice value. Application only takes minutes and approval only a few hours. The credit limit is $100,000, with fees starting at 4.66% of the drawn funds.

Fundbox is similar to BlueVine in that it does not communicate with its clients’ customers. Your customer pays you directly and you pay Fundbox every week for 12 or 24 weeks. The company supports several accounting software but also works with clients that have no accounting program. It can also connect to business checking accounts from most national and local banks and credit unions.

Fundbox’s fees are transparent and straightforward and you can save on fees if you repay early.

Questions to Ask
After you have decided that invoice factoring is a good fit for your business, ask the factoring companies you are considering these questions before committing to an agreement.

What is the advance rate?
Different companies advance you different percentages of the outstanding invoice. Some offer higher percentages than others. Make sure that you are getting a good rate and that the advance you will get is enough to cover your needs.

How much is the processing fee?
Most factoring companies charge a processing fee right off the bat. You will be paying that amount no matter what, even in the best case scenario. Make sure you are comfortable parting with that amount of money.

What is the weekly fee for my outstanding invoice?
Different factoring companies charge different factoring fees. If you have slow-paying customers, the fees can get really high, so make sure you have a good idea how much the transaction will cost you and if you can actually afford those fees.

How many invoices can I factor?
Some factoring companies allow as many invoices as the client desires, while some only factor one invoice at a time.

Is it required that I have an accounting software?
Some factoring companies only accommodate clients that use an accounting software, so clarify this point before proceeding. If you use an accounting program, make sure that it is compatible with the company’s system.

When do I need to pay back the advance?
Some companies require you to pay the advance back within a specific time frame. Others get repaid when your customer pays the invoice. If the factoring company you are considering has a set payback period, make sure you will be able to repay the funds if your customer’s payment is delayed.

Can we easily work together again?
Business owners experience cash flow issues every now and then. When problems arise, it is nice to have an invoice factoring company that you already trust, so ask the factoring company what repeat transactions with them would be like.

Who owns the debt?
Some factoring companies own the debt and collect payments from their clients’ customers, while some leave the debt and the collection to the client. Make sure that it is clear to you where the factoring company stands regarding these two things and that the company is aligned with your preference.

How will you interact with my customers?
Some factoring companies take over payment collection, some don’t. If you prefer your customers to not know that you are factoring your accounts receivable, choose a company that lets you do the collection yourself. If you are okay with the company communicating with your customers, make sure their representatives are professional and respectful.

The Bottom Line
Invoice factoring is a quick and effective way to boost a company’s growth and improve its cash flow issues. Just like any other forms of financing, however, it has advantages and disadvantages that business owners need to consider. With this guide, you now have a better understanding of how it works and if it is right for your business.
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Invoice Factoring Company

Invoice Factoring Company - For over 30 years, 1st PMF Bancorp has specialized in factoring invoices with thousands of companies successfully funded. As a leading invoice factoring company, PMF Bancorp specializes in assisting young and fast growing companies without the red tape of traditional banks.

Definition: Factoring is the purchase of an invoice at a discount in order to accelerate cash-flow and/or mitigate credit risks.

Invoice factoring companies have long served a vital role in financing small to medium sized companies that have often had difficulty in securing traditional bank loans.  Companies with $1 to $30 million in annual sales are often perfect fits for an experienced factoring company.  A factor can provide extra cash flow by converting a company’s accounts receivable into instant cash to purchase more inventory and/or meet growing payroll requirements.  A company with invoices to factor should not jeopardize their credit by trying to match their customers payments to bills that need to be paid immediately.



In addition, many companies need their factoring company to have a global reach with the ability to finance trade, not to just offer standard invoice factoring services.  With companies buying imported goods and selling abroad as well, there is a large need for the factoring companies to be able to support these type of trade financing transactions.  PMF Bancorp has a full service international trade financing desk that provides its clients with everything from letters of credit to international SWIFT and guarantee services.


PMF Bancorp, not only specializes in invoice factoring and trade financing, but also other complimentary financial services that can help a company grow their sales safely.  PMF provides invoice collections and management services as well as credit insurance for invoices.  Credit insurance is a great tool that good factoring companies will have in their list of services.  When used correctly, credit insurance can assist a company in growing its sales and reducing risks by eliminating the default risk due to financial stress and/or bankruptcy.

Invoice Factoring Company - We are dedicated to making the process simple with a quick turn around (within 24 hours in most cases). Our factoring rates are very competitive while also giving our clients the confidence to continue their growth because of our long history in the market and deep experience in factoring invoices in many industries.

PMF’s Factoring Service provides:

Competitive Prime Plus Bank Pricing
Competitive Advance Rates
Credit Insurance / Letters of Credit
Financing for Foreign and Domestic Invoices


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Invoice Factoring

WHAT IS INVOICE FACTORING?
Invoice Factoring is a financial transaction and a type of debtor finance. In an invoice factoring, a business sells its accounts receivable (invoice) to a third party (called a factor) at a discount. A company will sometimes factor its receivable assets to meet its present and immediate cash needs. It might also factor their invoices to mitigate credit risk.

Factoring is commonly referred to as accounts receivable factoring, invoice factoring, and sometimes erroneously accounts receivable financing. Accounts receivable financing is a term more accurately used to describe a form of asset-based lending (ABL) utilizing a company’s accounts receivable as collateral.



How Does Invoice Factoring Work?
First: Your company provides goods or services to creditworthy customers and submit correct invoices.

Second: Your company sells it’s unpaid invoices to an invoice factoring company.

Third: A factoring company verifies the invoices and then funds your business with an immediate payment of up to 90% of the received amount the same day.

Fourth: Customers make payment directly to the factoring company according to the terms of the invoice. The factoring company then returns the balance of the paid invoice minus a fee.


How is Invoice Factoring Different from a Bank Loan?
Factoring differs from borrowing in companies sell accounts receivables rather than merely serve as collateral. The net result is that your company can convert its receivables into immediate operating cash. That way, you will not have to wait 30, 60, 90 days or more for your customers to pay.

This process places the time, cost, and effort of the collection into the hands of the factoring company, allowing you the time to concentrate on what you do best – run your company. Your business receives the cash it needs when it needs it, so you can best manage your business.

Invoice factoring can be an excellent option for companies that need money quickly, but who aren’t able to secure a conventional, bank loan. Many refer to business factoring by several names such as receivables factoring, invoice discounting, invoice factoring, and debtor financing.

Good factoring companies will research the credit history of the seller’s customers before purchasing the invoices. Factors will want to be confident that these companies have a history of paying their bills. The factors will also provide non-recourse factoring. Non-recourse protects your company in the case of your client going insolvent during the transaction period.

Factoring is a way for companies to infuse cash into their business without taking on additional debt. By selling their accounts receivables at a discount, they can get money right away without having to wait to collect it themselves. Receivable finance is a great funding option for most industries, including trucking, staffing, distributors, and importers.


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International Invoice Factoring

International Invoice Factoring - For providing goods and services to foreign markets, we highly recommend Drake Finance’s International Factoring Program. This international invoice factoring framework allows your business to have access to much-needed financial resources to maintain adequate cash flow, even while you have outstanding foreign accounts receivable.

International invoice factoring can be advantageous for small businesses that need cash on hand to maintain their daily operations and sustain growth. We understand that with the huge expenditures associated with the export of products, many small businesses expanding into foreign markets tend to lose momentum. With our International Factoring services, your business gets its second wind.



Drake Finance’s International Factoring Program treats your foreign account receivables as financial assets and offers you up to 95% of the total invoice value. This export factoring program provides a full and advanced payment on your goods within a relatively short time frame, quicker than the stipulated terms in the purchase contract between you and your buyer.

The proceeds of this advance payment can then be utilized to fund additional business activities, such as:

Procurement of more raw materials
Increasing the volume of your export products
Diversification of your business portfolio
Imagine getting paid up front (minus our fees) for your exports, in as little as 24 hours after they have reached the port of destination. The remaining balance of the invoice is rebated to you once your buyer pays the invoice in full.

Let Us Take It From Here
By choosing Drake Finance’s export financing services, you can also rely on us to make overseas collections on your behalf. This way, your people can focus their energies on acquiring new clients and facilitating other export deals, therefore channeling your efforts into your company’s growth.


International Invoice Factoring - All our business transactions will be properly documented and easily accessible by you at any time. Drake Finance provides you with a hassle-free solution that can be set up within a few days.

Invoice Factoring for U.S. Companies:

International Invoice Factoring
Accounts Receivable Factoring
Staffing Factoring
Government Invoice Factoring
Service Business Factoring
Manufacturing & Distribution Factoring



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Factoring and Invoice Discounting

Factoring and Invoice Discounting - Factoring and Invoice Discounting are both financial services that can release the funds tied up in your unpaid invoices, involving a provider who agrees to advance money against outstanding debtor balances.

The essential difference between Factoring and Invoice Discounting lies in who takes control of the sales ledger and responsibility for collecting payment:

Factoring and Invoice Discounting - With Factoring, the provider takes the role  of  managing the sales ledger, credit control and chasing customers for settlement of their invoices.
With Invoice Discounting, your business retains control of its own sales ledger and chases payment in the usual way.



Another difference between Factoring and Invoice Discounting is in the area of confidentiality:
With Factoring, the customer settles their invoice directly with the Factoring company; so customers are more likely to be aware of your Factoring arrangement.
With Invoice Discounting, your customers still pay you directly; there is no need for them to know that a third party is involved.

The benefits of Factoring and Invoice Discounting
Releasing up to 90% of the value of your outstanding invoices within 24 hours
Funding can be secured without requiring other assets
Cash is freed up to overcome cashflow problems or grow the business
The level of funding available increases with your turnover
Paying supplier invoices promptly increases your power to negotiate discounts
Factoring and Invoice Discounting services are competitively priced
Factoring and Invoice Discounting providers often offer excellent business guidance
The additional benefit of Factoring is that it comes with a complete credit control and collection service, enabling you to focus your resources on other areas of your business.


Factoring and Invoice Discounting - In regards to Invoice Discounting, you attain the advantage of managing your own credit control and debt collection. Hence, your customers are never aware that a third party is involved or that your business might be having cashflow problems.

Who uses Factoring and Invoice Discounting?
Factoring and Invoice Discounting are particularly suited to businesses in areas such as:

Construction
Recruitment
Manufacturing
Wholesalers
Printers
Couriers
But in any business that provides services or goods to other businesses and gives customers credit terms of 30-90 days, Factoring and Invoice Discounting can solve the problems associated with slow payment.

Likewise, Factoring and Invoice Discounting are useful options for:

Business startups — flexible start-up finance to get your new company off the ground.
Growing businesses — putting your cash back to work for your business as soon as you’ve earned it.
Struggling businesses — bridging the gap between invoicing your customers and getting paid.
Which is right for you?
Whether you choose a Factoring or an Invoice Discounting facility will largely depend on the size of your business and your sales ledger management resources.

If your business is relatively small and your human resources limited, the credit control and collection service that comes with Factoring is likely to suit you better.

If your business is larger, and you have the human and information resources to efficiently manage your own sales ledger and debt collection — or if you feel strongly that you want your own company to deal with debt collection — Invoice Discounting is likely to be your preferred option.

Get expert Guidance — for free
If you are considering Factoring and Invoice Discounting, why not speak to an impartial expert at Touch Financial about how this form of finance could benefit your business?

Our free consultation service helps small and medium business owners decide on the best way forward.

Factoring and Invoice Discounting - We’ll take the time to understand your needs before making any recommendations. And if you wish, we can put you in touch with Factoring and Invoice Discounting providers that offer the right service for your specific requirements.

Get a competitive quote right now
At Touch we have access to a panel of more than 20 quality lenders. Let us do the legwork for you. Use our online quote form now to find out how much cash you could release from your unpaid customer invoices.


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Cash for Invoices

Cash for Invoices - By using products such as invoice finance and spot factoring, selling invoices for cash has never been more convenient.

Cash for Invoices - By selling invoices, you can immediately cash in on the value of the invoices you are owed by your customers within 24 hours of the invoice being raised. All the while, you are still providing fair terms of payments to your customers. So to help ease the cash flow issues of your business, why not contact us and sell your unpaid invoices today.

How can Touch Financial Help to Sell your Invoices
Before we get stuck into the details of how to sell invoices for cash, we would like to mention that Touch Financial are an entirely free of charge brokerage, fully authorised and regulated by the FCA (more information can be found here, For more information on our services and how we are remunerated by lenders please click here.



Usually within a 10-15 minute call to one of our expert consultants, we will be able to assess the best way for your business to sell invoices. We will work with you to swiftly understand what sort of service you require from your lender and aim to secure you some favourable rates with the 2-3 lenders we will suggest from our panel of over 30 of the UK’s leading invoice finance providers.

How to Sell an Invoice
Selling an invoice is often an extremely simple process, typically through an online platform. You upload a copy of the invoice you would like to sell, and the lender will effectively purchase the invoice from you.


Cash for Invoices - Once the terms of payment attached to the invoice falls due, it is also time to repay the lender. Depending on whether or not you already have an established credit collection department (and have the time/manpower to run it), you may want the lender to collect payment for you. Alternatively, you may choose to collect the payment from your customer yourself. Once the cash is returned to the lender, the pre-arranged fee in order to sell invoices is taken.

Spotting the right opportunity for you
If you are looking to sell an individual invoice as opposed to all of the invoices in your outstanding ledger, you will want to use spot factoring or single invoice finance. There are particular lenders who have specialised in offering spot factoring and you can discover which lender best suits your needs through a quick, no-obligation call with one of our expert consultants today. If you would like to receive cash for invoices today, click on the Apply Now button below to get started. Alternatively, you can speak to our expert team about which single invoice finance service may best suit your circumstances.


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Automated Invoice Processing

Automated Invoice Processing - Without significantly changing the way people work, you can completely transform your existing invoice processes to be automated and more efficient, secure and cost effective. By reducing invoice processing time, you can secure early-payment discounts and improve vendor relations, and also free up staff to work on business-critical activities. With a documented, automated invoicing process, you’ll simplify audit response and gain greater oversight into bottlenecks or inefficiencies.



Solutions for Invoice Processing enable you to:

Capture invoices from disparate sources including mail, multifunction printers (MFPs), fax, email, and other electronic sources.


Automated Invoice Processing - Eliminate the cost, risk and delay of shipping hard-copy invoices to central processing facilities. Extract invoice data and pre-populate it in your accounts payable system
Route invoices to the appropriate person - manually or automatically - for review and approval
Effectively manage vendor relationships with unified access to invoice and payment history
Eliminate costly file cabinets and off-site storage space
Cut copying and printing “footprint” through digitization

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