Factoring Company Guide
Phase One: The Client Application
The process begins with you filling out a client profile that we provide. This profile asks for basic details such as your company's name, address, what your business is about, and some information about your customers.
You may also have to give us documents like an accounts receivable aging report, your customers' credit limits, among other things. We, the factor, aim to understand how reliable your customers are when it comes to credit, beyond just their past dealings with you. We are seeking a wider view of their overall credit status.
At this starting phase, you will discuss the financial details with the factor. You'll talk about how many invoices you'll want to factor each month (in other words, how much cash you need on hand), what the advance rate and the discount rate will be, and how quickly the advance will be issued to you.
Usually, the responses to these questions will be based on your customers' financial stability and the predicted monthly sales volume to be factored. Things like the industry you're in, how long your business has been operating, and the overall riskiness of your customers can influence the outcome. For example, if you have many high-risk clients, it will cost more in factoring fees than if you have a small list of slow-paying government entities.
In the factoring world, volume is key. The more invoices you factor (the total dollar amount), the better your rates will be.
We'll use the client profile you've filled out to see if factoring is a good match for your business. We'll be assessing the potential risks and rewards based on the data you've provided.
Once we approve your profile, you'll get to negotiate the terms and conditions. The negotiation will take into account several aspects of the deal. For example, if you're factoring $10,000, you shouldn't expect as good a deal as a company that's factoring $500,000.
During the negotiation phase, you'll get a clear understanding of the costs to factor your accounts receivable. Once you've reached an agreement with us, the factor, we get the ball rolling on the funding process. We'll check your customers' credit, see if there are any liens against your company, and verify your invoice before we buy your receivables and give you the advance.
Factoring Company Benefits
Perks of Factoring: The Inside Scoop
Is Factoring For You
The Importance of Factoring
"Without payment, a sale is just a promise."
Ask yourself, are you inadvertently funding your customers’ businesses? Take a close look at your accounts receivable. Those overdue payments? They're essentially interest-free loans you're giving to your customers. This diverges from your core business goals, doesn't it?
Imagine if your customers were borrowing from a bank. They would certainly be paying interest. Meanwhile, you're not earning any interest, and more importantly, you're missing out on using that capital to grow your own business. What's the real cost of having your money tied up in receivables?
It's not just about the interest you're losing; it's the growth opportunities you're missing while your funds are locked in accounts receivable. Are you sure you want to be in the business of financing your customers?
>Consider this: You might be acting as a lender to your customers without even realizing it. Look at your accounts receivable. Those overdue payments? They're interest-free loans you're giving out. This isn't what you planned when you started your business, right?
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: Expert Credit Risk Assessment at Zero Extra Cost
Accurate credit risk assessment is a critical function in our factoring services, and our proficiency in this area is unparalleled. We provide this service at no additional cost, acting as your personal credit department for both new and existing clients.
Imagine a scenario where a salesperson, driven by the goal to make a sale, neglects potential credit risks. This could result in a sale without actual payment. Our expertise ensures you don't face such situations.
Our role is to analyze credit risks thoroughly, but the decision to proceed with a transaction remains yours. We provide comprehensive and objective credit information, empowering you to make informed decisions.
We continuously monitor the credit ratings of your existing customers, a step often overlooked by many businesses. This vigilance is crucial for financial stability.
You also receive detailed reports on your accounts receivable, offering valuable insights for financial management and strategy development.
Leveraging our 70-year legacy in cash flow and credit management, we are committed to enhancing your business's financial well-being. Allow us to contribute to your financial success.
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?
