Factoring Company Guide
Step One: Completing the Client Application
First, you need to complete a straightforward client profile that we'll give you. You'll jot down basic stuff like your company's name, address, what kind of business you do, and some info about your customers.
You might also need to share documents related to your business finance, like an accounts receivable aging report or your customers' credit limits. Keep in mind, the factor (that's us) will try to figure out how creditworthy your customers are, not based on how they've paid you, but based on their overall credit situation.
In this early stage, we'll also talk about financial arrangements. For example, how many invoices do you want to factor each month (that is, how much cash do you need on hand)? What will the advance rate and discount rate be? And how fast can we give you the advance?
Usually, the answers to these questions depend on how financially stable your customers are and how much monthly sales you expect to be factored. Factors like what industry you're in, how long you've been in business, and how risky your customers might be can make a difference. For example, if you have a bunch of high-risk clients, you'll probably pay more in factoring fees than if your customers are slow-paying government agencies.
In our line of work, the more invoices you factor (that is, the higher your volume), the better your rates will be.
We'll look at the client profile you give us to see if your business is a good fit for factoring. Basically, we're just trying to weigh the risks against the rewards based on the info you've given us.
Once we've given the thumbs up, you can expect to start discussing terms and conditions. This part of the process takes into account different aspects of the deal. For example, if you're only factoring $10,000, you can't expect as good a deal as a company factoring $500,000.
During these talks, you'll get a clear idea of how much it'll cost to factor your accounts receivable. Once you've agreed on the terms with us, the process of getting your funding starts rolling. We'll do some digging into your customers' credit and check for any liens against your company. We also make sure your invoice is legit before we buy your receivables and give you the cash advance.
Factoring Company Benefits
Factoring Benefits: Your Strategic Advantage
- Redirect your energies from cash flow management to business growth.
- Eliminate the worry of loan repayments with fast, accessible cash.
- Maintain full autonomy over your business operations.
- Cut down or eliminate the cost of chasing payments.
- Gain precise control of your cash flow with targeted invoice selling.
- Stay ahead of slow-paying clients, securing your financial future.
- Boost your production and sales with a steady cash influx.
- Capitalize on professional services for efficient payment collection and credit checks.
- Ensure consistent, timely payroll management.
- Always be ready for payroll tax commitments.
- Access bulk purchase discounts, enhancing your bottom line.
- Strengthen your purchasing power and unlock more savings.
- Enhance your credit score through timely bill payments.
- Amass the capital needed for expansive business growth.
- Allocate more funds towards effective marketing.
- Witness an improvement in your financial statements' quality.
- Receive detailed, actionable insights on your accounts receivable.
Is Factoring For You
The Importance of Factoring
"Without payment, a sale remains just a promise." Have you become an unintentional financier for your customers? This is an important question for your business's financial health.
A close look at your accounts receivable will reveal the extent to which you're extending credit. This is likely not what you had in mind when you set out to grow your business.
If these customers were to borrow from a bank, they'd be paying interest. In contrast, you're not earning any interest, and critically, you're missing the opportunity to reinvest that capital. This is a hidden cost that needs your attention.
Extended payment terms might seem generous, but they tie up funds that could be used to drive your business forward. It's time to consider a more effective strategy to manage your receivables.
Factoring History
Factoring: Empowering Businesses for Success
Welcome to the world of factoring, where businesses find the financial support they need to thrive. Whether you're a business owner, an aspiring entrepreneur, or seeking innovative financial solutions for your employer, factoring can play a crucial role in helping you achieve your financial goals.
It's interesting to note that factoring has often been overlooked and remains relatively unknown in the business world. Despite this, it serves as the backbone for many successful American businesses, unlocking billions of dollars each year and enabling thousands of enterprises to grow and prosper.
So, what exactly is factoring? Simply put, it involves purchasing commercial accounts receivable (invoices) from businesses at a discounted rate. In today's competitive landscape, offering credit terms to customers is often necessary to secure business. However, this can create cash flow challenges, particularly for new or struggling companies that rely on steady and timely payments.
Factoring, with its long and rich history, traces back 4,000 years to the time of Hammurabi, the king of Mesopotamia, often considered the birthplace of civilization. Mesopotamians were pioneers in developing writing, establishing business codes, and introducing the concept of factoring.
Over time, factoring gained traction in various civilizations. The Romans, for instance, were early adopters, introducing the sale of promissory notes at discounted rates. In the American colonies, factoring played a crucial role before the revolution. Merchant bankers in London and Europe provided funds in advance for goods such as cotton, furs, and timber, allowing colonists to continue their operations without being hindered by delayed payments from European customers.
It's important to highlight that these historical arrangements differ from modern banking relationships. In fact, modern banks would have caused delays, waiting to collect payments from European buyers before disbursing funds to the colonists. This impractical process led to the emergence of factors in colonial times who provided advances against accounts receivable, enabling clients to maintain their operations while awaiting payment.
As the Industrial Revolution unfolded, factoring adapted to address credit concerns while maintaining its core principles. Factors began assisting clients in assessing customer creditworthiness, establishing credit limits, and guaranteeing payment for approved customers. Today, this approach, known as non-recourse factoring, is commonly practiced in the business world.
Before the 1930s, factoring primarily served the textile and garment industries, which inherited the practice from the colonial economy. However, after the war years, factors recognized the potential to expand factoring to other industries reliant on invoicing, leading to its broader adoption.
In the present day, factors come in various shapes and sizes. Some operate as divisions within large financial institutions, while many others are independently owned entrepreneurial endeavors. The popularity of privately owned factors surged in the 1960s and 1970s when high-interest rates made traditional bank financing less accessible. This trend continued in the 1980s, driven by increasing interest rates and changes in the banking industry. As banks became more expensive and inflexible due to regulatory constraints, small business owners sought alternative financing options. Factoring emerged as an increasingly popular choice.
Each year, thousands of businesses leverage factoring to sell billions of dollars in accounts receivable. By doing so, they unlock cash flow, achieve profitability, drive growth, and, in some cases, secure their very survival. Factoring empowers businesses by providing them with the financial support they need to thrive in today's competitive market.
Credit Risk
Unleash Your Business Potential with Quick and Reliable Cash Flow
Expert Credit Risk Assessment Included at No Additional Cost
Accurately assessing credit risk is a critical aspect of our factoring business. Very few clients can perform this function as objectively as we do.
As part of our comprehensive service, we act as your dedicated credit department for both new and existing customers, providing you with a valuable advantage over handling these tasks in-house.
Imagine a scenario where a salesperson is pursuing a new account with significant potential for sales. In their eagerness to secure the business, they might overlook warning signs of credit difficulties and bypass your internal credit checks. While this approach may lead to a quick sale, it doesn't guarantee timely payment, and without payment, there is no true success.
With us, such situations are avoided. We make credit decisions based on a comprehensive understanding of the new customer's credit situation. We exercise caution by not purchasing invoices from customers with poor credit ratings, minimizing the risk of nonpayment. It's important to note that our involvement does not imply a tightening of credit that would negatively impact your business beyond your control.
Ultimately, the decision to engage with a new customer of questionable creditworthiness remains yours. (However, we reserve the right to say, "We warned you!")
While we may not purchase those invoices, you still have the freedom to extend credit terms as you see fit. You retain full control. Regardless of the decisions you make, our participation ensures that 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 diligently monitor the credit ratings of your existing customers. This stands in stark contrast to the common practice of neglecting routine credit updates on the established customer base, which can lead to costly mistakes.
Most businesses conduct credit checks only when it's too late and the problem has already escalated. 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 detailed reports on your accounts receivables as a whole. Our comprehensive reports include accounting details, transactional insights, aging reports, and financial management reports. This data empowers you to analyze your sales performance, track account history, and make informed decisions.
With over 70 years of successful experience in managing cash flow and credit, we are eager to leverage our expertise for your benefit. Let us put our knowledge to work for you, helping you achieve your financial goals and unlocking your business's true potential. Experience the benefits of quick and reliable cash flow, supported by expert credit risk assessment at no additional cost.
How To Change Factoring Companies
Changing Your Invoice Finance Provider
Thinking about kicking your invoice finance provider to the curb? Whether they're not cutting it or you just want something better, this guide is your ticket. We're covering the A to Z of UCCs, how to switch providers without a hitch, and the essential questions that'll make sure you're teaming up with the right new financial partner.
Uniform Commercial Code (UCC) Explained
First things first, UCCs. They're a big deal in the invoice finance world. Here's what they do:
- Track who's got rights to your assets.
- Give a heads-up to other lenders about your current finance deals.
- Ensure your finance company is first in line for your invoices, just like a bank with a mortgage on your house.
Transitioning Between Providers
Switching finance providers is pretty much like refinancing your house. Your new finance provider will pay off the old one, and you all sign off on a Buyout Agreement.
Calculating the Buyout Amount
Figuring out the buyout amount involves unpaid invoices, reserves, and any extra fees your old financier might throw in. Always ask for a detailed cost breakdown to avoid surprises and check if your new deal is a better fit financially.
Cost Implications of a Buyout
Making the switch can be smooth on your wallet if you're bringing new invoices to your new financier. But watch out – reusing old invoices might lead to double charges. Some financiers offer discounts, but remember to tell your old provider in time to avoid extra fees.
Time Considerations
Switching isn't a snap-of-the-fingers kind of deal. It adds a few days for all the calculations and paperwork. The amount you owe could keep changing, so team up with a pro to make it as smooth as possible.
Complex Scenarios
In some rare situations, both your old and new financiers might have their fingers in the pie of your invoices until the previous balance is paid off. It's not typical, but it happens.
Questions to Ponder Before Committing
- Thinking about playing the field with multiple invoice finance companies?
- What's the fine print on changing providers, including any exit fees?
- How does the new provider handle payments, and what's the turnaround time?
- Who are your main contacts at the new finance company?
- Who's covering the costs for sending out your invoices?
- Are there extra charges for credit checks or adding new clients?
- When do they start holding back reserves?
