Factoring Company Guide
The First Step: The Client Application
To start with, you'll need to fill out a basic form about your business that we'll provide. It asks for easy stuff like your business name, where you're located, what you do, and some information about who your customers are.
You might also have to share documents like an accounts receivable aging report or your current customers' credit limits. The important thing to remember is that we're trying to work out how likely your customers are to pay their bills, not just based on their history with you, but on their wider financial situation.
In this initial phase, you'll also have to sort out some key financial details with us. You'll need to think about how many invoices you want to factor each month (which tells us how much readily available cash you need), what the advance rate and discount rate will be, and how quickly we'll get the advance to you.
Usually, the specifics of these details will change depending on how financially stable your customers are, how many sales you plan to factor each month, the type of business you're in, how long you've been in business, and what kind of risk your customers pose. For example, having a lot of high-risk clients will mean you pay more in factoring fees than if you mostly deal with slow-paying government agencies.
In our business, the more invoices you factor (in terms of dollar value), the better your rates. That's why it's all about volume.
We'll use the information you provide in your client profile to decide whether factoring is the right solution for your business. This involves balancing the potential risks against the benefits based on the information you've given us.
Once you get the green light, you can expect to discuss terms and conditions. These negotiations take various aspects of the deal into account. As a result, if you're looking to factor $10,000, you're not going to get as good a deal as a company factoring $500,000.
During the negotiation stage, you'll start to understand what it really costs to factor your accounts receivable. Once you've come to an agreement with us, we get the funding process underway. We do some research into your customers' credit and any liens against your company, and we also verify the authenticity of your invoice before we buy your receivables and give you the money.
Factoring Company Benefits
Advantages of Using Factoring Services:
- Focus on expanding your business rather than dealing with cash flow issues.
- Avoid the obligation of repaying monthly loan installments. You can receive the funds in as little as two to four days.
- Retain total authority over your business.
- Minimize or get rid of the costs associated with chasing payments.
- Take control of your cash flow by selecting which invoices to sell and when to do it.
- Combat slow-paying customers effectively.
- Boost your production and sales.
- Access professional collection and credit checking services.
- Easily meet your payroll obligations.
- Pay your payroll taxes without any hiccups.
- Take advantage of cash discounts when buying materials.
- Amplify your purchasing power, allowing you to enjoy discounts on bulk purchases or early payments.
- Improve your credit rating by having cash available to pay bills on time.
- Have the cash ready for your business expansion plans.
- Allocate funds for your marketing strategies.
- Enhance your financial statements.
- Receive detailed reports on your accounts receivable portfolio.
Is Factoring For You
The Importance of Factoring
"Only when the payment is made, is a sale truly complete." This adage rings true, especially if you find yourself playing the role of a banker for your clients. Time for a financial health check.
Scrutinize your accounts receivable. Those overdue accounts? They signify interest-free credit you're extending. This is likely a detour from your original business objectives.
Think about it: your customers would incur interest charges on a bank loan. In your case, not only are you not earning interest, but you're also missing out on vital capital utilization. The opportunity cost here is sig
The Importance of Factoring
"Remember, a sale's not done until you've got the cash." Feeling like you're stuck in the role of a part-time banker for your clients? Let's break it down.
Have a gander at your accounts receivable. Those overdue accounts are more than just numbers – they're interest-free loans you're dishing out. That's not why you're in business, is it?
Put it this way: if your clients borrowed from a bank, they'd be coughing up interest left and right. But with you? They're getting a sweet deal. Meanwhile, you're missing out on cash that could be pumping up your own business. Think about what that's costing you in missed chances.
You’re in the business of selling, not financing. It's time to flip the script and stop letting your clients use your cash to float their business. Let’s get real about the costs here.
nificant.
By allowing extended payment terms, you're inadvertently financing your customers' businesses. It's essential to recognize the financial implications and adopt a more efficient approach to managing your accounts receivable.
Factoring History
Factoring History
Welcome to the dynamic world of factoring, a key to unlocking business potential. If you're navigating the realms of business ownership or entrepreneurial ventures, factoring is not just a financial tool; it's a pathway to achieving your ambitious financial goals. Remarkably, it's the unsung hero behind the success of numerous American businesses.
Despite its low profile in academic circles and business plans, factoring is instrumental in liberating billions of dollars annually, fostering the growth and prosperity of countless businesses. So, what is factoring? It's the strategic acquisition of commercial accounts receivable at a discount, a practice vital for businesses extending credit terms in today's competitive market.
Tracing its origins back to the era of Hammurabi in Mesopotamia, the birthplace of civilization, factoring has evolved through centuries, shaping commerce and finance. From the ancient Romans to the American colonists who depended on it for their trade operations, factoring has been a cornerstone in business transactions.
Unlike traditional banking in the eighteenth century, factoring offered a practical solution for immediate financial needs, a trend that has only grown with time. In the modern era, factoring has expanded beyond specific industries, becoming a versatile and vital financial tool for businesses across various sectors.
Today, from large financial institutions to private entrepreneurial ventures, factors provide crucial financial support. As a lifeline for businesses, factoring continues to be a preferred choice, especially in times of high interest rates and stringent banking regulations. Each year, it enables thousands of businesses to not only survive but thrive, selling billions in receivables to fuel growth and profitability.
Credit Risk
Quick Continuous Cash: Expert Credit Risk Assessment at Zero Extra Cost!
In the factoring industry, accurately assessing credit risk is key. Our capabilities in this area are unparalleled, and we offer this service without additional fees, acting as your outsourced credit department for all customers.
Consider the potential risk when a salesperson ignores credit warnings to win business. Such actions might secure a sale but not the payment. Our approach ensures that we only approve invoices from creditworthy customers, reducing the risk of nonpayment.
While we guide you on credit decisions, you retain complete control over your transactions. Our role is to provide you with detailed, objective credit assessments to aid your decision-making process.
Unlike most businesses that neglect regular credit checks on existing customers, we conduct thorough ongoing assessments. This vigilance is key to avoiding financial pitfalls.
Furthermore, you'll receive comprehensive reports on your accounts receivable, offering valuable insights for your financial planning and strategy formulation.
Our 70-year track record in cash flow and credit management positions us as an ideal partner in your financial journey. Let us apply our proven expertise to your business's advantage.
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?
