Helpful tips when choosing a factor finance partner that best fits your business needs!
It’s recommended that you get a few offers from factor finance companies before deciding which factor best fits your business needs. Every factor finance company is different, make sure that you not only know how to talk the talk.., but also walk the walk -when it comes time decide who will be your new finance partner.
Scenario: You have an open accounts receivable invoice on your desk. You want to get cash for that invoice today, instead of waiting 30, 60, or even 90 days for the money to come in. What is the fastest and easiest way to start factoring?
Business owners that want the best deal use factor bid to get a few offers from factors!
I have question like, what is the rate, how long are we obligated to partner with a factor finance company and how quickly can we get additional capital to run our business?
Talk the talk..,
Accounts Receivable (A/R): is a legally enforceable claim for payment held by a business against its customer/clients for good supplied and/or services rendered in execution of the customer’s order. These are typically in the form of invoices raised by a business and delivered to the customer for payment within an agreed time frame. Accounts receivable is show in the balance sheet as an asset.
Advance: To make a payment before it is due by the debtor. In a factor finance scenario the advance is the money your company receives when your invoice is purchased by a factor. The amount advanced is usually a large percentage of the gross value of the accounts receivable invoice, anywhere from 80-95%.
Advance rate: The percentage of the value of collateral that a lender uses to determine the amount of a loan. For example, if one pledges a collateral worth $10,000, and the advance rate is 95%, the lender will only extend $9,500 in credit. This may protect the lender from risks, such as depreciation on the collateral.
Concentration: The percentage in which a factor will fund a single customer you have.
Confidential factoring: The customer is not informed that you are factoring their 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.
Factoring: A financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount.
Factoring charge: A charge for taking over the administration, collection, and processing of the accounts receivable invoices.
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: The period of time in which the factor finance company purchased the invoice and your customer pays the invoice in full.
Non-recourse: Non-recourse factoring allows a company to sell its invoices to a factor without the obligation of absorbing an unpaid invoices. In the event a customer fail to make their payments or pay their invoices late, any losses are absorbed by the factor, leaving the business unscathed.
Notice of Assignment: A notice that your customer receives, stating that their invoice has been factored. This notice also provides the customer with the new payment address.
Reserve: The reserve is the remaining percentage held by the factor finance company after the first payment is made called the advance. Once the invoice is fully paid, the reserve is rebated, less any fees.
Seller (Transferor): The one who owns the open accounts receivable invoice, but relinquishes ownership by selling it to Factor finance company.
With recourse: The factor has the right to collect unpaid payments from the seller.
Follow this link to see a full list of factoring terminology
Questions you need to be asking factor finance companies when deciding which one is best for your business needs.
Walk the walk..,
- Do you have other customers in my industry that use your factoring company?
- Do you fund within 24-48 hours?
- Do you provide non-recourse factoring? If so, what is the difference in the rate?
- Do you offer back office support? Will you email,fax,call and maintain professional contact with my customer?
- Do I get me own account manager, that I can call, email and contact in case I need assistance?
- Can you ACH payments (direct deposit) funds into my bank account?
- Is there any fees for direct deposit ACH Payments?
- Can I split the ACH Payment and have the money deposited into more than one account?
- Can I get payment through Western Union outlet, where I can physically pick up cash?
- Do you need the originals (documents) in order to fund, or can I send in a copy or a picture of the original documents?
- What is the length of the contract term? Factors typically partner with you for 12-24 months in order to help you grow your business faster.
- How fast can I expect to receive the first payment?
- How much money do you recommend we keep in the reserve account, to cover insufficient payments, late payments, charge backs, etc?
- Once the customer fulfills the invoice amount, how long does it take before the reserve amount is available?
- What is your discount rate?
- What is your fee for late charges?
- Do you help me gain 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 allowed?
- If I ever want to stop factoring with your company, is there a fee to end our partnership?
TURN INVOICE INTO IMMEDIATE CAPITAL
Factor finance your accounts receivable invoices today using factor.bid to get a few offers from competing factor finance companies, eager to buy your accounts receivable invoices!