Factoring Company Guide
Step One: The Client Application
You start by completing a simple client profile that we provide. This will include basic details like your company's name, address, what your business does, and some info about your customers.
You might also have to provide some documents like an accounts receivable aging report, or your customers' credit limits. The goal here is for us, the factor, to understand how creditworthy your customers are, beyond just their history with you. We want a more complete picture of their credit situation.
In this early phase, you'll also discuss financial arrangements with the factor. This includes things like how many invoices you plan to factor each month (or how cash-ready you need to be), the advance rate, the discount rate, and how fast we can provide the advance.
Usually, the answers to these questions will depend on your customers' financial strength and the expected monthly sales volume to be factored. Things like the type of industry, how long you've been in operation, and the general riskiness of your customers can make a difference. For example, factoring for a large number of high-risk clients will be more expensive than for a small number of slow-paying government agencies.
In factoring, volume is crucial. The more you factor (the total dollar amount of invoices), the better your rates will be.
We'll use the client profile you submit to decide if your business is a good fit for factoring. This involves weighing the potential risks and benefits based on the information you provided.
Once you're approved, you'll get to negotiate terms and conditions. The negotiation process considers various aspects of the deal. For instance, if you're factoring $10,000, you can't expect as good a deal as a company that wants to factor $500,000.
During negotiations, you'll learn all about the cost of factoring your accounts receivable. After an agreement is reached with the factor, we start the funding process. This involves checking your customers' credit, looking for any liens against your company, and verifying the validity of your invoice before buying your receivables and advancing money to you.
Factoring Company Benefits
Advantages of Factoring: Smart Financial Solutions for Your Business
- Relieve yourself from cash flow worries and concentrate on growing your business.
- Eliminate the burden of loan repayments with quick access to cash.
- Keep full control over your business operations and direction.
- Reduce or even eliminate the expenses of collecting payments.
- Gain greater control over your cash flow by strategically choosing invoices to sell.
- Outpace clients who delay payments and protect your financial stability.
- Enhance your production and sales with consistent cash flow.
- Access professional services for hassle-free payment collection and credit checks.
- Guarantee timely payroll management.
- Always have adequate funds to cover payroll taxes.
- Avail discounts for bulk purchases, reducing operational costs.
- Strengthen your negotiation power for early payment or bulk buying discounts.
- Bolster your credit rating with timely bill payments.
- Acquire the capital needed for expanding your business.
- Invest in effective marketing with a robust cash flow.
- Notice an improvement in your financial statements.
- Benefit from comprehensive reports for a clear view of your accounts receivable.
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: 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.
