Since there are many issues and questions regarding Accounts Receivable Factoring, following below is a list of the most frequently asked accounts receivable factoring questions that are received from potential clients.
- What is Factoring?
- Is accounts receivable funding a new financing option?
- How can accounts receivable funding help my business?
- How is accounts receivable funding from a factor different than accounts receivable financing from a bank?
- Will my company be eligible for accounts receivable funding if it has a bank loan or line of credit?
- My company owes back taxes. Can I still apply for accounts receivable funding?
- I have had a past bankruptcy, is accounts receivable funding still an option?
- What information will you need from my company to begin the accounts receivable funding process?
- Which customers would be good candidates for accounts receivable funding?
- Can your company purchase only a portion of my company’s invoices?
- How soon can you issue a factoring proposal?
- How long does it take to receive the first funding?
- Do you purchase outstanding invoices?
- Are accounts receivable funding fees tax deducible?
- Do you verify invoices with my customers?
- What should I do if my customer mistakenly sends the payment to my company?
- What happens if my customer doesn’t pay the invoice?
- How can I be certain that the factor will treat my customers well?
- What is the Advanced Rate?
- How much does it cost?
- As we currently factor with another company, could you compare rates and lower our factoring fees?
1. What is Factoring?
Factoring is one of the quickest methods for companies to raise working capital. Used by almost every industry, factoring allows your company to raise the needed capital for acquisitions, expansion/growth, negotiate better terms with your suppliers/vendors, restructuring, meet payroll or in some cases, your company’s survival.
Factoring is the process of converting your accounts receivables into cash, thus allowing your company to receive cash quickly and bring your cash flow much more in line with your payment needs. Why wait 30-60-90 days or longer for your customers to pay you? By factoring your invoices you will get the money from your customers now – not weeks or months from now!
Factoring does not require additional collateral and does not create debt! Factoring is ideal for companies with cash flow problems, and companies that are going through temporary setbacks. However, did you know that factoring is also very beneficial and essential to healthy companies? With factoring, you can focus on sales and growth, and let us focus on providing you with a steady cash flow.
2. Is Accounts Receivable Factoring a new financing option?
Accounts Receivable Factoring is one of the oldest forms of financing. It has been around in one form or another for centuries. However, until the mid 1980s most people thought Accounts Receivable Factoring was only used in the textile and garment industries. Today, Accounts Receivable Factoring is a widely used and viable financing solution for all types of businesses that extend credit terms to their customers.
3. How can Accounts Receivable Funding help my business?
By providing an immediate source of cash flow for your company. You can use this cash to provide working capital, meet payroll, pay taxes, replenish inventory, increase advertising, purchase equipment, improve your credit rating, and more.
4. How is Accounts Receivable Factoring from a factoring company different than accounts receivable financing from a bank?
When making a funding decision, we focus on the creditworthiness of your customers while banks will focus on your company’s financial history and cash flow. Plus, since accounts receivable funding is not a loan, there is no debt on your company’s balance sheet. Best of all, we will make a quick funding decision, while banks may take weeks—even months—to approve a loan.
5. Will my company be eligible for Accounts Receivable Factoring if it has a bank loan or line of credit?
If a bank has a lien on your company’s accounts receivable, you should let us know right away. We will ask the bank to subordinate that lien in our favor. Because this is a common occurrence, most banks may accommodate the request, but we must know this information in advance.
6. My company owes back taxes. Can I still apply for Accounts Receivable Factoring?
Yes, Tax problems are handled on a case-by-case basis. Please let us know immediately so that we can discuss the payoff of your back taxes or a lien subordination with the IRS.
7. Since I have had a past bankruptcy, is Accounts Receivable Factoring still an option?
Yes, we will still consider your application even if you have credit problems or a past bankruptcy.
8. What information will you need from my company to begin the Accounts Receivable Factoring process?
- Your application
- Company’s most recent accounts receivable and accounts payable aging reports
- Articles of Incorporation or DBA filing
- Master customer list and a sample invoice
- For start-up companies, please also submit a business plan and projected sales forecast, and an owner/officer history and profile.
9. Which customers would be good candidates for Accounts Receivable Factoring?
Ideally, we would like to fund all of your customers. First, we need their names, addresses, phone numbers and the amounts of credit desired. This will save you time when submitting invoices to us. Also, anytime you obtain new customers, fax the same information to us, and we will check them out for you.
10. Can your company purchase only a portion of my company’s invoices?
Yes, but remember that higher numbers of receivables purchased on a regular basis can result in more competitive rates. Terms can be especially flexible when there are large numbers of invoices issued to a larger, rather than smaller, pool of your customers.
11. How soon can you issue a factoring proposal?
A proposal can be issued usually within 24 – 48 hours after receiving (1) the Application (2) Copy of your Accounts Receivable Aging (3) Copy of your Accounts Payable Aging (4) Your Customer list with at least your top 10 customers. With the proposal, you will be asked to provide additional standard items required to complete the application process.
12. How long does it take to receive the first funding?
The initial funding takes between 1-3 business days after we receive your signed contract. If you wish, you can send your invoices to be funded with the signed contract. After the initial funding, your company can receive funds usually within 24 hours after verification.
13. Do you purchase outstanding invoices?
Yes. For the first funding only, we can purchase your invoices from your outstanding accounts receivable.
14. Are accounts receivable funding fees tax deducible?
Most accountants agree that accounts receivable funding fees are an expense and should be treated as such.
15. Do you verify invoices with my customers?
Invoice verification is an essential, and accepted, part of factoring. Because factoring companies verify invoices with customers, they can tell clients if there is a customer service problem right away. A non-factoring client may not notice the problem until the invoice becomes past due. By that time, it may be too late to save the account. For the process to run smoothly, we suggest that you call your customers or send them a letter in advance to let them know that you are now working with a factoring company. If you need assistance in writing the notification letter, we will be happy to provide you with a sample letter.
16. What should I do if my customer mistakenly sends the payment to my company?
This might happen, especially with the first invoice. If this occurs, the check must be sent to us immediately. Your company should never deposit invoice checks that were already purchased by the factor. We also ask that you notify your customer to pay us directly in the future. This should also be noted on your invoice to them.
17. What happens if my customer doesn’t pay the invoice?
This depends on whether your company entered into a non-recourse or recourse agreement with the factor. In a non-recourse agreement, the factor will absorb the loss of non-payment. In order for us to enter into a non-recourse agreement with you, we must first have your accounts receivables covered under a credit insurance policy, in which the factor becomes the co-insured on the credit insurance policy. However, with a recourse agreement, your company will have to reimburse the factor—either by having the invoice deducted from the next advance or replace it with another collectable invoice.
18. How can I be certain that the factor will treat my customers well?
The last thing we want is for you to lose a customer. We are not a collection agency and we will never harass your customers for money. Maintaining your customers’ goodwill and confidence are of utmost importance to us.
19. What is the Advanced Rate?
The Advanced Rate is the percentage advanced on your invoices. For example, if you send a $10,000.00 invoice to be factored, the factor will advance 80% of that invoice to you ($8,000.00) via wire transfer to your bank account within 24 hours.
The additional 20% of the invoice is sent to you by the factor (less interest and a service fee) once the invoice is paid by your customer. Typical advances are 80% – 90% of the invoice, and can be as high as 95%. The advance rate is based on the age of the invoice and the financial strength and credit worthiness of your customers.
20. How much does it cost?
Our services are tailored to your specific business so the fees will depend upon your specific needs. There are two types of fees. The first is the cost of the money you use, which is extremely competitive. The second is a service fee, which encompasses the collections service. Fees will also vary depending on the advanced rate, invoice aging, and the total dollar amount you intend to factor on a monthly basis, in which volume discounts are offered. However, specific factoring fees cannot be quoted without information on your customers, invoices, amounts you wish to factor, and your type of business.
21. As we currently factor with another company, could you compare rates and lower our factoring fees?
If you are factoring now and would like a factoring fee/rate comparison, contact us by our inquiry form or give us a call to begin the factoring proposal process.