Having trouble getting a loan for your business? Consider factoring your accounts receivable instead.

A factor works by providing a cash advance based on the total value of the invoices that you provide as collateral. You typically receive 80 percent of the invoice value upfront. Then you receive the remaining value once the client pays the factor, minus a factoring fee. This fee can be structured in any number of ways, but it generally nets out to be about three to five percent of the invoice value.

To qualify for invoice factoring, your company must satisfy two basic conditions. First, you should have no existing primary liens on your accounts receivable. Essentially, this means that no other company should have a claim on payments when they come in. This can make it difficult for companies in certain industries like construction to find a factoring company that will take their invoices.

Your customers must also be creditworthy. Factoring only works successfully if clients pay their invoices. Your company's creditworthiness will not necessarily factor into a decision to approve or deny your account. Instead, the factor will focus on evaluating your clients to determine whether and how quickly they will pay their invoices.

There are many factoring companies ranging from small financial service businesses to large banks. Not all will take your business, though. Some specialize in particular industries like manufacturing or medical. Others may require a certain minimum per invoice or total invoice amount before they will conduct business with you.

Take the time to compare your options when choosing a factor. The pricing structure should be a critical point of comparison. Using likely customer payment scenarios, calculate what the total fees will be for the different vendors. Deposit or application fees, the advance rate and monthly minimums should also be explored. Finally, check whether a minimum length contract is required and, if so, what penalties are assessed if you break it.

Definitely inquire about how the factor handles unpaid invoices. Some factors will assume all the risk and not require you to repay the factor if the invoice is not paid within a set period of time in what is known as non-recourse factoring. On the other end, recourse factors will require repayment of funds plus the factor's charges. Treading the middle ground are factors that will allow you to swap in other invoices for the non-payers.

Finally, put yourself in your customers' shoes and inquire about what the invoice handling process will be like from their perspective. Look for a company that is as focused on customer care as you are. You should know that many factoring companies adhere to "notification factoring" where it is clearly indicated on the invoice that payment should go to the factor.

Getting paid in advance for your invoices, even with a percentage taken off the top, might be the right step for your business to take. In this new math, factoring your invoices can help your revenues multiply.