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. Please take a moment to browse through the questions.
- 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?
- Since I am currently factoring with another company, could you compare our rates and perhaps 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.
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2. Is accounts receivable funding a new financing option?
Accounts receivable funding 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 funding was only used in the textile and
garment 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.
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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.
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4. How is accounts receivable funding from a factor 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.
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5. 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 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.
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6. My company owes back taxes. Can I still apply for accounts receivable
funding?
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.
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7. Since I have had a past bankruptcy, is accounts receivable funding still an
option?
Yes, we will still consider your application even if you have credit problems or
a past bankruptcy.
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8. What information will you need from my company to begin the accounts
receivable funding 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 startup companies, please also submit a business plan and projected
sales forecast, and an owner/officer history and profile.
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9. Which customers would be good candidates for accounts receivable funding?
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.
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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.
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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.
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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.
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13. Do you purchase outstanding invoices?
Yes. For the first funding only, we can purchase your invoices from your
outstanding accounts receivable.
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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.
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15. Do you verify invoices with my customers?
Invoice verification is an essential, and accepted, part of funding. Because
factors 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 factor. If you need assistance in writing the notification
letter, we will be happy to provide you with a sample letter.
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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.
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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.
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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.
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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 90% of
that invoice to you ($9,000.00) via wire transfer to your bank account within 24
hours.
The additional 10% 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 (10,30,60,90,120 Days) and the
financial strength and credit worthiness of your customers.
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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.
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21. Since I am currently factoring with another company, could you compare our
rates and perhaps 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.
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