Invoice Factoring For Startup Businesses

January 31, 2018
No Access To Capital?

Working capital requirements can very quickly become a growth inhibitor to a new business. Startups lack credit history and so typically business owners find that they have limited options to get financing. They often turn to family and friends, pitch their business to investors, or simply bootstrap the business and grow at a much slower rate than what may be possible with financial backing.

Invoice Factoring- A good option for my startup?

There is another way. B2B startup businesses that are soon to begin billing customers or are generating invoices can partner up with a factoring company and utilize them to finance their growing startup. The factoring company can help by:

  • Providing credit insights for new customers
  • Bringing working capital to the table
  • Giving you access to increasing funds as you grow
  • Taking no equity to do so

Unlike a bank, a factoring company looks to the credit quality of a business's customers allowing even a brand new business with good customers to gain this type of financing.

How does factoring work for startups?

A factoring company funds based on outstanding invoices/ accounts receivable. So once a business has an agreement with a factoring company, the business will submit copies of their outstanding invoices to the factoring company. The factoring company will then verify the work is done and will advance between 80-90% of the invoice value in most cases. This enables the startup business to have access to cash or working capital for their business within hours of creating their first ever invoice.

This enables a startup to:

  • Make payroll
  • Buy more inventory
  • Re-invest in the business in whatever way makes the most sense.

Once the invoice is paid by the startup's customer, the factoring company would receive a small fee for providing the service (generally around 1.5% of the invoice value depending on how long the client takes to pay) and the startup would receive the rest at that time.

As businesses are constantly generating invoices for work completed, this can act as a type of line of credit for new businesses that will continue to grow as they grow.

Setting up Factoring for a startup

At Meritus Capital, we find getting a startup set up with us can be the best, easiest and quickest time to do so as there is no entity history, previous bank loans, filings, suits or the like to complicate the process. Here are a few key points about the process.

  • We have a quick and easy online application that can be filled out and where select documents can be uploaded.
  • Once we agree to the basic terms, we will provide you with a contract to sign.
  • We can go from start to funding sometimes in as little as a few days to a week!

If you have any more questions, please do reach out to anyone on our team or fill out our application today to get started!


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