Factoring Company Guide
First Step: Filling Out the Client Application
Start off by completing a basic client profile form that we'll provide. It'll ask for simple details like your company's name, location, what your business is about, and some info on your clients.
You might also need to provide documents like an accounts receivable aging report, or info on your clients' credit limits. Don't forget, we (the factor) are trying to gauge how creditworthy your clients are, beyond their payment history with your business. We're looking for a wider view of their overall credit health.
In this first step, we'll also discuss basic financial details. For instance, how many invoices do you want to factor each month (meaning, how much cash do you need quickly)? What will be the advance rate and the discount rate? And, how soon can we provide the advance?
Often, the answers to these questions depend on your clients' financial health and the expected monthly sales to be factored. Other factors can affect this too, like your industry, how long you've been in business, and your clients' risk profile. For example, if you have a lot of high-risk clients, you'll likely pay more in factoring fees than if your clients are slow-paying government bodies.
Remember, in the factoring business, volume matters. The more invoices you factor (the higher your volume), the better your rates will be.
We'll use the client profile you give us to determine if your business is a good candidate for factoring. Essentially, we're evaluating the risks against the rewards based on the information you've provided.
Once we give the green light, be ready to negotiate terms and conditions. This process takes into consideration various elements of the deal. For instance, if you're factoring $10,000, you won't get as good a deal as a company factoring $500,000.
During this negotiation, you'll gain a good understanding of what it costs to factor your accounts receivable. Once you've reached an agreement with us, the funding process gets underway. We conduct due diligence by looking into your clients' credit and any liens against your company. We also verify the authenticity of your invoice before purchasing your receivables and giving you the cash advance.
Factoring Company Benefits
Factoring Benefits: Elevate Your Business Efficiency
- Focus on business growth, free from cash flow concerns.
- Experience the ease of obtaining cash without loan repayments, available in days.
- Retain full control and decision-making power in your business.
- Minimize the costs involved in chasing down payments.
- Exercise superior control over your cash flow through strategic invoice selection.
- Stay financially ahead of clients with delayed payments.
- Use a reliable cash flow to boost your production and sales.
- Leverage expert services for efficient payment collections and credit checks.
- Ensure you can always meet your payroll obligations.
- Maintain sufficient funds for payroll taxes at all times.
- Access discounts for bulk purchases, enhancing your bottom line.
- Improve your purchasing power, leading to significant savings.
- Enhance your credit rating with consistent cash flow for bill payments.
- Ensure capital availability for expanding your business.
- Allocate enough resources for effective marketing strategies.
- Observe a positive transformation in your financial statements.
- Receive detailed, actionable reports on your accounts receivable.
Is Factoring For You
How Factoring Helps Small Businesses Grow
Factoring is a helpful tool that can contribute to the growth of small businesses in simpler terms. Here's how it works:
Access to Quick Cash: Small businesses often struggle to access funds they need for daily operations or expansion. Factoring allows them to get quick cash by selling their unpaid customer invoices to a factoring company. This immediate cash infusion gives them the financial resources to cover expenses and seize growth opportunities.
Better Cash Flow Management: Cash flow is crucial for small businesses to pay bills, purchase inventory, and invest in growth. Factoring improves cash flow by providing a steady stream of money from the factoring company for the outstanding invoices. This helps small businesses maintain a healthy financial situation and avoid cash flow gaps.
Improved Credit Standing: By using factoring, small businesses can build a good credit history. They can pay suppliers on time and establish a reputation for reliability. This can lead to better credit terms with suppliers and easier access to loans or other financing options in the future.
Business Expansion: Factoring gives small businesses the financial flexibility to expand their operations. They can use the cash from factoring to invest in marketing, hire more employees, purchase equipment, or open new locations. This helps them take advantage of growth opportunities and increase their market presence.
Outsourced Invoice Management: Managing customer invoices can be time-consuming and complex. Factoring companies handle this task for small businesses. They take care of invoicing, collecting payments, and managing customer credit checks. This frees up valuable time and resources for small businesses to focus on core operations and serving their customers.
Reduced Financial Risk: Factoring companies assume the risk of non-payment from customers. They conduct credit checks and monitor payments, protecting small businesses from bad debts. This reduces financial risk and provides peace of mind to small business owners.
Flexibility to Grow: Factoring is a flexible financing option that grows with the business. As sales increase and generate more invoices, small businesses can access more funding through factoring. This adaptability allows them to fund their growth without being limited by traditional loan structures.
In simple terms, factoring gives small businesses quick cash, improves their cash flow, helps build good credit, supports business expansion, streamlines invoice management, reduces financial risk, and offers flexibility for growth. By using factoring, small businesses can overcome financial hurdles and create opportunities for long-term success.
Factoring History
Factoring: Unleashing Business Potential and Fueling Success
Welcome to the world of factoring, where businesses discover the secret to unlocking their true potential and achieving remarkable success. Whether you're a seasoned entrepreneur or a budding business owner, factoring can be the key to accelerating your growth and propelling your business towards new horizons.
It's surprising that factoring often remains an unsung hero, with many business owners unaware of its incredible benefits. However, factoring holds the power to revolutionize your cash flow, provide stability, and unleash a wave of opportunities.
But what exactly is factoring? At its core, factoring involves selling your accounts receivable (invoices) to a specialized financing company at a discounted rate. In today's competitive business landscape, offering credit terms to customers is essential for attracting and retaining clients. However, waiting for payments can strain your working capital and hinder your ability to invest, expand, and seize growth opportunities.
Factoring boasts a long and storied history, adapting and evolving alongside the needs of businesses over time. Today, factoring serves as a catalyst for growth, providing businesses with immediate access to the funds locked within their unpaid invoices. This infusion of working capital empowers you to cover expenses, invest in innovation, explore new markets, and achieve sustainable success.
Factoring knows no boundaries when it comes to industries or business sizes. Whether you're in manufacturing, services, wholesale, or beyond, factoring can be tailored to meet your specific needs. It offers flexibility, scalability, and the ability to adapt as your business evolves, ensuring you always have the resources to thrive.
Collaborating with a reputable factor brings even more advantages to the table. Factors bring expertise in credit analysis, collections, and risk management, alleviating the burden of managing receivables and allowing you to focus on core business activities. This partnership ensures a smooth cash flow, minimizes the risks of late payments, and provides the financial stability necessary to navigate challenges and seize opportunities.
Factoring liberates businesses from the limitations of traditional financing options. It offers a faster, more accessible alternative that empowers you to drive growth, invest in expansion, and realize your vision. With factoring, you can unlock working capital, fuel innovation, hire top talent, and position your business for long-term success.
Join the ranks of businesses that have harnessed the power of factoring and experience the transformation it brings. Embrace a future of financial stability, enhanced liquidity, and accelerated growth. Factoring is the secret weapon that unlocks your business's true potential and propels you towards unprecedented success.
Credit Risk
Unlocking Quick and Continuous Cash: Yes, It's Possible!
Not only do we provide you with quick and continuous cash flow, but we also offer our credit risk expertise at no additional cost. Accurately assessing credit risk is a vital part of our factoring business, and few clients can perform this function as objectively as we can.
As part of our service, we act as your credit department for both new and existing customers, giving you a significant advantage over in-house credit performance. Consider a scenario where a salesperson is eager to secure a new account with the potential for large purchases. In their zeal for business, they may overlook red flags associated with credit difficulties. They might even bypass your internal credit checking procedures to circumvent established controls. While this may result in making the sale, it won't guarantee payment. After all, without money, there is no sale.
With us, this won't be the case. We make credit decisions with full knowledge of the new customer's credit situation. We refuse to buy the invoices of poorly-rated customers and risk nonpayment. However, please don't view our involvement as a tightening of credit to the extent that it negatively affects your business beyond your control.
If you have a new customer with questionable creditworthiness, the decision to do business with them is ultimately yours. (Although, we reserve the right to say, "I told you so!")
While we may not purchase invoices from such customers, you are still free to extend credit terms as you see fit. You remain in control. Whatever decisions you make, rest assured that our participation ensures you have access to more complete, objective, and higher-quality information than ever before.
We conduct thorough research on new clients and regularly check the credit ratings of your existing customers. This sets us apart from most businesses, where routine credit updates on the established customer base are seldom performed—an approach that can lead to potentially significant mistakes.
By opting for a credit check, businesses often discover issues when it's already too late and the problem has spiraled out of control. In contrast, we promptly inform you if there is a change in the credit status of any of your existing customers.
In addition to providing specific customer credit information, we offer comprehensive and detailed reports on your accounts receivables as a whole. Through this process, you gain access to accounting details, transactional information, aging reports, and financial management reports. These resources empower you to incorporate the data into your sales tracking, account history, and in-depth analysis.
With over 70 years of successful experience in cash flow and credit management, we're excited to put our expertise to work for you.
How To Change Factoring Companies
Changing Your Invoice Factoring Company
All you need to understand when you want to change your invoice factoring company:
If you're thinking of moving to a different invoice factoring company or if you're unsatisfied with your current one, this guide has got you covered.
Key Points to Consider:
- Understanding UCC: The Uniform Commercial Code (UCC) is a way factoring companies secure their rights over invoices. It acts as an alert to other lenders, indicating an official partnership between your business and the factoring company.
- Switching Process: To move to a new factoring company, the old company's dues need to be cleared by the new one. It resembles the refinancing of a home.
- What's a 'Buyout'?: A buyout occurs when the new factoring company pays the old one using money from your initial funding. This transition is defined in a 'Buyout Agreement'.
- Calculating Buyout Costs: The buyout amount comes from subtracting reserves from the total pending receivables and then adding any fees owed to the old factoring company.
- Costs Involved: If you provide new invoices to the new factoring company, which they use to clear the outstanding invoices at your previous company, you won't face additional costs during the transition.
- Duration of a Buyout: The initial funding could take a bit longer, typically two to three days more, when you're switching companies, due to invoice verification and finalizing the buyout sum.
- Complex Situations: Sometimes, both factoring companies can cooperate until the older one's dues are settled. Dividing invoices based on their issue dates might be a feasible approach.
- Before Signing: Always ask vital questions before committing to a factoring company. For instance, inquire about the possibility of working with multiple factoring companies simultaneously, or the penalties and notice periods for switching.
Additional Queries to Consider:
It's crucial to be informed and understand potential obligations. Ask about post-payment processes, the time taken to update your account after a customer's payment, the duration they hold your original invoices, the number of personnel you'll be interacting with, and any possible hidden charges.
