Factoring Company Guide
First Step: Filling Out the Application
Start your journey to enhanced liquidity with our simple application process. Fill in essential details about your business to access customized financial solutions.
You'll need to provide us with key documents like accounts receivable reports. This is to ensure a comprehensive assessment of your customers' financial health, beyond their interactions with your company.
In this first step, we'll also discuss your specific financial requirements, including invoice volume, expected rates, and advance timelines. These terms vary based on industry, business history, and customer risk.
The volume of invoices you factor is crucial. Larger volumes generally mean more favorable rates.
Your application helps us decide if factoring is the right fit for your business. Post-approval, we engage in negotiations, shaping the agreement to fit your company's size and financial needs.
During negotiations, you'll gain insight into the cost structure. Following agreement on terms, we conduct credit checks on your customers and verify your invoices before proceeding with the funding.
Factoring Company Benefits
Benefits of Factoring:
- Free up your mind from cash flow concerns and focus more on growing your business.
- No stress about repaying a loan with monthly payments. Get cash in your hands within two to four days.
- You maintain total control over your business.
- Reduce or even eliminate the costs you incur while trying to collect payments.
- Get better control over your cash flow by choosing the exact number and timing of invoices to sell.
- Get ahead of clients who are slow to pay their bills.
- Boost your production and sales.
- Take advantage of professional services for collecting payments and checking credit.
- Ensure you can always meet your payroll.
- Always have enough to cover your payroll taxes.
- Get discounts for buying materials in bulk.
- Strengthen your buying power, which can help you get discounts for paying early or buying in large quantities.
- Better your credit rating because you always have enough cash to pay your bills on time.
- Have enough cash for expanding your business.
- Have enough cash for marketing your business.
- Improve your financial statements.
- Receive detailed and comprehensive reports about your accounts receivable portfolio.
Is Factoring For You
The Significance of Factoring for Small Businesses
"When you don't collect payment, a sale remains unfinished."
Do you often find yourself acting as a part-time banker for your customers?
Take a moment to assess your accounts receivable aging schedule and count the number of accounts that are overdue by more than 30 days. Congratulations, you are effectively extending credit to those customers. By not receiving timely payment for your products or services, you're essentially providing interest-free financing to your customers. This may not align with your original business intentions, does it?
Consider this:
If your customers were to borrow the same amount of money from a bank, they would undoubtedly be expected to pay a significant amount of interest for that privilege.
Moreover:
Not only are you not earning any interest on that money, but more importantly, you're also missing out on the opportunity to utilize that capital while waiting for your customers to settle their debts. What is the cost of not having this money readily available? Essentially, your customers are essentially asking you to fund their business by granting them extended payment terms, often exceeding 30 days.
However, have you considered the expenses incurred due to "missed opportunities" when your funds are tied up in accounts receivable?
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 Cash Advantage: Unlock Expert Credit Risk Assessment at No Extra Cost!
Precisely evaluating credit risk is a vital aspect of our factoring business. Very few, if any, clients can perform this task as objectively as we can.
At no additional fee, we serve as your dedicated credit department for both new and existing customers. This gives you a significant advantage over managing these functions internally.
Imagine a scenario where a salesperson is pursuing a new account with the potential for substantial purchases. Their focus on winning the business may cause them to overlook warning signs related to credit difficulties. They might even bypass your internal credit checks to expedite the process. While this could secure the sale, it won't guarantee payment, and without payment, there is no sale.
Rest assured, this won't happen with us. 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 consider our involvement as a tightening of credit to the extent that it negatively impacts your business beyond your control.
The ultimate decision to do business with a new customer of questionable creditworthiness 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, our participation ensures that you 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 contrasts with the rare routine credit updates on the established customer base in many businesses. Neglecting this 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 promptly inform you of 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 experience in cash flow and credit management, we are eager to leverage our expertise for your benefit. Let us apply our knowledge to help you achieve your financial goals and unlock the full potential of your business.
How To Change Factoring Companies
Changing Your Invoice Finance Provider
Got an itch to switch your invoice finance provider? Whether they're not up to snuff or you're just ready for a change, this is the inside guide you need. We're breaking down everything from UCCs to the nitty-gritty of making the switch, plus all the critical questions you need to grill your new provider with.
Uniform Commercial Code (UCC) Explained
Let's get down to brass tacks with UCC filings. These are your finance company's way of calling dibs on your invoices. Here’s what they do:
- Keep track of who owns what.
- Give other lenders a heads-up.
- Make sure they’re first in line for your invoices, just like a mortgage or a car title.
Transitioning Between Providers
Switching up providers? It's a bit like trading in your old car for a new one. The new provider takes care of the old debt, and everyone signs off on it with a Buyout Agreement.
Calculating the Buyout Amount
The buyout amount is key. It’s what you owe minus reserves, plus any extra fees. Get a clear breakdown to avoid any sneaky charges, like early termination fees.
Cost Implications of a Buyout
Making the switch can be smooth on your wallet, especially if you're bringing fresh invoices to the table. But reusing old ones? That could mean double the fees. Give your old provider the heads-up to dodge extra costs.
Time Considerations
Keep in mind, switching might add a few days to the process for all the buyout calculations. The total might wiggle a bit with fees and payments piling up.
Complex Scenarios
In some tricky scenarios, your old and new financiers might both have a claim on your invoices for a while. Not always, but it happens.
Questions to Ponder Before Committing
- Is playing the field with multiple finance companies an option?
- What's the escape plan – notice period, penalties, and all that jazz?
- How quick is the new provider in processing payments?
- Who are your main contacts at the new finance company?
- Are you on the hook for postage when mailing invoices?
- Any extra fees lurking, like for credit checks or new customer setups?
- When do they start holding onto your money as reserves?