Unlocking Liquidity: An Introduction to Invoice Factoring
In the world of private credit, capital is the engine that drives growth, yet many businesses find themselves stuck in neutral with cash flow tied up in unpaid invoices. Picture a manufacturer poised to fulfill its largest order or a staffing firm striving to meet payroll for its growing workforce—only to face delays as clients settle their invoices. Invoice factoring offers a valuable solution—a financial tool that bridges the gap between revenue recognition and actual cash flow.
Since 1999, Garrington has been a leader in invoice factoring, transforming receivables into immediate working capital. With decades of expertise, we help businesses maintain momentum, seize growth opportunities, and navigate cash flow challenges. As part of our lending solutions, we provide invoice factoring to help North American businesses accelerate their growth while maintaining financial flexibility.
What Is Invoice Factoring?
Invoice factoring is a financing solution where businesses sell their accounts receivable (invoices) to us at a discount, gaining immediate access to working capital. Unlike a loan, this is not debt—it’s an advance on money already earned but not yet collected.
The result? Enhanced cash flow that allows companies to meet payroll, purchase inventory, and fuel growth without waiting 30, 60, or even 90 days for customer payments.
Our Approach to Invoice Factoring
We structure invoice factoring with a focus on flexibility and security, ensuring that our investors and the businesses we support benefit from a reliable, low-risk financing option. Here’s how we do it:
- First Lien Position: We secure our position with a first lien on the accounts receivable, ensuring priority repayment.
- Reasonable Advance Rates: We provide an average of 80% loan-to-value (LTV) on the receivables, providing liquidity for our clients.
- Dominion of Cash: We establish control over incoming payments, ensuring that collections flow through our system to safeguard repayment.
- Full Notification: Customers are notified that invoices have been factored, maintaining transparency and efficient payment processing.
- Flexible Terms: Our factoring agreements are designed with flexibility, allowing businesses to use the service as needed without long-term commitments.
Who We Serve
Garrington’s invoice factoring solutions are industry-agnostic, supporting businesses across a range of sectors, including:
- Distribution and Manufacturing: Companies managing large supply chains and inventory needs.
- Energy: Firms with capital-intensive projects and delayed payment cycles.
- Service Industry and Staffing: Businesses with payroll obligations that precede client payments.
- Transportation: Carriers and logistics companies balancing upfront costs with delayed receivables.
We partner with experienced B2B operators who generate revenue and have a clear path to profitability. Our clients leverage factoring to smooth cash flow fluctuations, seize growth opportunities, and maintain operational stability.
A Real-World Example
Consider a mid-sized staffing company that places temporary workers for corporate clients. While clients typically pay invoices within 45 days, the staffing firm must cover weekly payroll. By factoring their invoices with us, they receive an advance of the majority of the invoice value within days of issuing it. This immediate cash flow ensures they can meet payroll and expand their workforce without waiting for payments.
Why It Matters to Investors
For investors in our private credit fund, invoice factoring offers exposure to a short-duration, asset-backed financing strategy with built-in risk mitigation. The first lien position, high advance rates, and dominion of cash enhance credit quality, while the short-term nature of the receivables minimizes duration risk. This combination of strong collateral, predictable cash flow, and industry diversification makes invoice factoring a compelling component of Garrington’s Private Credit portfolio.
Stay tuned for the next installment in our invoice factoring series, where we’ll share firsthand insights from our experience lending to North American businesses and explore the specific opportunities and challenges within this dynamic space.
