Factoring Company Guide
First Step: Filling Out the Application
Commence your journey to financial empowerment with our straightforward application. Provide us with essential business information to pave the way for your company's growth.
Documents like accounts receivable aging reports are necessary to assess the financial health of your customers. We look beyond past transactions to understand their overall financial stability.
This stage also involves determining your financial needs, discussing factors like invoice volume, advance rates, and funding speed. These terms are based on your industry specifics, customer risk profiles, and business longevity.
Factoring volume is key. The larger the invoice amount, the more favorable your factoring rates.
Using your application, we evaluate whether factoring aligns with your business objectives. Following approval, we negotiate a factoring agreement that suits your business's scale and financial needs.
Through our negotiation process, you'll fully understand the costs involved. Once terms are set, we proceed with customer credit checks and invoice validation before initiating your cash advance.
Factoring Company Benefits
Factoring Benefits: Direct Solutions for Your Business Growth
- Alleviate cash flow concerns to focus on expanding your business.
- Access cash quickly without the stress of monthly loan payments.
- Stay in charge of your business without external pressures.
- Cut down or eliminate the costs of payment collection.
- Control your cash flow with precision by selecting which invoices to factor.
- Stay financially ahead of slow-paying clients, ensuring business continuity.
- Empower your business with increased production and sales.
- Utilize professional services for payment collection and credit analysis.
- Ensure timely payroll to keep your team satisfied.
- Always be prepared for payroll tax obligations.
- Take advantage of discounts from bulk purchases.
- Strengthen your purchasing power for better financial deals.
- Improve your credit rating through reliable cash availability.
- Have enough cash reserves for expanding your business operations.
- Invest confidently in marketing your business.
- Witness improvements in your financial statements.
- Gain insights from detailed reports about your accounts receivable.
Is Factoring For You
The Importance of Factoring
"A sale isn't complete until the payment is received." Are you inadvertently acting as a bank for your customers? It’s time for a strategic reevaluation.
Analyze your accounts receivable. Notice the number of overdue accounts? This isn't just delayed payment; it's interest-free financing you're providing, which is probably not in line with your business strategy.
Your customers, if borrowing from a bank, would pay interest. However, in your case, you're losing out on both interest and the opportunity to use this capital effectively. What could you be achieving with this money if it were readily available?
By offering extended payment terms, you're unintentionally financing your customers. Consider the broader impact of this on your business's growth and take control of your receivables.
Factoring History
Factoring History
Welcome to the world of factoring. Whether you're a business owner, aspiring entrepreneur, or seeking new financial tools for your current employer, factoring can help you achieve your financial goals. Surprisingly, factoring serves as the financial backbone for many successful American businesses.
The irony lies in the fact that factoring is rarely taught in business colleges, seldom mentioned in business plans, and remains relatively unknown to the majority of American businesspeople. However, it plays a crucial role in freeing up billions of dollars every year, enabling thousands of businesses to thrive and prosper.
So, what exactly is factoring? It is the process of purchasing commercial accounts receivable (invoices) from a business at a discount. In today's business landscape, offering credit terms to customers has become a common practice in order to secure business. However, these terms can strain the financial health of new or struggling companies, as cash flow is the lifeblood of any business.
Factoring has a rich and ancient tradition, dating back 4,000 years to the days of Hammurabi, the king of Mesopotamia. Mesopotamia, often called the "cradle of civilization," contributed numerous advancements including writing, structured business codes, government regulations, and the concept of factoring.
Over time, various civilizations embraced factoring. The Romans, for example, were the first to sell promissory notes at a discount. In the American colonies before the revolution, factoring gained widespread documented use. The colonists relied on merchant bankers in London and Europe who provided funds in advance for shipping cotton, furs, and timber before they reached the continent. This allowed the colonists to continue their operations without waiting for payment from European customers.
It's important to note that these arrangements differed from modern banking relationships. If the colonists had relied on traditional banking services in eighteenth-century England, the process would have been much slower. Banks would have awaited payment from the European buyers before paying the colonists. This impractical process led to the emergence of factors in colonial times, who advanced funds against accounts receivable, enabling clients to continue their operations before receiving payment.
During the Industrial Revolution, factoring evolved to focus more on credit issues while preserving its core principle. Factors assisted clients in assessing the creditworthiness of their customers and establishing credit limits, thus guaranteeing payment for approved customers. This practice, known as non-recourse factoring, is common in today's business landscape.
Prior to the 1930s, factoring primarily occurred in the textile and garment industries, as these industries directly inherited the colonial economy's reliance on factoring. After the war years, factors recognized the potential to extend factoring to other industries that relied on invoices, leading to its expansion.
Today, factors come in various forms and sizes. They exist as divisions within large financial institutions, but more frequently as privately owned entrepreneurial endeavors. The rise of private factors surged in the 1960s and 1970s when interest rates soared to unprecedented heights. This trend continued in the 1980s due to increasing interest rates and changes in the banking industry. With banks becoming costly and inflexible due to heavy regulations (recall the Savings and Loan crisis), small business owners sought alternative sources of financing for their expansion and growth. As more banks distanced themselves from small business owners, factoring emerged as a popular option.
Each year, thousands of businesses sell billions of dollars in accounts receivable through factoring. They do so to achieve profitability, fuel growth, and, in some cases, ensure their very survival.
Credit Risk
Quick Continuous Cash: Your Secret Weapon in Credit Risk Assessment at No Extra Cost!
Get ready for a game-changer. When it comes to evaluating credit risk, we're the experts, and frankly, most can't hold a candle to us. And here's the kicker – we offer this service without any additional fees.
Think of us as your secret credit department, handling all the dirty work for both new and current customers. This is the edge you need to outsmart your competition.
Worried about your sales team's blind pursuit of new accounts, ignoring credit risks? It's a common trap. They may clinch the sale, but at what risk? With us, you sidestep this danger entirely.
Concerned about a new customer's credit? The final decision is always yours, but we'll be there to offer a reality check (and maybe an "I told you so").
Our role is advisory, but the power remains with you. With our insights, your credit decisions are not just good; they're brilliant.
We don't just check credit once; we're constantly monitoring, ensuring you're never left in the dark. That's how you stay ahead and financially secure.
You also get comprehensive accounts receivable reports, giving you a financial overview like never before.
With over seven decades in the biz, we're not just experienced; we're a force to be reckoned with. Let our expertise be your financial superpower.
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?
