Accounts
Receivable Invoice
Factoring, AR Financing
Invoice Lines of Credit, No
Credit Scores Required
Get up to 90% advance on your
Invoices (Low Rates)
Factoring is the selling of your accounts receivable for
cash versus waiting 30-60 or 90 days to be paid
by
your customer.
|
Financing Source |
Factoring |
Bank Loan
|
Leasing
|
Private
Investor
|
| Application process
simple and easy? |
Yes
|
No
|
No
|
No
|
| Can Funding Happen
FAST? |
Yes |
No |
Maybe |
Maybe |
|
Can company keep all equity?
|
Yes |
Maybe |
Yes |
Maybe |
| Can owners avoid
additional debt? |
Yes |
No |
No |
Maybe |
| Can businesses get
funded if they do not have a track record? |
Yes |
No |
No |
Maybe |
| Can businesses get
funded if they are not profitable? |
Yes |
No |
No |
Maybe
|
| Will the funding source
collect your invoices? |
Yes |
No |
No |
No |
| Will the funding source
run a credit check on your vendors - BEFORE you
sign a contract? |
Yes |
No |
No |
No |
| |
|
|
|
|
The Q & A below will help you understand Invoice
Factoring and how it can provide immediate working
capital, that your business may need.
|
FAQs - GENERAL FACTORING INFORMATION |
| |
Q: What Is A
Factoring Company or Invoice Line of Credit
Lender?
A: A commercial finance company that specializes
in the purchase of invoices or accounts
receivable for cash.
Q: Is factoring a new financing
option?
A: Factoring has been used for centuries. It's
one of the oldest forms of financing. Until
recently, factoring was primarily used in the
garment and textile industries. Today, factoring
is a widely used, viable funding solution for
all businesses that extend credit to
credit-worthy commercial customers.
Q: How does factoring or Invoice
Lines of Credit differ from
bank funding?
A: Factoring decisions based on the
credit-worthiness of your customers; a bank
makes credit decisions based on your company's
financial history, cash flow and collateral.
Because factoring is not a loan, no liability
appears on your balance sheet. Most importantly,
funding decisions are made in days or
hours-while banks generally take weeks or even
months.
Q: Why would a company sell accounts
receivable?
A: Companies with recurring cash-flow problems
often can't afford to wait 30, 60 or even 90
days for invoice payment. They need cash to meet
immediate financial demands of their business.
Factoring provides this cash by funding the
purchase of accounts receivable, often within 24
hours after invoices are created.
Q: What companies benefit most from
factoring or setting up an Invoice Line of
Credit Accounts?
A: Factoring works well for startups as well as
high-growth businesses, including those cyclical
in nature. Factoring is also well suited for
under-capitalized companies with strong
customers, turnarounds or companies with
cash-flow problems.
Q: What is the major benefit of
factoring?
A: Immediate cash for accounts receivable
instead of waiting 30, 60 or even 90 days for
customers to pay.
Decision to finance company is based on the
companies customers' credit-worthiness instead
of your client's balance sheet. If the companies
customers have good credit, your client can get
financing, no matter how limited or problematic
your company's financial history.
Q: What does factoring and Invoice
Lines of Credit cost?
A: Rates are based on individual and specific
circumstances. Factoring rates depend on the
credit-worthiness of your customers, your
average invoice, average payment cycle,
factoring volume and other elements. In general,
the cost of factoring is outweighed by its
significant benefits: access to immediate cash,
credit analysis, collection work and
accounts-receivable reporting.
Q: Is factoring a type of loan?
A: No. Factoring is not a loan. It is the
purchase of an asset, accounts receivable, at a
discount by a financial institution called a
factor. A traditional bank loan uses a companies
assets as collateral and typically requires
personal guarantees. Invoice factoring or
account receivables factoring relies on the
credit-worthiness of the customers, not your
client's balance sheet or history.
Q: What is the difference between
factoring invoices "without recourse" and
factoring invoices "with recourse"?
A: When an invoice is factored without recourse,
it is considered factoring on a "non-recourse"
basis. In this situation, the factor takes the
credit risk of the client's customers, thereby
protecting the client from credit loss. When an
invoice is factored with recourse, it means the
client is ultimately responsible for payment,
regardless of whether the client's customer
pays.
Q: When is factoring NOT a good fit
for a business?
A: Generally factoring is not a good fit in the
following situations:
- Your business operates on
low margins (less than 10%).
- Your business has
significant cash reserves free of cash-flow
concerns.
- Your business serves as a
sub-contactor to a less-than-established
general contractor.
- Your business involves
Medicaid or Medicare-based accounts
receivable.
- Your business sells
almost entirely to less than credit-worthy
customers.
- Your business has a
significant amount of accounts receivable
that are already overdue.
|
What
types of Business use Factoring, Accounts Receivable
Financing and Invoice Lines of Credit?
Industries that use Factoring are Temporary Employment
Agencies, Distributors, Manufacturers, Government
Contractors, Freight Companies (BOL), and Importers
(Purchase Order Funding)
What is Purchase Order Funding?
Purchase Order Funding is slightly harder to
acquire, however is very helpful for Business who make
large purchases and resell to a third party (Import)
Unfortunately the Purchase Order Funding Lenders (in
most cases) DO NOT Factor. So small companies need a
Middleman who can broker both deals. These middlemen
are called Master Brokers. For more information on
Purchase Order Funding and the advantages go to
What Is Purchase Order Funding?
History of Factoring
Understanding Invoice Factoring and how it works can
change the path of your small Business. Factoring
has been practiced for centuries. The Romans sold
promissory notes at a discount as did the Phoenicians.
The word "factor" comes from Latin, the language of
Rome. It means "to do" or "to make."
The Pilgrims journeys to America were financed by
advances from a Factor who provided the funds to pay for
the journey. The Pilgrims repaid the money with
earnings from America. Factoring to this day is an
extremely common business practice in Europe whereas
many American business men have never heard of it.
This year alone thousands of businesses will Factor
billions of dollars in accounts receivable, and they are
doing it for profit, growth, and in some cases, their
very survival
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