Top Alternatives to Invoice Factoring

While invoice factoring may be common in certain industries, it is not a one-size-fits-all financing solution. It does not address large capital needs, and it requires an ongoing invoice assignment. It is also active financing, so even if the business doesn’t utilize the capital, it still must pay a fee. The top alternatives to invoice factoring include invoice financing, term loans, lines of credit, and business credit cards.

Managing as an Alternative to Invoice Factoring

Getting financing is not the only solution when invoices are unpaid and your business is short on cash. In fact, it’s best to have a short-term financing solution available and combine it with long-term management practices that will help reduce the occurrence of cash shortages in the future. 

Invoice Customers Regularly

If you invoice customers regularly they can integrate payments into their routines. This also makes them far less likely to lose an invoice or forget about it until it’s too late. Invoicing software exists that can help, but if you are on a budget, adding a simple reminder to your calendar can be just as powerful. 

Automate Invoicing and Follow-ups

Introducing automation into your business can help you collect invoices more quickly. It will also ensure that no one forgets to send out an invoice and the invoice is definitely delivered. But, beware of the trap with automation, which is that the system can never be trusted 100% for accuracy and you may need to maintain and adjust it from time to time.

Offer Multiple Payment Options

This is a simple one that I’m often surprised more business owners don’t utilize. Not every business wants to write a paper check, put it in an envelope, put a stamp on it, mail it out and then worry about there being enough funds in the account. If your business has the opportunity to accept credit card payments, or you can do a direct transfer, for an invoice you are far more likely to receive payment sooner, than if you only offer a single option.

Best Invoice Factoring Alternatives

Invoice Financing

Invoice financing is similar to invoice factoring because the loan amounts are based on the value of outstanding receivables. The major difference between them is that with invoice financing, small business owners don’t need to assign the invoices, so the customer relationship remains within the business’s control.

Short-term Loans

Short-term loans are the most familiar form of financing. They offer small business owners a lump sum of capital with a long repayment period and regular weekly or monthly payments. It’s a great substitute for invoice factoring if late invoice payments are preventing your business from undertaking a major project like renovations.

Small Business Lines of Credit

Like invoice factoring, a small business line of credit offers funding for ongoing expenses. Small business owners use both to finance operations and pay for regular expenses like payroll. However, a small business line of credit offers more flexibility because it can be used whenever needed instead of all the time. This potentially makes it less expensive for business owners that only need financing once in a while.

Business Credit Cards

A business credit card is a powerful tool for every business. Whether you are manufacturing or running a retail operation, you have ongoing expenses like gas and supplies. Business credit cards offer you a way to finance these expenses without worrying about checks clearing in your business checking account. Some of these business credit cards even offer rewards, which can add up to significant benefits over the course of a year.

Bottom Line

Selecting an alternative to invoice factoring depends on the type of issue you are trying to address. Every financing solution is equipped to address a specific financial issue. Choosing the right one is the surest way to minimize costs and maximize the utility you get from financing.