Factoring Company Guide
Step One: Completing the Client Application
First, you need to complete a straightforward client profile that we'll give you. You'll jot down basic stuff like your company's name, address, what kind of business you do, and some info about your customers.
You might also need to share documents related to your business finance, like an accounts receivable aging report or your customers' credit limits. Keep in mind, the factor (that's us) will try to figure out how creditworthy your customers are, not based on how they've paid you, but based on their overall credit situation.
In this early stage, we'll also talk about financial arrangements. For example, how many invoices do you want to factor each month (that is, how much cash do you need on hand)? What will the advance rate and discount rate be? And how fast can we give you the advance?
Usually, the answers to these questions depend on how financially stable your customers are and how much monthly sales you expect to be factored. Factors like what industry you're in, how long you've been in business, and how risky your customers might be can make a difference. For example, if you have a bunch of high-risk clients, you'll probably pay more in factoring fees than if your customers are slow-paying government agencies.
In our line of work, the more invoices you factor (that is, the higher your volume), the better your rates will be.
We'll look at the client profile you give us to see if your business is a good fit for factoring. Basically, we're just trying to weigh the risks against the rewards based on the info you've given us.
Once we've given the thumbs up, you can expect to start discussing terms and conditions. This part of the process takes into account different aspects of the deal. For example, if you're only factoring $10,000, you can't expect as good a deal as a company factoring $500,000.
During these talks, you'll get a clear idea of how much it'll cost to factor your accounts receivable. Once you've agreed on the terms with us, the process of getting your funding starts rolling. We'll do some digging into your customers' credit and check for any liens against your company. We also make sure your invoice is legit before we buy your receivables and give you the cash advance.
Factoring Company Benefits
Unlock the Full Potential of Your Business with Factoring:
- Shed the burden of cash flow worries and refocus on scaling your enterprise.
- Say goodbye to the hassles of repaying loans. Welcome quick, hassle-free cash within just days.
- Enjoy the freedom of making your own business decisions without financial constraints.
- Drastically cut down on the time and money spent chasing payments.
- Gain mastery over your finances by selectively factoring invoices on your terms.
- Stay financially ahead, even with clients who delay payments.
- Utilize consistent cash flow to boost your production and elevate sales.
- Reap the benefits of expert services in managing payments and assessing credit risks.
- Always be prepared for payroll, ensuring a satisfied and motivated team.
- Keep adequate funds at hand for inevitable payroll taxes.
- Capitalize on bulk purchase discounts, significantly reducing operational costs.
- Amplify your purchasing prowess, leading to more savings and better deals.
- Timely bill payments improve your credit score, enhancing your business's financial reputation.
- Secure the necessary funds to ambitiously expand your business's horizons.
- Allocate ample budget for effective marketing, driving business growth.
- Observe a marked improvement in the quality of your financial statements.
- Gain insightful, actionable data from detailed reports on your accounts receivable.
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 significant.
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: Empowering Businesses to Thrive and Flourish
Welcome to the world of factoring, where businesses discover the power to thrive and flourish. Whether you're a seasoned entrepreneur or a budding business owner, factoring can be the key to unlocking your business's true potential.
It's surprising that factoring often remains overlooked, with many business owners unaware of its immense benefits. Yet, factoring serves as a catalyst for growth, providing businesses with the financial boost they need to succeed.
But what exactly is factoring? At its core, factoring involves selling your accounts receivable (invoices) to a specialized financial institution at a discount. In today's competitive landscape, offering credit terms to customers is essential for attracting and retaining business. However, waiting for payments can strain your cash flow and hinder your ability to invest, expand, and take advantage of new opportunities.
Factoring has a rich history that spans centuries, evolving and adapting to meet the changing needs of businesses. Today, factoring empowers businesses to access immediate cash flow by converting their unpaid invoices into working capital. This influx of funds enables you to cover expenses, invest in growth initiatives, and navigate the ups and downs of the business world with confidence.
Factoring is not limited to specific industries or business sizes. Whether you're in manufacturing, services, or retail, factoring can be tailored to meet your unique needs. It provides the flexibility to grow and adapt alongside your business, supporting your journey towards success.
Working with a reputable factor brings additional advantages. Factors offer expertise in credit analysis, collections, and risk management. They assume the responsibility of managing your receivables, allowing you to focus on core operations and strategic decision-making. This partnership ensures a steady cash flow, minimizes the risks associated with late payments, and frees up valuable time and resources.
Embracing factoring means breaking free from the constraints of traditional financing options. It offers a fast, flexible, and accessible solution for businesses seeking growth and stability. With factoring, you can seize new opportunities, expand your market presence, and invest in the future of your business.
Join the ranks of businesses that have harnessed the power of factoring and experience the transformative impact it can have. Unleash your business's true potential, fuel its growth, and create a path to long-term success. Factoring is the bridge that connects your aspirations to reality, empowering you to thrive in today's competitive business landscape.
Credit Risk
Quick Continuous Cash: Benefit from Our No-Cost Expert Credit Risk Assessment
In factoring, the accuracy of credit risk evaluation is paramount. Our unmatched expertise in this field is now available to you without any additional fees. We act as an extended arm of your business, assessing credit risks for both new and existing customers.
Consider the risk of a salesperson overlooking credit issues in their eagerness to secure a deal. Such oversight might result in a sale that doesn't translate to payment. We ensure this doesn’t happen by making informed credit decisions based on a thorough understanding of each customer's financial standing.
While we guide you on creditworthiness, you retain the final decision. Our role is to provide you with detailed, objective credit information, enabling you to make better-informed choices.
We continuously monitor the credit status of your existing customers, a practice often neglected in most businesses. This ongoing vigilance helps in averting potential financial crises.
Additionally, you gain access to comprehensive reports on your accounts receivable, including transactional details and financial analysis, aiding in your business's strategic decision-making.
With over 70 years of experience in cash flow and credit management, we are equipped to support your business’s financial health. Let our expertise work to your advantage.
How To Change Factoring Companies
Changing Your Invoice Factoring Service Provider
Need-to-know info about switching invoice factoring firms.
Are you considering a different invoice factoring firm?
Are you dissatisfied with your current one?
Planning on ditching your current factoring firm?
What should I know before I switch factoring companies?
Here's a guide answering all these queries and more:
Understanding UCC and its role in switching factoring firms:
Usually, factoring companies file a general Uniform Commercial Code (UCC) to secure their claim over the invoices they've funded.
The UCC helps factoring companies, banks, and lenders know who's lent money on which assets. As invoices change daily, factoring companies need to file a 'blanket' UCC that secures all your receivables, even if you're only factoring a part of your sales. This 'blanket' UCC acts as a signal to other lenders, showing a Security Agreement exists between you and the factoring company.
Your specific factoring details, like rates and which accounts are factored, are laid out in the Security Agreement, which is not publicly accessible. Essentially, a UCC works like a first mortgage on your business.
The Process of Switching Companies
The lender with the earliest UCC filing gets 'First Position' on the promised collateral. For instance, a factoring firm has first rights to collect payments on your invoices.
To switch factoring firms, the new factoring firm has to pay off the old one. At the same time, the old factoring company's claim is released, and the new company's claim is filed, similar to refinancing a house.
A 'buyout' is when the new factoring firm pays off the old one using funds from your first financing.
The Buyout Agreement details the transition process and is signed by the old factoring firm, new factoring firm, and your company. In this agreement, you agree to the 'buyout figure' provided by the old factoring company.
How is the Buyout Figure Determined:
The buyout figure is usually the total outstanding receivables minus any reserves and then plus any fees owed to the old factoring firm. It's a good idea to ask for a detailed breakdown of your figure to ensure you understand if there are any early termination fees or additional charges.
What does the buyout cost?
If you can provide new invoices to the new factoring company, which they can use to pay off the outstanding invoices at your old firm, then you wouldn't incur additional costs for the switch. However, most companies need to resubmit some of the invoices already factored with the old company to the new one. In this case, the 'overlap' invoices will incur fees from both factoring firms.
How long does a buyout take?
When you're switching factoring firms, plan for the first funding to take two to three more days than the normal setup process. The extra days will be used to verify the invoices and calculate buyout figures for your approval.
What if my situation is more complex?
Although it's not usual, the old and new factoring firms can collaborate via an Intercreditor or Subordination Agreement until the old firm is paid off. Depending on the situation, factoring firms have managed to 'draw a line in the sand,' where the old firm has rights to invoices up to a certain date, and the new firm has rights to all invoices after that date.
Questions you should have asked before signing up with your current factoring firm:
- Can I use multiple factoring firms at once? The universal answer is one, according to the Uniform Commercial Code/UCC.
- If I decide to switch factoring firms, how much notice do I need to give?
- What is the penalty for leaving without giving the required notice and can you provide an example of how the fees are calculated? Beware of 13-month contracts that require a certain monthly factoring volume.
For example, a 13-month contract where you've agreed to factor $100,000 per month at a rate of 3% means you promise to pay them $3,000 per month in factoring fees or $34,000 in total over the next year. If you want to leave after 6 months, they will charge you the fees for the remaining 6 months, which equals $13,000. This can be too expensive for most companies, especially those with low profit margins. You're stuck!
