How is accounts receivable funding from a factor different than accounts receivable financing from Bank?

When making a funding decision, a factor will 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 less debt on your company’s balance sheet. Best of all, the factor will make a quick decision, while banks may take weeks – even months – to approve a loan.

 

Is Factoring or accounts receivable  financing a new tool?…  How popular is it among corporations to manage their cash flow? 

Accounts receivable funding or financing is one of the oldest forms of financing. It has been around for several hundred years or more. Until the mid- 1980s, most people thought accounts receivable funding was only used in the textile and garments industries. Today, accounts receivable funding is a widely used and viable financing solution for all types of businesses that extend credit terms to their customers.

 

What information will be needed from my company to begin the accounts receivable funding process?

Along with the application, be sure to include your company’s most recent accounts receivable and accounts payable aging reports, Articles of Incorporation or d/b/a/ filing, a master customer list and a sample invoice. For construction industry applicants, you must also submit a recent accounts payable report, list of vendors, copies of contracts or purchase orders your company is working from, a complete customer list, and list of subcontractors, if applicable.

 

How long does it take to receive the first funding?

The initial funding takes between 1-7 business days after we receive your signed contract. If you wish, you can send some invoices to be funded with the signed contract. After the initial funding, we can usually provide same day funding.  

 

How much of my companies accounts receivable can be funded?

Between 70-80 percent of your company’s creditworthy accounts receivable.

 

Can invoicing be purchased which has been already submitted for payment?

Yes, most factoring companies will purchase invoices that are less than 60 days old. Exceptions may be made for certain situations.
Which customers would be good condidates for accounts receivable funding?

 

Can you purchase a portion of my company’s inovices?

Absolutely, but remember that higher mumbers of receivables purchased on a regular basis can result in more competitive rates. Some factoring companies will allow you to factor just a portion of your receivable if needed and not the whole thing.

 

Which customers would be good candidates for accounts receivable funding?

Ideally, we would like to credit approve 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.

 

Do you verify invoices with my customers?

Yes, most factoring companies do, but some will lump all your invoices together if your factoring with multiple companies so to offset the risk. Now the ones who do require Invoice verification it is essential, and accepted part of funding. Because factors verify invoices customers, they can call 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 working with a factor. If you need assistance in writing the notification letter, we will be happy to provide you with a sample letter.

 

How can I be certain that the Factor will treat my customer well?

The last thing the factor wants is for you to lose a customer. The factor is not a collection agency. We will never harass your customer for money. Maintaining your customer’s goodwill and confidence are of utmost importance to us!

 

Do all factoring companies provide purchase order financing?

No, in fact only a small hand full will, so it is important to know if you will need PO financing when position your company with a factor.  Due to the riskier nature of purchase order financing, the cost may be slighter higher, but it may be a very viable option for fast-growth companies.

 

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 overnight to the factor with in 24hrs. Your company should never deposit checks that were already purchased by the factor. We also ask that you notify your customer to pay us directly in the future.

 

What happens if my customer doesn’t pay the invoice?

The factor will give your customer every opportunity to make payument, but if no payment is received after the factor has make every good faith effort to resolve. Then the factors only other recourse is to have you purchase the outstanding inovice(s) back or start collections or litigation against your customer.

 

Will my company be eligible for accounts receivable funding 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 the lien in favor of the factor. Because this is a common occurrence, most banks will accommodate the request, but we must know this information in advance.

 

My company owes back taxes. Can I still apply for accounts receivable funding?

Tax problems are handled on a case-by-case basis. Please let us know immediately so that we can discuss lien subordination with the IRS. We use a company that will assist us in getting the process moving quickly so we can work to provide the funding you need usually in a matter of days.

 

What is a Recourse Agreement vs. Non-Recourse Agreement?

It basically means Terms Vs. No Terms. In a non-recourse agreement, the factor will work with your net terms and absorb the credit-related loss should your customer file Bankruptcy or just refuses to pay. The only time you would be responsible for payment in a recourse agreement is if your customer should default on paying do to non completion of work or contract on your part. However, with a recourse agreement, your company will have a have term agreement for payment usually 90 days and if you customer hasn’t paid by that time you are required to reimburse the factor – either by having the invoice deducted from the next advance or replace it with another collectable invoice.

 

If my company is considering bankruptcy, is accounts receivable funding still an option?

Please note that Chapter 11 is the only form of bankruptcy that some factors will consider and if you have filed in the past the bankruptcy will need to have been discharged.

 

Is accounts receivable funding fees tax deductible?

Most accountants agree that accounts receivable funding fees are a financing expense and should be treated as such.

 

 

For more information contact us at: Info@invoicefactoringservices.com