Factoring Company Guide
The First Stage: Client Application
Start by filling out a basic profile form we give you. This form asks for details like your company's name, address, what kind of business you run, and information about your customers.
You may also have to provide additional documents, such as an accounts receivable aging report or your customers' credit limits. This is because we, as the factoring company, want to understand the overall credit situation of your customers, beyond their history with your business.
In this initial stage, you'll also set up some fundamental financial terms with us. You need to decide how many invoices you want to factor each month (which indicates how much cash you need handy), what the advance rate and the discount rate will be, and how quickly we'll provide the advance to you.
Typically, the answers to these questions will depend on things like how financially stable your customers are, the expected monthly sales volume to be factored, the type of industry you're in, how long you've been in business, and the perceived riskiness of your customers. For example, factoring invoices for many high-risk clients will attract higher fees than a few invoices from slow-paying government agencies.
In the factoring world, volume matters a lot. The more (in terms of dollar amount) you factor, the better rates you'll get.
We'll use the profile you've completed to decide if your business is a good fit for factoring. We'll be weighing up the risks against the rewards, based on the details you've provided.
Once we approve your application, you can expect to negotiate the terms and conditions. This negotiation considers various aspects of the deal. For instance, a company factoring $10,000 can't expect as good a deal as another factoring $500,000.
During these negotiations, you'll get a clear idea of the cost to factor your accounts receivable. After reaching an agreement, the funding process starts. We'll do a background check on your customers' credit and any liens on your company. We'll also confirm that your invoice is valid before purchasing your receivables and giving you an advance.
Factoring Company Benefits
Benefits of Factoring:
- Free up your mind from cash flow concerns and focus more on growing your business.
- No stress about repaying a loan with monthly payments. Get cash in your hands within two to four days.
- You maintain total control over your business.
- Reduce or even eliminate the costs you incur while trying to collect payments.
- Get better control over your cash flow by choosing the exact number and timing of invoices to sell.
- Get ahead of clients who are slow to pay their bills.
- Boost your production and sales.
- Take advantage of professional services for collecting payments and checking credit.
- Ensure you can always meet your payroll.
- Always have enough to cover your payroll taxes.
- Get discounts for buying materials in bulk.
- Strengthen your buying power, which can help you get discounts for paying early or buying in large quantities.
- Better your credit rating because you always have enough cash to pay your bills on time.
- Have enough cash for expanding your business.
- Have enough cash for marketing your business.
- Improve your financial statements.
- Receive detailed and comprehensive reports about your accounts receivable portfolio.
Is Factoring For You
The Importance of Factoring
"Until you collect the money, a sale remains incomplete."
Do you find yourself acting as a part-time banker for your customers?
Take a moment to review your accounts receivable aging schedule and tally the number of accounts that are overdue by more than 30 days. Congratulations, you are effectively extending credit to those customers. By not receiving prompt payment for your products or services, you are essentially providing interest-free financing to your customers. This might not align with your original business intentions, does it?
Consider this:
If your customers approached a bank and borrowed the same amount of money, would they expect to pay a significant amount of interest for the privilege? Undoubtedly!
Furthermore:
Not only are you not earning any interest on that money, but more importantly, you are also losing the opportunity to utilize that capital while waiting for your customers to settle their debts. What is the cost of not having this money readily available? Essentially, your customers are requesting you to finance their business by granting extended payment terms, often exceeding 30 days.
However, have you pondered the expenses incurred due to "missed opportunities" when your funds are tied up in accounts receivable?
Factoring History
Factoring: Empowering Businesses to Thrive
Welcome to the world of factoring, where businesses find the power to thrive and succeed. Whether you're a seasoned business owner, an aspiring entrepreneur, or someone seeking innovative financing options, factoring can be the game-changer you've been searching for.
Surprisingly, factoring often remains under the radar and unknown to many in the business landscape. Yet, it holds the key to unlocking success for countless businesses, fueling their growth and providing them with the financial support they need.
But what exactly is factoring? At its core, factoring involves selling your accounts receivable (invoices) at a discount to a specialized financial institution. In today's competitive market, offering credit terms to customers is essential for business success. However, delayed payments can create cash flow challenges, especially for small and medium-sized enterprises.
Factoring has a rich history that dates back centuries. Its roots can be traced to ancient civilizations that recognized the value of turning unpaid invoices into immediate cash flow. Over time, factoring evolved to meet the changing needs of businesses, becoming a vital financial tool in modern times.
Today, factoring serves as a catalyst for business growth and prosperity. By leveraging factoring, businesses gain quick access to funds that would otherwise be tied up in unpaid invoices. This infusion of cash provides the flexibility to cover operational expenses, invest in new opportunities, expand marketing efforts, and strengthen overall financial stability.
Factoring is not limited to specific industries or business sizes. It benefits a wide range of businesses, from manufacturers and distributors to service providers and contractors. Whether you're a startup, a growing company, or an established enterprise, factoring can be tailored to your unique needs, fueling your growth journey.
Working with a factor brings additional advantages. Factors offer valuable expertise in credit analysis, collections, and risk management. They assume the responsibility of collecting payments from customers, allowing businesses to focus on their core operations. This collaborative partnership ensures a smoother cash flow cycle and minimizes the risks associated with late or non-payment.
Embracing factoring means breaking free from the limitations of traditional financing options. It offers a flexible and accessible alternative, empowering businesses to take control of their finances and capitalize on growth opportunities. With factoring, you can transform the way you do business, unlock your full potential, and achieve long-term success.
Join the ranks of businesses that have harnessed the power of factoring and experience the difference it can make. Discover the freedom to thrive, fuel your growth ambitions, and navigate the ever-changing business landscape with confidence. Factoring is the key that unlocks the door to your business's brighter future.
Credit Risk
Quick Continuous Cash: No-Cost Expert Credit Risk Assessment!
Credit risk evaluation is a pivotal aspect of factoring, and our proficiency in this area is a key differentiator. We offer this crucial service at no extra charge, acting as your in-house credit department for all customer transactions.
Consider the risk when a salesperson prioritizes a sale over credit health. This could lead to a transaction without payment. Our approach ensures that we make prudent credit decisions, rejecting invoices from customers with poor credit ratings.
While we provide expert credit assessment, the final decision on transactions is in your hands. We supply you with in-depth, unbiased credit information to enhance your decision-making process.
Our regular and thorough credit evaluations of your existing customers set us apart from the norm. This proactive approach is crucial in managing financial risks effectively.
You also gain access to detailed reports on your accounts receivable, offering strategic insights for your financial management and planning.
Leveraging our 70 years of experience in cash flow and credit management, we're poised to enhance your financial operations. Let our expertise contribute to your business's success.
How To Change Factoring Companies
Changing Invoice Financing Providers
Want to switch your invoice financing provider? Not satisfied with your current one? Planning to bid goodbye to your present provider? Not sure what to know before making the switch? Here's a simple guide with all the answers.
Understanding UCC and its role in changing providers
Typically, an invoice financing company (also called a factor) will file a Uniform Commercial Code (UCC). This is like staking a claim on the invoices they've funded. This helps to keep track of who's got a claim on what assets, especially because invoices change every day - some are paid, some are collected, and some new ones are created.
So, the factor files a 'blanket' UCC covering all your invoices, even though you might not be getting funding for all your sales. It's just not practical to file a new UCC for every single invoice. The UCC is like a warning sign for other lenders that there's a deal between your business and the factor.
The specifics of your agreement with the factor, like rates and which accounts are factored, are outlined in a private Security Agreement. A UCC is kind of like having a first mortgage on your business.
The process of changing factors
The factor with the oldest UCC is said to be in the 'First Position' on the collateral. This means they have the first right to collect payments on your invoices and any related items.
If you want to change factors, the old one must be paid off by the new one. This is similar to refinancing your house. The old factor's claim is released and the new one's claim is filed.
The process where the new factor pays off the old one using money from your first funding is called a 'buyout'. The Buyout Agreement, which outlines the transition process, is signed by the old factor, new factor, and your company. In this agreement, you approve the 'buyout figure' provided by the old factor.
How is the Buyout Figure Calculated:
The buyout figure is usually calculated by subtracting any reserves from the Gross Receivables Outstanding and adding in fees due to the old factor. It's good to ask for a breakdown of this figure so you can understand if there are any early termination fees or other charges added to your usual factoring fees.
Once the old factor is paid off, you only have to deal with the new factor. If you're changing from an 80% advance rate to a 90% advance rate, you might have enough money to pay off the old factor without needing more invoices.
How much does the buyout cost?
If you can give the new factor new invoices to pay off the old ones, there's no additional cost for the switch. As payments come in on the old invoices, those payments are forwarded to the new factor who then sends them to you.
However, if you need to resubmit some invoices already factored with the old factor to the new one, those invoices will incur fees from both factors. As a result, your factoring fees for the first month after the change could be higher than normal. If the new factor's rate is lower, you can calculate how long it will take to recover this cost and make a cost-benefit analysis.
How long does a buyout take?
When changing factors, expect the first funding to take a couple of days more than the usual setup process. This extra time is needed for invoice verification and for calculating the buyout figures.
What if my situation is not that easy?
In some cases, the old factor and the new one can work together via an Intercreditor or Subordination Agreement until the old factor is paid off. The old factor has rights to invoices up to a certain date and the new one has rights to all invoices after that date.
Questions you might have wished you asked before signing up with your current factor:
- How many factors can I use at one time? (The universal answer is one, according to the UCC.)
- If I want to change factors, how much notice do I need to give?
- What is the penalty if I leave without giving the required notice?
- Do you use a bank lock box to post my customer payments? If so, how long does it take for a customer's payment to post to my account from the date the bank receives it?
- How long do you hold my original invoices before sending them to my customers?
- How many different people will I work with at your company?
- Do I need to pay for postage for you to mail my invoices?
- Do you charge me every time I have a new customer to check or set up?
- Do you start holding reserves once a customer hits 60 days even though I have 90 day recourse?
