Factoring Company Guide
Starting Point: The Client Application
First, you'll fill out a basic client profile form we'll give you. This will ask for straightforward information such as your company's name, location, business type, and some details about your clients.
Additionally, you might have to provide documents like an accounts receivable aging report or details on your clients' credit limits. Keep in mind, we (the factor) are trying to determine how creditworthy your clients are, not just based on their history with you but their overall credit status.
At this stage, we'll also talk about some financial arrangements. Questions like, how many invoices do you want to factor each month (or how much cash you need immediately)? What will be the advance rate and the discount rate? And, how soon can we give you the advance?
Typically, the answers to these questions depend on the financial health of your clients and the expected monthly sales to be factored. Other aspects like your industry, the duration of your business, and the risk profile of your clients also play a part. For example, a long list of high-risk clients would mean higher factoring fees than a list of slow-paying government agencies.
In the factoring world, volume is key. The more invoices you factor (the higher your volume), the better rates you will get.
We'll use the client profile you provide to see if your business fits well with factoring. Basically, we're assessing the risks and rewards based on the information you've shared.
Once we approve, you'll then negotiate terms and conditions. This process considers various aspects of the deal. For example, factoring $10,000 won't get you as good a deal as a company factoring $500,000.
During negotiations, you'll fully understand the cost of factoring your accounts receivable. Once an agreement is reached, the funding process starts. We'll conduct due diligence by researching your clients' credit and any liens against your company. We also make sure your invoice is genuine before purchasing your receivables and advancing cash to you.
Factoring Company Benefits
Benefits of Invoice Factoring:
- Spend less time worrying about money and more time growing your business.
- Forget about the stress of regular loan repayments. You could have the money in just a few days.
- You keep complete control over your business operations.
- Reduce or even eliminate the costs and effort of chasing clients for payment.
- You decide which invoices to sell and when, giving you better control of your cash flow.
- Overcome the problem of clients who are slow to pay.
- Increase your production and sales volume.
- Benefit from professional help with collecting debts and checking credit.
- Meet your payroll commitments with ease.
- Pay your payroll taxes without any hassle.
- Get discounts for cash payments for your supplies.
- Boost your purchasing power, allowing you to take advantage of bulk purchase or early payment discounts.
- Improve your credit rating because you always have cash available to pay bills on time.
- Have ready cash to expand your business.
- Have funds available for your marketing campaigns.
- Improve the look of your financial statements.
- Get comprehensive and detailed reports on your accounts receivable.
Is Factoring For You
How Factoring Can Help Small Businesses Thrive
Factoring is like a financial boost that can help small businesses succeed in simple terms. Here's how it works:
Quick Access to Cash: Small businesses sometimes struggle to get the money they need for their everyday expenses or to grow. Factoring gives them a way to get cash quickly by selling their unpaid customer invoices to a company that specializes in this. It's like getting an instant payment for the work they've done or the products they've sold.
Better Money Management: Managing money is important for any business, and factoring can make it easier for small businesses. Instead of waiting for customers to pay, factoring provides a steady stream of money that keeps the business running smoothly. It's like having a reliable source of funds to pay bills, buy supplies, and invest in new opportunities.
Building a Good Reputation: Factoring can also help small businesses build a good reputation with suppliers and lenders. When they can pay their bills on time, it shows that they're trustworthy and responsible. This can lead to better deals with suppliers and open up more options for loans or other types of financial help in the future.
Growing the Business: With the extra cash from factoring, small businesses have the freedom to expand and grow. They can use the money to hire more employees, buy new equipment, or reach more customers through advertising. It's like having the resources to take their business to the next level and seize exciting opportunities.
Simplifying Finances: Keeping track of customer invoices and collecting payments can be a hassle for small businesses. Factoring companies take care of these tasks, so small businesses can focus on what they do best. It's like having a helpful partner who handles all the paperwork and makes sure the money comes in smoothly.
Lowering Financial Risks: Factoring companies also help small businesses reduce the risks associated with customers who don't pay on time or don't pay at all. They check the creditworthiness of customers and take responsibility for collecting payments. This gives small businesses peace of mind and protects them from losing money.
Flexibility for Success: Factoring is flexible and can adapt to the changing needs of small businesses. As their sales grow and they generate more invoices, they can access more funding through factoring. It's like having a financial solution that grows with them, providing the support they need to thrive.
In simple terms, factoring gives small businesses quick access to cash, helps them manage their money better, builds a good reputation, supports growth, simplifies finances, lowers financial risks, and offers flexibility for success. With factoring, small businesses can overcome financial challenges and create a path to long-term prosperity.
Factoring History
Factoring: Boosting Business Potential and Financial Success
Welcome to the world of factoring, where businesses uncover the secret to unlocking their full potential and achieving financial success. Whether you're a seasoned entrepreneur, a startup founder, or a business professional seeking new financing options, factoring is the tool that can propel your business forward.
Surprisingly, factoring often remains hidden in the shadows, with many business owners unaware of its incredible benefits. Yet, it holds the key to driving growth, ensuring cash flow stability, and opening doors to new opportunities.
So, what exactly is factoring? At its core, factoring involves selling your outstanding invoices at a discounted rate to a specialized financing company. In today's competitive landscape, offering credit terms to customers is a necessity for business growth. However, waiting for payments can strain cash flow, hampering your ability to invest, expand, and thrive.
Factoring has a rich and storied history that spans centuries. It originated from the realization that businesses shouldn't be held hostage by unpaid invoices. Over time, factoring evolved and adapted to meet the unique financial needs of businesses in different eras, becoming a reliable tool in the modern business landscape.
Today, factoring is a catalyst for unleashing business potential. By partnering with a reputable factor, businesses gain immediate access to the funds tied up in their invoices. This influx of cash empowers entrepreneurs to cover operating expenses, seize growth opportunities, and invest in crucial areas like marketing, technology, and talent acquisition.
Factoring knows no bounds when it comes to industries or business sizes. Whether you're a manufacturer, a service provider, or a B2B company, factoring can be customized to fit your specific needs. It offers flexibility, scalability, and the ability to adapt as your business evolves.
Beyond providing quick cash flow, factors bring additional expertise to the table. They evaluate the creditworthiness of your customers, manage collections, and take on the risk of non-payment. This frees up your time and resources to focus on core business activities, knowing that your factor is diligently working to secure payments on your behalf.
Factoring liberates businesses from the shackles of traditional financing options. It provides a fast, efficient, and accessible alternative that supports growth, innovation, and long-term success. With factoring, you can break through financial barriers, expand your operations, and seize new opportunities in your industry.
Join the ranks of businesses that have harnessed the power of factoring and experience the transformation it can bring. Embrace a future of financial stability, increased liquidity, and enhanced growth prospects. Factoring is the key that unlocks the doors to your business's ultimate potential.
Credit Risk
Boost Your Business with Quick Cash and Expert Credit Risk Assessment
Get the Edge Without Extra Fees
Accurately evaluating credit risk is a critical component of our factoring services. We excel at this function, providing an objective perspective that few clients can match.
As part of our comprehensive offering, we act as your dedicated credit department for both new and existing customers. This arrangement gives you a distinct advantage over managing these processes internally, without any additional charges.
Consider a scenario where a salesperson pursues a new account with the potential for significant sales. In their eagerness to secure the business, they may overlook warning signs of credit difficulties and bypass your internal credit checks. While this approach may result in a quick sale, it offers no guarantee of timely payment, which is essential for sustained success.
With us, you won't encounter such issues. We make credit decisions based on a comprehensive understanding of the new customer's credit situation. We avoid purchasing invoices from customers with poor credit ratings, minimizing the risk of nonpayment. It's important to note that our involvement doesn't imply a tightening of credit that could adversely affect your business beyond your control.
Ultimately, the decision to do business with a new customer of questionable creditworthiness remains in your hands. (However, we reserve the right to say, "We told you so!")
While we may not purchase those invoices, you retain the freedom to extend credit terms as you see fit. You maintain full control. Regardless of the decisions you make, our participation ensures you have access to comprehensive, objective, and high-quality information to make informed credit decisions, surpassing your previous practices.
We conduct thorough research on new clients and regularly monitor the credit ratings of your existing customers. This stands in stark contrast to the common practice of neglecting routine credit updates for established customers. Such neglect can lead to costly oversights.
Most businesses conduct credit checks only when problems have already spiraled out of control. In contrast, we promptly inform you of any changes in the credit status of your existing customers, allowing you to take proactive measures.
In addition to providing specific customer credit information, we offer comprehensive reports on your accounts receivables. These reports include accounting details, transactional insights, aging reports, and financial management reports. This data empowers you to analyze sales performance, track account history, and make well-informed decisions.
With over 70 years of successful experience managing cash flow and credit, we are eager to leverage our expertise for your benefit. Let us put our knowledge to work, helping you achieve your financial goals and giving your business the competitive edge it needs. Experience the benefits of quick cash and expert credit risk assessment without any extra fees.
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!
