We’re new to factoring (invoice financing) our business is growing quickly and we need more capital to hire more employees and pay our weekly expenditures. What do we need to know, day 1?
How Do I Find The Best Factor?
That’s an easy one. Companies that want the best deal use Factor bid. At Factor bid, factors compete to buy your accounts receivable invoices, so you get the best deal when factoring.
What Do You Ask
Scenario: You have an open accounts receivable invoice on your desk. You want to get cash for that invoice now instead of waiting the 30, 60, or even 90 days. You heard about factoring, but know you are not informed enough to make sure you are getting the best deal. Maybe you ARE informed enough, tried to factor, and did not get the best deal. Ta-Da: THAT IS WHY FACTOR BID WAS CREATED!
In this blog, let’s go over some key terms you will hear and what questions you should ask when choosing a factor that is right for your company.
Keep in mind that factoring your open accounts receivable invoices for immediate cash is much different that going to a bank for a loan. Factoring is NOT a loan, you won’t be dealing with a bank. As there are many different types of business financing, so there are many different factors financiers that serve a wide variety of needs with a wide variety of terms. Not to worry, factor bid has you covered. We make it easy to find the best factor for your business needs. Our database of factor finance companies is the best in the world. Our software matches your business with the top factor finance companies in your specific industry, so you get the best offers and the factors with the most experience and knowledge in servicing your industry.
Key Terms To Watch For
- Accounts Receivable Invoice (A/R): An invoice provided to a client stating that goods and/or services have been provided and payment is to be made in a particular time frame. In the case of factoring, the accounts receivable invoice is also an asset that can be leveraged/sold for money. A/R is found on the balance sheet and is an asset because it is to be paid within 90 days or less.
- Advance: The money that your company receives when your invoice is purchased by a factor. The amount advanced is usually a percentage of the face value of the accounts receivable invoice.
- Advance rate: The percentage or amount of the accounts receivable invoice that will be advanced/paid.
- Concentration: The percentage in which a factor will fund a single customer you have.
- Confidential factoring: Your customer is not informed that you are factoring their account / invoices.
- Credit limit: This financial limit is placed on your customers and is based on their credit rating.
- Debtor: The person or entity that owes payment on the open accounts receivable invoice, usually referred to as (your customer).
- Factoring: A Business that sells their accounts receivable invoices to a third party (called a factor) at a discount of the gross amount of the invoice face value; for immediate cash.
- Factoring charge: A charge for taking over the administration, collection, and processing of the accounts receivable invoices, usually by your factor finance partner.
- Factor fee: The fee a factor charges in order to finance your accounts receivable invoices.
- Factor financier: The financial entity who purchases accounts receivable invoices at a discounted rate.
- Funding limit: The maximum amount of funding a factor finance company will pay you.
- Funding period: This is the period in time where the factor purchased the invoice and when your customer pays in full.
- Non-recourse: This is the sale of the asset (outstanding accounts receivable invoice). The factor assumes ownership of the receivable and the risk of collecting the debt.
- Notice of Assignment: A notice that your customer (the debtor) receives stating that their invoice has been factored. This notice also provides the customer with the new payment address and/or process. “Chances are, if your customers pays slow, their already being factored by their other vendors, thus eliminating any fuss over you wanting to factor their slow-paying invoices.”
- Reserve: A certain amount of funds that is set aside by the factor to cover bad debt expenses and payment shortages. (ie., kind of like an escrow account)
- Seller (Transferor): The one who owns the open accounts receivable invoice, but relinquishes ownership by selling it to a Factor.
- With recourse: The factor has the right to collect unpaid payments from the seller, in the event the debtor (your customers) does not make good on the payment / invoice.
Questions To Ask When Choosing A Factor That Best Fits Your Business
- Do you provide non-recourse factoring? If so, what is the difference in the rate?
- What is the length of the contract? Factors will typically want to partner with you for 12-24 months to have the opportunity to purchase more open accounts receivable invoices. This will also help them understand how your business operates so they can help you increase your profits and become more successful.
- How fast can I expect to receive payment?
- Can my payments be deposited into my checking account, same or next day?
- What is your discount rate?
- What is your fee for late charges?
- Do you help us collect payment from late/no pay debtors? How?
- Can I stop factoring any time I want?
- Is there a penalty to stop factoring?
- What if I want to factor with another company? Is that OK?
- If I refer a friend’s business, do I receive a referral reward?
We’re sure you’ll have other important questions that specifically affect your business. Here is a good tip, write down all your questions (preferably in an email) and send them to each factor that provides you a competitive offers; after submitting your invoices using factor bid on your desktop or download Factor App for your smartphone.