We
welcome questions and are always pleased to address them. Through
the years we've gathered questions that are frequently asked and
have listed them below along with the answers.
In
addition to the questions, there are some misconceptions that warrants
response and we have included them also. They are listed separately
at the end.
If
after you have read the list, your specific question or concern
is not addressed please call us during normal business hours Monday
through Friday from 9:00 a.m. - 5:00 p.m. Central Standard Time.
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Q: What is factoring?
A: Factoring is the sale and purchase of accounts
receivable. It's a financing method used by businesses to generate
capital. More info.
Q:
How does it work? A: You set up a factoring account with a Factor to provide
cash against outstanding invoices. Each time you generate an invoice
for goods or services delivered, you submit it to the factor for
immediate payment instead of waiting on your customer. Your customer
will pay the factor later. The factor charges a fee for this service.
More info.
Q:
How would my client know where to send
payment? A: Initially, you should inform them. Also they will receive
a friendly notice. But in the future, your factored invoices will
simply indicate a payment address.
Q:
Do I have to factor all my invoices?
A: No! You can pick and choose invoices to factor.
Q:
What is the fee?
A: The fee is determined by how much business you do, the
credit-worthiness of your customers (your customer's ability
to pay based on business credit report), and how long before
payment is received. More
info.
Q:
Are there minimum or maximum limits? A: No! But, the more the better.
Q:
Do I have to sign a contract to factor for a long time? A: No! However, it is important that factoring pays off
for all the parties involved. Therefore, before an account is
established, a threshold that is agreeable to the parties is established.
Q:
Can I qualify if I have credit problems? A: Yes! This is one of the beauties of factoring. Often
a client's past credit problem is of no significance. It's the
ability of your customer to pay that is important.
Q:
What if I already have a loan or
line of credit? A: No problem. Factoring complements existing lines of
credit. Infact most astute managers use factoring in conjunction
with other revenue generating methods.
Q:
Can a new business qualify?
A: Yes, as long as you have credit-worthy customers.
Q:
How long does it take to set up an
account? A: Typically 3 - 5 working days.
Q:
How can I start?
A: First, you submit an application
along with some basic support documents. Then it's processed for
extension of credit.
Q:
What specific documents are required
with an application? A: Proof of business registration, personal identification,
list of customers, and list of outstanding invoices.
Q:
What if we are an out of State
business?
A: Your company can be located anywhere in the U.S. or Canada.
We also can arrange International funding on a case by case basis.
Q:
Are all invoices accepted? A: Just about any invoice for services performed or goods
delivered to legitimate businesses.
Q:
Do I have to change my billing? A: No, you'll simply include a new pay to address.
Q:
How will I know when an invoice is
paid? A: You will receive regular account status report.
Q: What happens
if my customers don't pay? A: That depends on how your account is set up. Accounts
are set up in two ways: Recourse and Non-recourse. Recourse accounts
requires guarantee that you either buy-back or exchange unpaid
invoices, or apply funds held in a reserve account. With non-recourse
account the risk is absorbed under certain conditions.
Q:
Why should I factor my receivables? A: Primarily to generate capital without additional debt
to meet current operating needs and for future growth. More
info.
Q:
How would my customers benefit?
A: In many ways, factoring will benefit you, your business,
and anyone connected with it. Time and space would not allow us
to adequately explain it here. However, let me list a few: They'll
benefit from your improved financial strength and increased productivity.
Factoring will enable you to provide the high quality products
or services they expect. You can afford to extend better trade
terms. They will benefit from better receivables management and
from funds that are readily available to accomodate future growth.
More info
Q:Why do I have to sign a personal
guarantee?
A: You're simply affirming your integrity, the validation of your
invoices, and promising not to commit fraud.
Q:How is the invoice guarantee
established? A: By signature contract and UCC lien on all accounts receivables.
Q:Why not lien only the receivables
that are factored? A: It's simply technicality.
The term accounts receivable applies only to one aspect of a business'
asset. Just like pledging a house as collateral does not separate
its components such as: top level, lower level, garage, etc.
Q:
What if I don't want my customers to know? A: Sometimes but very rare an account can be set up as
non notification. However, one caveat is -- you'll invite scrutiny
and arouse suspicion, particularly since many companies "big
and small" are familiar with and use factoring.
Q:
Can you provide us with some references?
A: Yes, We will provide references upon request to serious
candidates who submits application. More
info.
The
following are some of the prevailing misconceptions about factoring:
!.
Factoring is strictly suited for large corporations or businesses
that are in extremely bad financial condition.
2.
Customers would view you negatively and would seek alternative vendors.
3.
Factors offend and alienate customers with collection calls.
4.
Factoring is prohibitively expensive and would absorb all profit
margins to put you out of business.
The
fact is, almost any business can receive funding and the rates are
very reasonable, often negligible. Although more small businesses
use factoring than "big" businesses. Most astute business
managers use it in long-term planning and in conjuction with other
revenue generation methods.
Qualifying
for outside funding should speak bundles to your confidence and
the confidence financiers have in your company. Business owners
more than anyone understands the difficulty nowadays in securing
outside funding.
Being
able to have access to funds when you need it should put your customers
at ease because you will be better equipped to meet their needs
at any time and often on a whim. Therefore, they would not be interested
in seeking another vendor.
A factor's
goal is to see you do more and continued business. Therefore, it
is in it's interest to help you succeed. It's folly to think that
factors would offend and harass customers with collection calls.
The
other facts are that without direct pressure factors more often
improve and enhance the collection process to the amazement of clients.
This is so because most businesses realize that their ability to
secure more accounts can be directly related to their credit report
and references. And, factors report to Business Credit Bureaus regularly
and would make accurate reporting.
Yes,
I would not deny the fact that factors do and sometimes call customers,
but only as a reminder. Rather than harass a customer, factors are
more likely to resolve payment issues in ways that would satisfy
the client.
Last
but not least, that factoring is too expensive is often a generalized
response given when a prospect does not yet have complete details.
The cost of factoring is relatively favored compared with other
financing. It varies greatly and is dependent on many conditions,
not unlike a bank loan.
It's
simply another avenue for financing with its own market niche and
specific price structure. Factor's funding should not be compared
to a bank loan because funds for accounts receivable financing is
not considered as a loan legally and in practice. Consequently,
the fees are not considered as interests. The fees are purchase
discounts.
Attempting
to multiply and annualize the discount rate may be well intentioned,
but it is misleading.
If
you borrow $100,000 from a bank at 12%, you could make monthly payments
of $1,000 and in 12 months would have paid $12,000. Yet, you would
still owe $100,000. If you factored $100,000 each month at 5% discount,
in 12 months your fees would be $60,000. But, you would have received
$1,200,000 (12 x 100,000) and the fees would still be $60,000.
What
factoring does is --it is almost like converting your invoice terms
to COD (cash-on-delivery), and for being able to receive substantial
upfront payment, you allow a discount. The real bottom line is with
better cash flow you can grow your business more rapidly and exponentially.
Your profit will increase, not decrease.
Now
you have real answers in matters of factoring and hopefully are
more equipped to make informed decisions. However, we are not engaged
in rendering legal, accounting or other professional service. If
legal advice or other expert assistance is required, you should
seek the services of a competent professional person.
Click
here now if you have decided to establish your funding account.
We would appreciate doing business with you. If you have further
questions please give us a call during normal business hours Monday
through Friday from 9:00 a.m. - 5:00 p.m. Central Standard Time
or send us an email. You may also write to us at Post Office Box
35481, Houston, Texas 77235. Or simply take a moment to complete
our brief survey and enter our monthly prize giveaway. Go
To Survey Now
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