Factoring Company Guide
First Step: Filling Out the Application
Your journey to enhanced cash flow begins with a simple application. Provide basic details about your business – its name, address, nature, and customer information. This is the first step towards unlocking your business's financial potential.
You may need to submit documents like an accounts receivable aging report. Remember, we assess the payment reliability of your customers to understand their overall financial health, not just their history with you.
In this initial stage, discuss your financial needs with us. This includes the volume of invoices for factoring, the advance and discount rates, and the speed of receiving advances. Factors like your industry, business tenure, and customer risk profiles will guide these terms.
Remember, the volume of your factoring is crucial. Higher invoice volumes typically lead to more favorable rates.
Based on your application, we'll determine if factoring aligns with your business needs, balancing risks and rewards. Once approved, we'll negotiate the specifics of your factoring agreement, tailored to your business's scale and requirements.
During the negotiation, you'll gain a clear understanding of the costs. Following agreement on terms, we'll initiate funding by verifying your customers' credit and the legitimacy of your invoices before providing the cash advance.
Factoring Company Benefits
Advantages of Using Factoring:
- Free up your time to focus on your business, instead of stressing over cash flow.
- Forget about monthly loan repayments. Receive your money in just two to four days.
- Stay in total control of your business operations.
- Cut down or completely remove the costs linked to the payment collection process.
- Get a firmer grip on your cash flow by choosing which invoices to sell and when.
- Get ahead of clients who delay payments.
- Enhance your business productivity and sales.
- Benefit from expert services for collection and checking credit.
- Never miss meeting your payroll requirements.
- Effortlessly cover your payroll taxes.
- Offer cash discounts for your supplies.
- Boost your purchasing power, enabling you to get discounts for bulk purchases or early payments.
- Improve your credit rating by always having enough cash to settle bills on time.
- Have the necessary cash for expanding your business.
- Allocate funds for promoting your business.
- Improve your financial statement.
- Receive complete and thorough reports regarding your accounts receivable portfolio.
Is Factoring For You
The Importance of Factoring
"Remember, a sale is incomplete without payment." Ask yourself, are you inadvertently offering free banking services to your customers? Let's examine the reality.
Take a moment to review your overdue accounts. Each one represents an interest-free loan you've extended. This arrangement is far from what you envisioned for your business, isn't it?
Consider this: when customers borrow from banks, they pay interest. Yet, in your case, you're not earning interest on these funds. Worse still, you're missing the chance to use this capital for growing your business. The cost of this missed opportunity can be substantial.
By allowing extended payment terms, you're essentially financing your customers' operations. It's crucial to understand the true impact of this on your business's growth and financial health.
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
Quick Continuous Cash: Get Expert Credit Risk Assessment at No Extra Cost!
Accurately evaluating credit risk is a crucial aspect of our factoring business. Very few, if any, clients can perform this function as objectively as we can.
At no additional fee, we act as your dedicated credit department for both new and existing customers. This gives you a significant advantage over handling these functions in-house.
Imagine a scenario where a salesperson is pursuing a new account with the potential for substantial purchases. The salesperson may be so focused on winning the business that they overlook warning signs related to credit difficulties. They might even bypass your internal credit checks to expedite the process. While this may secure the sale, it won't guarantee payment, and without payment, there is no sale.
With us, this situation won't occur. We make credit decisions based on a comprehensive understanding of the new customer's credit situation. We won't purchase the invoices of customers with poor credit ratings, minimizing the risk of nonpayment. However, please don't view our involvement as a tightening of credit to the extent that it negatively impacts your business beyond your control.
If you have a new customer with questionable creditworthiness, the ultimate decision to do business with them remains yours. (Nevertheless, we reserve the right to say, ""I told you so!"")
While we may not purchase those invoices, you still retain the freedom to extend credit terms as you see fit. You remain in control. Regardless of the decisions you make, thanks to our participation, you can be confident that you'll have access to more comprehensive, objective, and high-quality information for informed credit decisions compared to your past practices.
We thoroughly research new clients and, equally importantly, regularly monitor the credit ratings of your existing customers. This is in stark contrast to most businesses where routine credit updates on the established customer base are rare. Such neglect can be a grave mistake.
Typically, businesses only conduct a credit check when it's too late and the problem has already spiraled out of control. On the other hand, we will promptly inform you if there are any changes in the credit status of your existing customers.
In addition to providing specific customer credit information, you'll also enjoy the benefits of comprehensive, detailed reports on your accounts receivables as a whole. As part of our process, you'll receive accounting details, transactional insights, aging reports, and financial management reports. This data empowers you to incorporate it into your sales tracking, account history, and in-depth analysis.
With over 70 years of successful cash flow and credit management experience, we are eager to leverage our expertise for your benefit. Let us put our knowledge to work for you and help you achieve your financial goals.
How To Change Factoring Companies
Changing Your Invoice Finance Provider
Thinking about switching your invoice finance provider? Whether it’s due to dissatisfaction or a strategic move, this guide is your comprehensive handbook. We'll navigate through the complexities of UCCs, the transition process, and key considerations before you commit to a new financial partner.
Uniform Commercial Code (UCC) Explained
A UCC filing is a standard practice for invoice finance companies. It’s akin to a safety net, ensuring their rights are protected:
- It keeps track of asset rights.
- Alerts potential lenders about existing financial arrangements.
- Guarantees that your financier has priority claim over your invoices.
Transitioning Between Providers
Switching providers is similar to refinancing a mortgage. It involves a "buyout" where your new provider takes over the balance from the old one, formalized by a Buyout Agreement.
Calculating the Buyout Amount
The buyout amount typically includes the total unpaid invoices minus any reserves, along with fees from your old financier. Always ask for a detailed breakdown to understand any additional charges or early termination fees.
Cost Implications of a Buyout
Transitioning can be financially neutral if you use new invoices. However, reusing financed invoices might incur double fees. Some financiers offer discounts, but timely notification to your old provider is crucial to avoid extra charges.
Time Considerations
Switching may extend the usual processing time due to buyout calculations and approvals. The amount can fluctuate based on accruing fees and ongoing payments. Partnering with an experienced company can make this transition smoother.
Complex Scenarios
In certain cases, both your old and new financiers might have rights to your invoices until the previous balance is settled, though this isn’t the norm.
Questions to Ponder Before Committing
- Is it feasible to work with multiple invoice finance companies at once?
- What is the notice period for changing providers, and are there associated penalties?
- How does the new provider handle payments, and what’s the turnaround time?
- Who will be your primary contact at the finance company, and how many different people will you work with?
- Will you be responsible for postage costs for sending invoices?
- Are there extra charges for credit checks or setting up new clients?
- When does the provider start holding reserves?