When ever your customers take up to 90 days to pay an outstanding invoice, your business is bankrolling their business. Your customers are putting to use the funds which is actually owed to you to run their operation ... cash your company can be utilizing to pay your staff members, purchase new tools or grow your firm in various ways. Invoice factoring allows you to defeat the issues generated by your slow-to-pay customers by advancing to you a percentage of the invoiced amount. By doing this you have cash when your service or product has been delivered, not 60 days beyond the invoice date.
Basically, there are four types of factors:- large, institution factors- full-service discount factors- niche factors:and - factor brokers.
Although full-service factors: make up the largest percentage of factors in the United States, niche factors are gaining some ground. The primary difference between the two is size. Full-service factors are most likely to have the financial backing needed to handle any account, while niche factors tend to be smaller and more limited. Once you have narrowed your selection down to a handful of factors, you can choose your factors based on how they answer a few straightforward questions- will you be in direct contact with a decision maker and how will your account compare to the factors other accounts? Take the time to get to know the factoring company before making a commitment.
Look for stability, trust, and professionalism. Most importantly, go with your instincts. If you are in a position to compare factoring with bank loans, it won't take long for you to learn the obvious. One is fast and flexible; the other is slow and rigid.Regulatory standards place large constraints on what banks can and can't do for most businesses. To be fair, banks work within an established set of standards. They must look at your financial commitment to the business, the company's cash flow for the last three years, evidence of strong collateral, and your own personal wealth (and perhaps even that of your spouse). Factors, on the other hand, look at current sales and the creditworthiness of your customers.
The bottom line is that, for a growing number of businesses, it is simply not economical for most banks to approve their loans. That is probably why they make it so difficult to qualify. This is one of the main reasons factoring has grown into such a widespread business -- it is filling a huge void which was created when banks began enforcing stricter lending standards.
Completing the Application.
One of the most important documents that you will be asked to sign is a Purchase and Sale Agreement, also referred to as a P&S Agreement. Although a factor s due diligence process is more client-friendly than the bank loan process, it can be very expensive for the factor.
Unlike a bank loan, a factoring arrangement is a customized agreement which takes into account the specific needs of your company. It is very different from the typical banking document used to secure a loan, which is a cookie-cutter agreement based on the bank's needs. In addition , many factors do not have maximum limits. If you have good, creditworthy clients and there are no legal obstacles (like liens, lawsuits or judgments), factors will fund all the invoices you can generate. This contrasts greatly with a typical bank situation, where every loan is capped. A new client receives initial approval in less than 24 hours, and funding in seven to ten days.
By contrast, a loan application to a bank can take as long as 30 to 60 days to cycle through to the loan review committee, with funding to follow in yet another 30 to 45 days. In addition to quick response time, factoring does not tie up all of your company' s assets (just the receivables) or incur debt. Business ownership is not affected, keeping your business as liquid as possible, while enhancing your balance sheet and overall financial position. In contrast, banks will, in most cases, not only file a lien against (or hold as collateral) all of your commercial assets, but also against your personal property (including consisting of your house, your dog, and your lawn mower. With factoring, no additional debt is incurred and the credit rating of your business remains protected. Frequently a factoring arrangement can actually increase a company s chances of restructuring long-term debt. Since factoring provides an infusion of cash, the company can pay its bills on time and clear up other lingering credit obligations. Basically, this cash may allow a company to get its act together in a way that encourages banks and other financing entities to look more favorably on either restructuring debt or financing new property or construction. It's not uncommon for a good client to graduate bank after a period of financial adjustment while factoring. While advantages of factoring over borrowing money are significant, most businesses do not have the luxury of equal access to both methods of financing.
Banks, with their regulatory controls and inherent inflexibility, do not make it easy for most businesses to approach them for financing. Factoring, on the other hand, is the purchase of an asset and, as such, is not regulated by state of federal agencies. We frequently hear business owners complain about their banks, and the sentiment is always the same: the only people who can qualify for a loan are those who don't need one!The First Rules of the Costs of Factoring It costs money. It costs more than bank money.
Does it cost more than investor money? Depends upon how much equity you relinquish to your investor, and most will demand the lion's share. But let's stick with the costs of factoring. The Second Rule of the Costs of Factoring It must be viewed as a transactional cost rather than interest charged for a period of time, for a number of reasons.
First of all, factors must charge more for the money we advance because the length of time the money is outstanding is so short, usually 30 to 45 days. To charge bank rates on transactions of this short duration benefits only the client; the factor makes no money, and in fact, would lose his shirt. In the final analysis, you as a businessperson, must ask yourself these two questions.
1- Will the cash advanced allow me to make more (one way or another) than the fees charged ?
2- Will factoring allow me to stay in business ? It's the answer to these that should ultimately make your decision for you. Also note that, for the factors that we're familiar with, fees are negotiable. They are a flexible (within in reason)in negotiating part of the agreement, but remember, as stated, the deal must make sense for everyone. We have been known to negotiate with clients that have special needs or situations, such as: very low profit margins, high monthly sales with (shall we say) less-than-creditworthy customers, commitments of guaranteed monthly volume, potential for dramatic growth with the industry, etc.
For such clients, we have been known to agree to a high-volume discount schedule. This is just one example of how the schedules can be manipulated to suit all concerned -- but please understand, we factors are more than willing to examine, discuss, talk about, think about, and consider all of the possibilities, but they have to make sense, i.e., you've got to respect our right to earn a fair fee for the services rendered. The rule is simple: we negotiate a fee schedule that we believe will work for us both. If, during the course of these negotiations, you feel that you need (or are entitled to-- whatever) a lower rate than we're willing to offer, or vice versa, we're both free to walk away from the table.
Before Proceeding, Feel Good About Your Factor. Keep in mind that as your factor is looking into you and your clients, you should be looking into your factor. Ask for references and carefully read any contracts they may ask you to sign. Good factors exist to help you find solutions to your cash flow problems while providing top-rate service and charging fair fees. As you review the paperwork, ask questions! A good, reliable factor will appreciate the time that you are taking to understand the process and talk with you to answer any questions you have. Completing the Application.
The state has invested in aerospace, education, health care, banking, and various heavy industries, including automobile manufacturing, mineral extraction, steel production and fabrication. By 2006, crop and animal production in was valued at $1.5 billion. In contrast to the primarily agricultural economy of the previous century, this was only about 1% of the state's gross domestic product. The number of private farms has declined at a steady rate since the 1960s, as land has been sold to developers, timber companies, and large farming conglomerates. Occupations outside of agriculture were widespread by 2008. Employment in that year was 121,800 in management occupations; 71,750 in business and financial operations; 36,790 in computer-related and mathematical occupation; 44,200 in architecture and engineering; 12,410 in life, physical, and social sciences; 32,260 in community and social services; 12,770 in legal occupations; 116,250 in education, training, and library services; 27,840 in art, design and media occupations; 121,110 in healthcare; 44,750 in fire fighting, law enforcement, and security; 154,040 in food preparation and serving; 76,650 in building and grounds cleaning and maintenance; 53,230 in personal care and services; 244,510 in sales; 338,760 in office and administration support; 20,510 in farming, fishing, and forestry; 120,155 in construction and mining, gas, and oil extraction; 106,280 in installation, maintenance, and repair; 224,110 in production; and 167,160 in transportation and material moving.[
We Provide Factoring Services To:
Companies That use FactoringCorp.COM-