FAQ

Factoring is a practice where a debt or invoice is bought by another company called factoring company. In other words accounts receivables are acquired which are discounted termed as invoice discounting to allow the buyer to make profit upon the collection of the money owed. But before you choose a company for factoring it is important that you have a clear insight about the reputation of the company and its customer service. Depending on their reputation and comparing their rates and fees you have to choose the factoring company.

Invoice discounting, receivables factoring and debtor financing these are the various terms that are used for factoring. You need to know these crucial terms before going out to sign up with any factoring company. Depending on the reputation of the factoring companies and comparing their rates and fees a company has to be chosen.

1. How does factoring work?

A steady cash flow is very much essential to succeed in any business. Without adequate financial resources you will struggle to cover payroll, taxes and suppliers therefore hampering operations and restricting growth of your business. For this factoring is essential which involves sale of a companies’ invoice for immediate cash.

2. In which ways are factoring different from bank loans?

While in traditional bank loans the bank looks at credit worthiness of your business. This means you will get a certain amount of loan fixed on the basis of your company assets. However in factoring the funding is provided on the basis of the credit worthiness of the customers of your company. Moreover you will incur no debt to be repaid.

3. Can my business receive accounts receivable funding if my business already has a bank loan?

The answer is, maybe. You need to inform your factor right away in case your bank has filed a lien against your accounts receivables. Depending on circumstances some banks will agree to subordinate their lien.

4. Can I get approved of assets based factoring even if my business is behind on taxes?

Again the answer is maybe. In some cases the IRS will work with factoring companies and subordinate their lien position understanding that additional working capital may be just what is needed to allow the company to grow.

5. If a company is going to file for bankruptcy or just has filed for bankruptcy, can assets based factoring be a viable option.

There is no such clear cut rule. Factors will only finance companies in chapter 11 bankruptcy. Each and every case is assessed individually and is decides according to its own individual merits. However with the approval of the bankruptcy judge, most factoring companies will step in and fund companies in chapter 11 bankruptcy.

6. What is involved in the application process and what information is needed?

A simple application process involves, a 3 to 4 page application, a detailed customer list, an accounts receivable aging, an accounts payable aging, and articles of incorporation or other state validating the businesses authorization to operate.

7. How long will it take to get funding?

All in all it takes around 3 to 10 days to complete the whole process of initial funding on the basis of timely receive of correct information from the customer.

8. How many of my customers will an accounts receivable factoring company fund?

There is no limit to the number of customers a company can fund. All customers with worthy customer credits can obtain funding from accounts receivable factoring company.

9. Will a factoring arrangement hurt my relationship with my customers?

There is no need to fear about hurting your relationship with your customers. That is the last thing a factor would want to do that in turn would hurt the ability of the company to grow and expand its business at new fronts. Asset Based Factoring is an accepted form of funding and large companies are comfortable working with this method of financing. The factoring companies’ success depends on your success and they manage the customers in a professional manner.

10. How does asset based factoring differ from a quick payment discount offered to customers?

The basic difference is that one you can control and the other you can’t. While offering payment discounts, your business is at the mercy of your customer’s decision to pay or not to pay early. Many companies will offer their best and largest customers a 2% or 3% payment discount to pay in 10 days or less. Unfortunately not all large customers take advantage of the discounts and gain a greater benefit by paying their bills in 30, 45, or maybe even 60 days. Here the factors will step into the scene. They will immediately pay for invoices submitted, improving the cash flow by providing instantaneous access to working capital.