Invoice Factoring and Discounting Information and Resources

The Basics of Credit Card Factoring

admin — Mon, 21 Mar 2011 08:59:28 +0000

Credit card factoring refers to the process of allowing other business owners to process transactions through another business merchant account. It can also refer to the process of giving cash to another company using future credit card sales as a basis for the amount. Credit card factoring is a popular method among many business owners to get funding when they are not readily able to take out a loan.

When a business experiences problems with cash flow, it is necessary to get funding at the risk of seriously hurting its credit scores. This is where a factor comes in; a factor can be another business, an independent investor, or a group of investors that agree to buy out credit shares from a particular business. There is typically a timeframe given to the business owner to payback the amount given. A lot of businesses these days opt for credit card factoring because it typically only takes about seven days to get processed and one does not necessarily have to have a perfect credit score to be able to get funding. Unlike loans that takes quite some time to get processed and requires a thorough background check on the business’ credit history, credit card factoring provides an easy way for all businesses, regardless of financial background to get the necessary funding they need.

Perhaps the biggest advantage to credit card factoring is the fact that it has one of the most flexible payment schemes, making it an ideal option for businesses that have problems with cash flow. It is worth noting, however, that credit card factoring has its fair share of risks. It is also a lot more expensive than taking out a loan where you will have to pay more or less, fixed interest rates. With credit card factoring, the amount you will have to payback will primarily depend on the factor and the terms of agreement. While it is easier to get money through this method, as it is easier to borrow money from individuals and businesses rather than banks, you still have to keep in mind that your factors won’t offer you any money if they see that your business has a higher chance of failing than succeeding, as your business success is a crucial aspect to their success.

The primary reason why factors offer money upfront is because they hope to earn from such an investment, as they won’t be throwing money around if they had absolutely nothing to gain out of it. Caution is of utmost importance when it comes to credit card factoring, as you should be able to abide by the payment terms indicated in your contract if you want a smooth transaction. Failure to do so would likely result in bigger problems for your business.

If you have been disapproved for a bank loan or you are in need of funding right away, then credit card factoring may be a good option for you. However, this type of loan is more of a short-term loan because amounts are generally smaller than bank loans. It is best to explore as many loan options first before opting for credit card factoring, as you will be dealing with individuals and private businesses.

Non Recourse Factoring for business growth

admin — Mon, 21 Mar 2011 08:58:21 +0000

Factoring, also called debt factoring, is a process by which a business sells invoices to third parties. In exchange, these third parties allow funds to be drawn against money owed to the business. Providing debt collection, finance, and ledger management services, factors (as the third parties are called) are used commonly by businesses for improved cash flow but they can also function in reducing administrative costs. Factoring is available in two types: recourse and non recourse factoring.

Why opt for factoring?

Factoring, whether recourse or non recourse factoring, starts when you sell your invoices to a factor. This way, you are taking advantage of fast prepayment in order for you to enjoy improved cash flow and increased working capital. Think of it this way: if a customer has credit terms with you, you don’t automatically collect money when you make a sale, unlike in cash transactions. The customer may pay you before the end of his credit terms but this is highly unlikely so you more or less let a couple of months pass until you can collect payment. And within those couple of months, it would seem like your customer is enjoying your products and your services for free. This shouldn’t matter really but it can be a concern if you don’t have a lot of working capital. Of course, you rely on every sale you make. But if a sale doesn’t actually convert into money immediately, then it’s useless to you.

What factoring can do for you?

Whether you use recourse or non recourse factoring, factoring essentially means that every sale you have will be converted to actual money in your pockets as factors cover the costs of each approved sale you have. This means no more waiting for credit terms to end before you can collect payment since factors already paid you in essence. When credit terms end, your customers then divert payments to your factor. You should also be paid whatever balances are left at the end of the credit terms since customers will pay factors in full. It depends on the factor but it is typical for advances to total 85% of the approved invoices. Payments from the factor are usually made available within 24 hours. Keep in mind though that factors will take a percentage of the total invoices. This is how they make money on their end as they provide factoring services to you.

Recourse factoring vs. non recourse factoring

When you use recourse factoring, this means that factors will not take on risks of bad debts. Should a customer not pay at all, factors can take back the money they paid you. Using non recourse factoring, on the other hand, puts bad debt risk on the factor but will not insure against unpaid transactions arising from genuine disputes. As the non recourse option puts factors at more risk, it will cost you more to use this option. All terms and conditions between you and a factor will be stipulated in a factoring agreement.

Factoring Agreement

admin — Wed, 01 Dec 2010 08:44:51 +0000

The key to knowing whether or not factoring is for you is to not look at the bottom line small amount of fees you pay to the factoring company but the tremendous opportunity you can avail to improve your profits and your business prospects by using the factoring services. Selling off your unpaid invoices helps you to release funds trapped and make good of what lies ahead in time and every time.

What is a factoring agreement?
Factoring is a completely legal method of obtaining cash in short term and it is availed by most small as well as large enterprises. Since this is not a loan, you do not need to repay this amount back. The factoring agreement helps you to collect a huge chunk of the payments for your post dated invoices. The agreement lays down how much part the factoring company will hold back to pay for its service charges. The agreement also specifies the recourse clause that allows the company to get back the advance paid in installments when the debtor fails to repay the amount of invoice on maturity. If the agreement carries a non-recourse clause then all risks are borne by the factoring company and usually the company charges a higher charge for such agreements.

Details included in the factoring agreement:
Any typical factoring agreement will contain descriptions on all of the following bulleted points:
 Purchase of Accounts Receivable
- Appointment as a factor
- Written credit approval
- Written schedules
- Remittances
- Credit limits
- Minimum amounts

 Representations and Warranties
- Receivables
- Chargebacks

 Purchase Price
- Calculation of purchase price
- Advances
- Reserves
- Overadvances

 Commissions and Interests
- Factoring Commission
- Extended Terms
- Minimum Commissions
- Monthly statement and calculation of interest
- Credit balances

 Security Interest
- Grant of security interest
- Cooperation

 Customer Dispute and Claims:
- Disputes and Claims
- Returned Merchandise
- Credit Memoranda

 Fees and Expenses
- Monitoring fees and other expenses

 Indemnities
- Indemnification
- Taxes

 Termination and Default
- Term
- Defaults
- Continuing Obligations
- Remedies

 Miscellaneous
- No Pledge of Credit
- Waivers
- Right of Inspection
- No pledge or sale of receivables
- Organizations and locations
- Financial statements
- Solvency
- Waiver of jury trial
- No waiver of rights
- Notices
- Assignment

 Covenants
- Minimum liquidity
- Intercompany distributions

Obtaining business finance is more easily said than done. Going to a bank will be a tedious task that involves supplying them with incessant documents and kills any chances of receiving finance at the right time. Remember that the fees you pay to the factoring company are much lower than what you will need to pay to the bank for availing a loan of the same amount. After all, the factoring agreement only legally allows you to avail what is due to you! You should diligently use this service right from day one to help your business to stay on the front foot always.

Factor Receivables

admin — Mon, 29 Nov 2010 08:43:04 +0000

Simply speaking, factoring or factor receivables are a way to free up your money stuck in unpaid invoices. Getting a free cash flow for your business is just like inducing it with a second life. The best way to solve any type of short term financial crunches is using the factor receivables option.

How is factoring of receivables done:

The process of factor receivables is just like selling off your claims on your debtors. When you sell goods and products for credit, you issue invoices. This type of credit is usually used to get good business and you offer usually 30 to 60 days to your clients to pay off their balance. Most companies pay you an advance of 85% as your first installment within a single working day and the remaining is paid to you after the invoice amount is realized after deducting its fees amount.

When your receivables require to be financed?

For most startup companies or even for well established companies that have exhausted their bank resources, availing factor receivables would be one of the best alternatives. Think of factor receivables as using your open invoices as an asset. Now you can determine whether or not use this option as per your need of cash in your business. Remember that lack of sufficient working capital could prevent you from making new sales, increase your competition, lose your customers, and even in time make you lose your good employees as well.

Advantages of Factoring:

- Your invoices get paid within 24 hours. This in a way means that there will be no more waiting period involved and you can easily get the money when you need it.

- It is easy to avail this opportunity. There are a large number of factoring companies ready to provide you easy cash for your invoices and it is quite a simple process to set up an account with them.

- Helps you to gain complete control over your business.

- Removes or lessens all costs associated with the collection process. Also you can avail their professional collection and credit checking services as well.

- No monthly repayments as in case of availing any loan.

- Helps you to win your battle against slow paying clients.

- Allows you to meet your urgent needs for business as well concentrate more on it rather than worry about paying off your creditors. Also paying off all bills on time helps you to improve your credit score as well.

- In many ways it helps you increase your production, marketing and sales as well. They also improve your buying power helping you to avail better discounts. At times, it could even provide necessary cash for future expansions.

- Improves your financial statement.

In case you are facing any kind of financial problems, this option helps you to ease out your cash stuck in invoices. In other words, you can get the money much before you expected and this helps you to avoid any type of financial crisis.

Factor Funding

admin — Mon, 14 Jun 2010 01:42:44 +0000

We know that a sale is not a complete sale till we collect all the money. Yet realizing unpaid invoices might take up a lot of time and this lag might prove too costly for your business or company at many times. An easy way out of this is to choose factor funding options. This funding can be raised simply by sale of one of your biggest assets – invoices. This money that is due to you can be realized immediately by selling it off to the factoring companies. In other words, factor funding is a financing funding used by businesses to generate capital.

What is the implication of factor funding?

Factor refers to the third party (here the factoring company) who purchases your invoices in return for a small service fee. They help you to eliminate the sale-to-collection business cycle of waiting for the payment period. A factor purchases your invoices by paying you as much as 85-90% of the total amount. The risk then automatically passes on to the factor in case of a non-recourse factoring agreement. You get your cash now and this is what makes the whole deal sound so good to you.

Factor funding is determined upon the creditworthiness of your customers. The better the creditworthiness, the much better are your chances of getting such funding. Also your business credit rating is no issue to the factor hence your fall in payments will not affect your chances of realizing immediate cash. The factor provides you with add-on services like effective handling of all you’re invoicing and data entry. Also you get immense relief from passing over the responsibility of collecting no-pay or slow-pay clients. The best part of factor funding is that it will help you to make best use of increased production plus sales and avail better vendor discounts.

Factor Funding Regulations:

All you need to do is to set up an account with a factor to provide you cash against your outstanding invoices. Your customer then becomes liable to make payments to the factor instead of you. The factor will charge you a fee for this service and this amount is determined by factors like how much business you do the credit worthiness of your clients, the time lag for receiving payments etc.

The number and type of invoices you want to factor will depend upon you. You can first pick up the clients that are rated highest and factor them as per your need for cash. There are no minimum or maximum limits fixed in this regard, but the more the better. Also starting to factor right from day one will only improve your chances of keeping your business cycle moving in full flow.

Depending upon what type of account you have set up, non-payments from your client are dealt with. Recourse accounts require you to guarantee that you will either buy-back or exchange any unpaid invoices. You can also choose to apply funds help up in reserve account. For non-recourse accounts, the risk is taken up by the factoring company under certain conditions.

Recourse Factoring

admin — Thu, 22 Apr 2010 12:14:49 +0000

In business it takes some time for the seller to realize the amount of the credit bills from the customers. To get immediate cash the seller business has an option to sell the accounts receivable to a third party. This process is called factoring.

What is recourse factoring? The third party who buys the accounts receivable asset is called a factor. Naturally, the factor buys the accounts receivable at a discounted price. With factoring, the ownership of the accounts receivable involved is transferred to the factor. In factoring three parties are involved. They are the seller, debtor and the factor. The seller is the one who sells goods or services and the debtor is the one who buys such goods or services on credit.

There are two types of factoring, namely, recourse factoring and non-recourse factoring. In recourse factoring the factoring firm has a right to claim the value of the invoice from the seller in case the account debtor fails to pay up. In other words, the factor has recourse to recover their money under any circumstance in recourse factoring. In non-recourse factoring the risk of non-payment by the debtor goes to the factor.

Why factoring? If the seller can get the money immediately on the accounts receivable it is advantageous to them to finance more business. When they wait for the normal 90 to 150 days for realizing the value of their bills they will be hard up for cash or they must borrow from the bank to continue business without interruption. Banks charge interest rates depending on the creditworthiness of the borrower. That is where the factoring comes in. The business can easily get finance from a factoring company. The factoring company does not look into the creditworthiness of the seller. But, of course, the creditworthiness of the debtor is looked into. That too is only in the case of non-recourse factoring.

How factoring works? Immediately on agreement on factoring a percentage of the total amount is paid to the seller by the factoring firm. This amount is called advance. On recovery of dues from the debtor the rest of the amount is paid to the seller after deducting the factoring costs and interest. The percentage to be retained by the factor as factoring cost and interest is determined in the agreement itself.

Advantages of recourse factoring On the part of the factor, there is no risk of loss due to non-recovery. The seller retains the bad debt risk in recourse factoring. For the same reason factoring at a lower rate can be offered to the sellers. The sellers can get a part of the invoices immediately and they will have a better cash flow. That will allow the business to continue without a cash crunch. There are many factoring companies. So the seller can expect very competitive rates. By factoring the seller is also outsourcing the debt recovery burden to the factoring company without any additional cost.

Now up to 80% of the bill amount is advanced by factoring companies. Both forms of factoring are great blessing for the sellers.

Invoice Finance Factoring

admin — Thu, 08 Apr 2010 12:31:37 +0000

We know the importance of cash as the lifeline of any business and hence invoice finance factoring rose as an important way to funding all business needs. This one decision could help you save your business from falling into debt traps. In other words, invoice finance factoring can help you generate much required capital for your business without availing any additional debts to meet the current operating needs and for future growth as well.

There is always a time lag between selling off your products and receiving money from your customers. This is a kind of financial challenge especially for small companies and they can be resolved by selling off these invoices to any factoring company for cash who charge a small fee for their services. In contrast to what most people believe, this is not just another loan. Instead this is the most flexible option that helps you release your own money tied up in invoices.

What are the steps for financing your invoice?

Invoice finance factoring is designed to maximize your cash flow by removing the burden of running your sales ledger. You can secure a high percentage of finance against your invoices by simply following these steps to invoice finance factoring:

You begin by filling out a simple client profile that covers basics such as your company’s name and address, nature of your business, and information regarding your clients.
You need to provide the factor with necessary documents like accounts receivable aging report, existing customer’s credit limits, etc.
You need to cover the basic financial agreement with the factor about different aspects like the monthly volume of invoices you want to factor, advance rates and discount rates, handling ways and time lags etc.
Once approved, you can negotiate the terms and conditions with the factor. This negotiation process will help you assess the real cost of factoring you will have to bear and then you can know if this is really a good deal set up for you.
After you have reached an agreement with the factor, the funding wheel begins to roll. You can now stop providing free use of your money to your customers.

Benefits of financing your invoice:

You get immediate cash with no waiting and also you do not need to incur any new debts. Quick payment against your invoices helps you to meet current as well as future obligation in time.

Your business credit rating will not mar your chances of getting money against your invoices and helps funding business in times of need.

You are able to get the best deal from your vendors and this helps to raise your profits as well.

You can continuously increase your production and sales. This will ultimately mean a rise in your business profits.

Increased production and no lags in working capital will eventually help you to expand your business further. Invoice factoring can help you to improve the financial statements of your business and this will also improve your credit rating in time as well.

Business that may benefit from factoring

admin — Thu, 01 Apr 2010 22:45:54 +0000

Invoice factoring is today a very important method used by business firms to generate ready cash for easy flow of business activities. Such financial transactions involves sale of accounts receivable by the business to a third party or a factor, that could even be a specialized organization dealing with purchase of invoices. At the end of such financial transaction, the ownership of the receivables is transferred to the third party or factor in exchange for ready cash to the business that sells it.

What types of business require factoring?

There is no business that can thrive without enough cash resources. Typically this means that small business firms are the first ones who would prefer the factoring method of cash management for their leverage requirements. Factoring is required by those businesses that have large cash balances stuck up in inventories or would like to seek quick cash solutions. Before choosing to use factoring as their financing option, the business should ponder upon following points:

Does this finance strategy match with your business plan?
Does your business need such money for the company’s survival or is it just an opportunity you like to make use of?
Does your business need such extra money and expansion?
Does this help you to solve your current issues?

If your company seems to benefit from such invoice factoring, then perhaps it is time to make use of this golden opportunity.

How do business benefit?

Invoice factoring benefits business in more than a single way. This type of financing is preferred by businesses that require freeing up their working capital. This involves business firms that have a majority of their capital tied up in inventory. Also what this will automatically do for the business is to free up your resources so that you can concentrate on more productive fields other than being stuck up in collections of debts. Finally, those businesses which require the quickest solution to their cash solutions choose this kind of cash management tool for easy cash. Such invoice factoring can help to avail instant cash in as less as a single day.

When can business do without factoring?

In most cases factoring has proved itself to be one of the easiest and cheapest ways to finance business. Yet there are some business groups that can do without availing such factoring option. These business firms are ones that do not have much finance tied up in inventories. Also if your firm has a good credit standing, chances are high of you being able to get good bank loans at competitive prices.

What are the risks of not using factoring?

In many cases invoice factoring option could be the difference between a company surviving the tides and where it goes bankrupt. Since the factoring industry is not as regulated as the banking one, it is easier and more probable that you can avail timely help from such resources. Also once your business is stuck in a problem, chances are high that your debtors may ignore your heeds for ready payment. In such cases, a factoring agent would be a better person to collect such debts. Not only can you choose to free yourself of your debtors early on but also you can avail good ways to save your business from going bankrupt.

Small Business Invoice Factoring

admin — Tue, 23 Mar 2010 11:44:48 +0000

If you own a small business, and if you are in need of immediate cash for other business opportunities or responsibilities, having to wait for 30 to 60 days for your invoice to mature will be a problem. If this is the case, have you ever heard of small business invoice factoring?

If you have equipment and other forms of collateral, you will be able to get a loan from a bank or financial institution. However, if you rely on sales, banks often deny the loan application. Instead of letting opportunities pass you by, invoice factoring companies will give you access to ready funds, despite of the 30 to 60 day waiting period.

What Is Invoice Factoring?

The concept of invoice factoring is simple. If you have account receivables or collectibles, and do not have the luxury of waiting for 30 to 60 days to get paid, factoring companies will purchase your invoice for around 90 to 95% (depending on the industry of your company) of the amount on the invoice.

By availing of their services, you are given a cash advance, and collecting the invoice is left in the hands of the factoring company. By doing this, you will have ready cash to jump to new opportunities to raise profits, handle payroll, overhead, utilities, and other fees. In other words, you are ensured that your business will keep on going.

Why Is Small Business Invoice Factoring Essential For Small Businesses?

Unlike established businesses, smaller businesses lack assets that they can use as collateral when it comes to making a business loan. In addition, loans will take time to process, which is something small or up and coming businesses do not have the luxury of. This is why factoring companies are so important.

First of all, it takes less time to get approved for an advance with small business invoice factoring, compared to banks or financial institutions. Secondly, the rates offered by these companies can be much better compared to banks. Third, you do not have to worry about collecting the amount on the invoice from your client. The factoring company handles this burden for you.

Although you do not get the entire amount on the invoice, you are given more opportunities to make your business grow with the ready cash on hand. Thanks to small business invoice factoring, small businesses are able to take every business opportunity, instead of just waiting for the collection date on the invoice. This means more room for the prosperity of their small business.

What Are The Risks Of Not Using Factoring?

Many up and coming businesses are in heavy debt or go bankrupt, due to the waiting period of 30 to 60 days. They are unable to pay their employees; they are unable to cover overhead, and they are unable to expand. In other words, they go out of business, due to the long wait.

To prevent this reality, a solution has been devised. With small business invoice factoring, there is almost no chance for this unfortunate reality to ever happen.

Types of Factoring

admin — Mon, 01 Mar 2010 10:23:10 +0000

If waiting for 30 to 60 days is too much time to wait for you, then invoice factoring will work to your advantage. This is one of the types of factoring that eliminates the waiting period, and allows you more flexibility. By opting of this service, you are assured to get most of your collectibles before the allotted time it takes to get paid.

What Is Invoice Factoring?

Invoice factoring or recourse factoring is an efficient type of financing that allows you to sell your invoice to a company that provides this service. By doing this, you do not have to wait for the 30 to 60 day grace period your client is scheduled to pay.

Not only does this allow you to get paid earlier than expected, it also allows you to with the capital needed to pay employees, cover other fees, and make sure everything is running smoothly in your business.

In a nutshell, the factoring company is given the responsibility of collecting the amount on the invoice, while you are given an advance of your expected receivables.

What Are The Different Types Of Factoring

Generally there are two types of factoring.

These are:

Recourse Factoring

Recourse factoring refers to selling your account receivables to a factoring company. However, if the amount cannot be collected by the factoring company, you will be liable for the amount uncollected. These companies will advance the amount on the invoice, and is now authorized to collect the amount on the given date of release.

Non-recourse Factoring

Non-recourse factoring refers to selling your account receivables, just like in recourse factoring. The only difference is that you are not liable, if in any case that the factoring company is unable to collect the amount on the invoice on the given date.

Specialized Types Of Factoring

There are some industries that pose more financial risks to factoring companies. In other words, there is a big possibility that collecting the amount on the invoice will take more time or have setbacks. While other industries share relatively similar terms, there are certain industries that are given more complex terms.

Here are those industries:

Medical Industry

When it comes to billing insurance companies, it can take a long time to collect. At times, there are problems with collections. Although you do not get the same rate offered to other industries, you still get an advance and a different billing scheme.

Construction Industry

You do not have to wait till your project has been completed. The risk factor in this industry is the possibility of an uncompleted project. Although your rates and billing options are different, you still get a reasonable advance.

On average these industries receive an advance of 70% to 80%, compared to an average of 85% to 95% with other industries. Again, the reason behind this is the risk factor involved.

When it comes to making sure you get steady cash flow, and do not let other opportunities pass you by, these types of factoring have an assortment of options for you.