FACTORING - The Facts About Factoring

What is Factoring?
Factoring is the purchase of accounts receivable for immediate cash. Factoring provides businesses with the power to ensure growth without reducing equity or incurring additional debt. The factoring company, or "factor", provides working capital to a business, or "factoring client". The factoring client sells, assigns and transfers its accounts receivables invoices to the factor at a discount from their face values. The factoring client's customers are notified that their invoices are now payable to the factor. The factor files a UCC-1 Financing Statement with the office of the Secretary of State of the factoring client's state of residence to legally establish the factoring agreement, to provide a general description of the collateral, and to protect itself against any third parties who may also claim to have a security interest in the same collateral. This is set forth in Revised Article 9 (RA9) of the Uniform Commercial Code (UCC).

Top Reasons To Factor:

Direct access to unlimited capital - Factoring accounts receivables gives your business the financial ability to meet increasing demand. It is a unique financing source that grows as sales increase.

Factoring is quick and easy - Usually here are not any requirements for business plans, personal financial statements, tax returns or delays associated with traditional funding options in order to process a factoring application. In about a week from the receipt of the completed contracts, your business factoring account will be available for use. Invoices which meet the conditions of the contract are usually converted to cash within 24 hours.

To avoid an increase in business debt - Your business does not incur any additional debt through the use of factoring as it is not a loan. Not only does your business have the operating capital it needs, your overall business financial profile will make it easier to obtain other financing as necessary.

To eliminate bad debt. - Factoring allows your business to turn bad debt into cash. With a non-recourse factor, the risk of bad debt is fully assumed, eliminating the expense from your income statement. There is no loss of business equity and no change to ownership percentages with a factoring arrangement (unlike most venture capital arrangements).

To establish a good credit rating for your business - Factoring helps your business maintain an immediate flow of cash and allows for paying your company's bills in a timely manner.

To implement a professional collections program - Turning your collections over to a good factoring company can yield more professional and productive results, saving your business time and money.

To leverage off your customers' credit - The option to factor accounts receivables does not depend on your business being credit worthy. Your credit-worthy customers are all that is needed for your business to  qualify for a factoring account. It is not necessary to be in business for a minimum number of years, or to meet any other conventional lender qualifications.

To offer financing to your customers - Offering credit terms to existing and potential customers allows a business to be more competitive. Factoring your accounts receivables allows your business to do this without the risk of a negative cash flow.

To reduce invoice processing costs - The cost of preparing and mailing invoices, postage, transaction tracking, data entry and report generation can be done by the factoring company, freeing your time and effort for the needs of your business.

A Factoring Example:

Your business factors an invoice for $10,000 and you get a 90% ($9000.00) advance. 10% ($1000.00) is held in reserve. At the time that  the invoice is paid, the transaction settles with a 3% ($300.00) fee going to the factor and the balance of 7% ($700.00) is placed into the factoring client's business account. In this example the total fee was $300.00 for factoring a $10000.00 invoice.

Factoring Terminology:

"Non-recourse" - When an invoice is factored on a "non-recourse" basis, the Factor takes the credit risk of the account debtor, and in doing so, protects the client from credit loss.

"With recourse" -When an invoice is factored "with recourse", the client is responsible for re-payment, regardless of whether or not the account debtor pays.

How We Can Help:

Factoring receivables is a very flexible financing option that can assists all kinds of businesses in meeting payroll, taking trade discounts with suppliers, or increasing liquidity to sustain business growth. If you would like to investigate this powerful cash flow opportunity, contact a certified Cash Flow consultant for assistance today!l

a certified Cash Flow consultant for assistance today!