Factoring Company Guide
First Step: Filling Out the Application
Imagine unlocking the doors to a future where cash flow is no longer a concern. It all starts with a simple application. This isn't just paperwork; it's the first step towards transforming your business’s financial destiny.
You'll need to provide some basic yet crucial information – think of it as laying the foundation for your financial breakthrough. This includes details about your company and its customers, painting a picture of your potential for growth.
Discuss your financial aspirations with us. What amount of invoices are you looking to factor? How quickly do you need the funds? This conversation is about crafting a custom solution that fits your unique business landscape.
Keep in mind, the scale of your factoring has power. The greater the volume, the more favorable your terms. This is about leveraging your business's strengths to your financial advantage.
Based on your application, we assess if factoring is the right fit for you. It’s a process of understanding your business’s needs and potential. Once approved, we enter into negotiations, where your factoring volume directly influences the terms, opening up opportunities for better deals and greater growth.
Throughout the negotiation, gain a clear understanding of the costs involved. After reaching an agreement, we initiate the funding process – ensuring everything is in place for you to receive your cash advance swiftly and securely.
Factoring Company Benefits
Unleash the Power of Factoring:
- Transform your focus from cash flow concerns to scaling your business.
- Banish the stress of loan repayments. Experience the freedom of quick cash within days.
- Retain absolute control of your business destiny.
- Say goodbye to the financial drain of chasing down payments.
- Master your cash flow by strategically selecting invoices to factor.
- Outpace clients who lag in payments and protect your financial health.
- Accelerate your production and sales with consistent cash flow.
- Utilize expert services for hassle-free payment collections and credit assessments.
- Never worry about meeting payroll again.
- Ensure you're always prepared for payroll taxes.
- Unlock discounts on bulk purchases to reduce costs.
- Enhance your purchasing leverage for early payment and bulk order discounts.
- Improve your credit rating by consistently covering your bills.
- Secure the cash needed for ambitious business expansion.
- Invest confidently in marketing your business.
- Witness a transformation in your financial statements.
- Gain insightful, comprehensive reports on your receivables for smarter decision-making.
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: 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 Cash and Expert Credit Risk Assessment
Gain a Competitive Advantage at No Additional Cost
Accurately evaluating credit risk is a fundamental aspect of our factoring services. Our objective approach sets us apart, as very few clients can perform this function as effectively as we do.
As part of our comprehensive offering, we serve as your dedicated credit department for both new and existing customers. This gives you a significant edge over managing these tasks in-house, without incurring any extra fees.
Imagine a scenario where a salesperson is pursuing a new account with the potential for substantial purchases. In their eagerness to secure the business, they may overlook warning signs of credit difficulties and bypass your internal credit checks. While this may result in a quick sale, it offers no guarantee of timely payment, which is essential for sustained success.
With us, you can avoid such pitfalls. We make credit decisions based on a comprehensive understanding of the new customer's credit situation. We refrain from purchasing invoices from customers with poor credit ratings, minimizing the risk of nonpayment. Importantly, our involvement does not imply a tightening of credit that could negatively impact your business beyond your control.
Ultimately, the decision to do business 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 retain the freedom to extend credit terms as you see fit. You remain in complete control. Regardless of the decisions you make, our participation ensures 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 for established customers, which can be a costly oversight.
Most businesses only conduct credit checks when problems have already spiraled out of control. In contrast, we promptly inform you of any changes in the credit status of your existing customers, empowering you to take proactive measures.
In addition to providing specific customer credit information, we offer comprehensive reports on your accounts receivables. These reports include accounting details, transactional insights, aging reports, and financial management reports. This valuable data allows you to analyze sales performance, track account history, and make informed decisions to drive your business forward.
With over 70 years of successful experience managing cash flow and credit, we are excited to leverage our expertise for your benefit. Let us put our knowledge to work, helping you achieve your financial goals and unlock the full potential of your business. Experience the advantages of quick cash and expert credit risk assessment at no additional cost.
How To Change Factoring Companies
Changing Your Invoice Factoring Service Provider
Need-to-know info about switching invoice factoring firms.
Are you considering a different invoice factoring firm?
Are you dissatisfied with your current one?
Planning on ditching your current factoring firm?
What should I know before I switch factoring companies?
Here's a guide answering all these queries and more:
Understanding UCC and its role in switching factoring firms:
Usually, factoring companies file a general Uniform Commercial Code (UCC) to secure their claim over the invoices they've funded.
The UCC helps factoring companies, banks, and lenders know who's lent money on which assets. As invoices change daily, factoring companies need to file a 'blanket' UCC that secures all your receivables, even if you're only factoring a part of your sales. This 'blanket' UCC acts as a signal to other lenders, showing a Security Agreement exists between you and the factoring company.
Your specific factoring details, like rates and which accounts are factored, are laid out in the Security Agreement, which is not publicly accessible. Essentially, a UCC works like a first mortgage on your business.
The Process of Switching Companies
The lender with the earliest UCC filing gets 'First Position' on the promised collateral. For instance, a factoring firm has first rights to collect payments on your invoices.
To switch factoring firms, the new factoring firm has to pay off the old one. At the same time, the old factoring company's claim is released, and the new company's claim is filed, similar to refinancing a house.
A 'buyout' is when the new factoring firm pays off the old one using funds from your first financing.
The Buyout Agreement details the transition process and is signed by the old factoring firm, new factoring firm, and your company. In this agreement, you agree to the 'buyout figure' provided by the old factoring company.
How is the Buyout Figure Determined:
The buyout figure is usually the total outstanding receivables minus any reserves and then plus any fees owed to the old factoring firm. It's a good idea to ask for a detailed breakdown of your figure to ensure you understand if there are any early termination fees or additional charges.
What does the buyout cost?
If you can provide new invoices to the new factoring company, which they can use to pay off the outstanding invoices at your old firm, then you wouldn't incur additional costs for the switch. However, most companies need to resubmit some of the invoices already factored with the old company to the new one. In this case, the 'overlap' invoices will incur fees from both factoring firms.
How long does a buyout take?
When you're switching factoring firms, plan for the first funding to take two to three more days than the normal setup process. The extra days will be used to verify the invoices and calculate buyout figures for your approval.
What if my situation is more complex?
Although it's not usual, the old and new factoring firms can collaborate via an Intercreditor or Subordination Agreement until the old firm is paid off. Depending on the situation, factoring firms have managed to 'draw a line in the sand,' where the old firm has rights to invoices up to a certain date, and the new firm has rights to all invoices after that date.
Questions you should have asked before signing up with your current factoring firm:
- Can I use multiple factoring firms at once? The universal answer is one, according to the Uniform Commercial Code/UCC.
- If I decide to switch factoring firms, how much notice do I need to give?
- What is the penalty for leaving without giving the required notice and can you provide an example of how the fees are calculated? Beware of 13-month contracts that require a certain monthly factoring volume.
For example, a 13-month contract where you've agreed to factor $100,000 per month at a rate of 3% means you promise to pay them $3,000 per month in factoring fees or $34,000 in total over the next year. If you want to leave after 6 months, they will charge you the fees for the remaining 6 months, which equals $13,000. This can be too expensive for most companies, especially those with low profit margins. You're stuck!
