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
Understanding the Significance of Factoring
"Until you collect the money, a sale remains incomplete."
Do you often find yourself acting as a part-time banker for your customers?
Take a moment to assess your accounts receivable aging schedule and calculate the number of accounts that are overdue by more than 30 days. Congratulations, you are effectively extending credit to those customers. By not receiving timely payment for your products or services, you're essentially providing interest-free financing to your customers. This might not align with your original business intentions, does it?
Let's think about this:
If your customers were to approach a bank for the same amount of money, they would unquestionably expect to pay a significant amount of interest for the privilege.
Moreover:
Not only are you missing out on earning any interest on that money, but more importantly, you're 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 effectively asking you to finance their business by granting them extended payment terms, which often exceed 30 days.
However, have you reflected on the expenses incurred due to "missed opportunities" when your funds are tied up in accounts receivable? It's essential to consider the impact this has on your business and explore the potential benefits that factoring can offer.
Factoring History
Factoring: Fueling Business Growth and Success
Welcome to the world of factoring, where businesses find the fuel they need to grow and succeed. Whether you're a business owner, an aspiring entrepreneur, or seeking financial solutions for your employer, factoring can be a game-changer in helping you achieve your goals.
Interestingly, factoring often goes unnoticed and remains unfamiliar to many in the business world, yet it serves as the backbone for numerous successful enterprises. Year after year, it unlocks billions of dollars, enabling thousands of businesses to flourish and make their mark.
But what exactly is factoring? It's a powerful financial tool that involves purchasing accounts receivable (invoices) from businesses at a discounted rate. In today's competitive landscape, offering credit terms to customers is a common practice to attract and retain business. However, this can create cash flow challenges, especially for small or struggling businesses that rely on prompt payments.
Factoring has a rich history that spans thousands of years. Its roots can be traced back to ancient civilizations, where innovative thinkers recognized the value of unlocking funds tied up in unpaid invoices. Over time, this financial practice evolved and adapted to meet the changing needs of businesses.
Today, factoring provides a lifeline to businesses across various industries. By leveraging factoring, companies can gain immediate access to the cash they need to cover operational expenses, invest in growth initiatives, and seize new opportunities.
In the past, factoring was crucial to industries like textiles and garments, where cash flow was vital for success. However, its benefits are not limited to specific sectors. As the business landscape evolved, so did factoring. It expanded its reach to encompass a wide range of businesses, helping them overcome financial hurdles and thrive.
Factors, the key players in factoring, come in different forms. Some operate within large financial institutions, while others are independent entities focused solely on providing factoring services. This diversity ensures that businesses of all sizes and types can find a factor that aligns with their unique needs and objectives.
Today's factors go beyond simply advancing funds against invoices. They provide valuable insights into customer creditworthiness, manage collections, and mitigate risks associated with unpaid invoices. This comprehensive approach allows businesses to focus on their core operations while leaving the financial intricacies to the experts.
As a business owner or professional, it's essential to explore the potential of factoring. It offers a viable alternative to traditional bank financing and empowers businesses to fuel their growth and success. With factoring, you can unlock the capital tied up in your accounts receivable, strengthen your cash flow, and embrace new opportunities that drive your business forward.
Join the ranks of businesses that have harnessed the power of factoring and discover how it can be a catalyst for your success.
Credit Risk
Quick Continuous Cash: Get Expert Credit Risk Assessment at No Extra Cost!
Accurately evaluating credit risk is a crucial aspect of our factoring business. Very few, if any, clients can perform this function as objectively as we can.
At no additional fee, we act as your dedicated credit department for both new and existing customers. This gives you a significant advantage over handling these functions in-house.
Imagine a scenario where a salesperson is pursuing a new account with the potential for substantial purchases. The salesperson may be so focused on winning the business that they overlook warning signs related to credit difficulties. They might even bypass your internal credit checks to expedite the process. While this may secure the sale, it won't guarantee payment, and without payment, there is no sale.
With us, this situation won't occur. We make credit decisions based on a comprehensive understanding of the new customer's credit situation. We won't purchase the invoices of customers with poor credit ratings, minimizing the risk of nonpayment. However, please don't view our involvement as a tightening of credit to the extent that it negatively impacts your business beyond your control.
If you have a new customer with questionable creditworthiness, the ultimate decision to do business with them remains yours. (Nevertheless, we reserve the right to say, ""I told you so!"")
While we may not purchase those invoices, you still retain the freedom to extend credit terms as you see fit. You remain in control. Regardless of the decisions you make, thanks to our participation, you can be confident that you'll have access to more comprehensive, objective, and high-quality information for informed credit decisions compared to your past practices.
We thoroughly research new clients and, equally importantly, regularly monitor the credit ratings of your existing customers. This is in stark contrast to most businesses where routine credit updates on the established customer base are rare. Such neglect can be a grave mistake.
Typically, businesses only conduct a credit check when it's too late and the problem has already spiraled out of control. On the other hand, we will promptly inform you if there are any changes in the credit status of your existing customers.
In addition to providing specific customer credit information, you'll also enjoy the benefits of comprehensive, detailed reports on your accounts receivables as a whole. As part of our process, you'll receive accounting details, transactional insights, aging reports, and financial management reports. This data empowers you to incorporate it into your sales tracking, account history, and in-depth analysis.
With over 70 years of successful cash flow and credit management experience, we are eager to leverage our expertise for your benefit. Let us put our knowledge to work for you and help you achieve your financial goals.
How To Change Factoring Companies
Changing Invoice Financing Companies: A Simple Guide
Introduction
Are you thinking of changing your invoice financing (factoring) company? If you're not happy with your current one, it might be a good time to make a move. Here's what you need to understand before switching:
Understanding UCC and its Role
A UCC, or Uniform Commercial Code, is a standard way for lenders, including factoring companies, to claim a business's assets as security. This way, they ensure their loans are safe. It's like a company's mortgage. Since invoices are constantly changing as some are paid and others are issued, lenders apply a 'blanket' UCC. This covers all invoices even if you're only factoring part of them.
Process of Switching Factoring Companies
To switch factoring companies, the new company pays off the old one. It's similar to refinancing your house. This is called a 'buyout'. The old company's claim is removed, and the new one files theirs.
Costs and Timeframes
How Much does the Buyout Cost?
The cost of a buyout can vary. If you have new invoices that the new company can use to pay off the old ones, it won't cost you anything. Any payments from the old invoices will be forwarded to you by the new company for free. However, if you have to reuse some invoices already factored by the old company, you might end up paying fees to both companies. In this case, you could end up paying more in the first month after the switch.
How Long does a Buyout Take?
Switching factoring companies could take a couple of days longer than setting up a regular factoring arrangement. This extra time is needed to confirm invoice details and get the final buyout amount approved by you.
Complex Situations
In some situations, the old and new factoring companies might agree to share the rights to the invoices until the old company is paid off. However, this is not common.
Questions You Should Have Asked Your Current Factoring Company
Before signing up with your current factoring company, you should have asked these questions:
- How many factoring companies can I use at one time? (You can only use one)
- What's the process and penalty for leaving without giving notice?
- Do you use a bank lockbox to process my customer payments? If so, how long does it take for my customer's payments to reach my account?
- How long do you keep my original invoices before sending them to my customers? (This should be done the same day)
- Who will be my contact at your company? Is it one person, or will I have to deal with new people every time I call?
- Do I need to pay for postage for mailing my invoices? (This should be included in the fees)
- Do you charge me for credit checks on new customers?
- Do you hold my invoices in batches and charge fees on all invoices in a batch until the last one is collected?
- Do you start holding reserves once a customer's invoice is 60 days old, even though I have a 90-day recourse period?
Conclusion
Understanding these factors will help you make a better decision when choosing a new factoring company and avoiding unnecessary costs or complications in the future.
