Invoice Factoring – FAQ

Accounts Receivable Funding – F.A.Q.

Accounts Receiveable Financing Frequently Asked Questions

Receiveable Financing Frequently Asked Questions

Who uses factoring?

All business that generate invoices for goods or services sold to public/private businesses, institutions, associations, government agencies, manufacturing, distribution, service industries, construction, and medical providers, etc.  Accounts receivable funding frees you from the administration of invoice collection and provides you with the option of when to receive the money owed to you by your customers, therefore allowing you to focus your energies on growing the business.

What’s wrong with my current arrangement?

Absolutely nothing—if your customers pay their invoices as soon as they receive them.  But time is money and the longer it takes you to receive payment for your goods or services, the less that invoice is worth, which places you in the unfortunate role of loan officer to your customers at 0% interest! And because your working capital is tied up in unpaid invoices, your own expenses may go unpaid—placing your own credit rating at risk.

How would I benefit from factoring?

Factoring allows several distinct advantages.  By receiving cash for the invoices you submit as quickly as within 24 to 48 hours, you would be able to pay your periodic expenses—payroll, utilities, supplies and rent—without worry.  You could decide to lower your supply costs by taking advantage of cash, volume, or term discounts.

What other benefits are there?

With additional working capital, you could purchase new equipment to increase production, or launch new marketing campaigns or products to increase sales.  With improved cash flow, you have the freedom to utilize your working capital where it can work most productively.

Is factoring right for me?

The best candidates for factoring are businesses whose annual sales ranging from $500,000 to $10,000,00; who sell goods or services to other businesses, government agencies or bill medical insurers; who offer payment terms that extend beyond 30 days; and whose customers have good credit ratings.

Do I have to factor all my invoices?

Factors vary in their requirements, but many do allow you the flexibility to choose which invoices to factor.

How much is it going to cost my business?

The rate will vary based upon several factors including: parameters of the funding source, services offered, and the invoices being transacted.  The discount rate—usually quoted as a daily rate—will be specified in the factor’s quote proposal.

How can I profit if I have to sell my invoices at a discount?

If you analyze the cost of waiting for your invoice payments today, chances are it costs you at least that much—and you still have to wait for your money. But with more capital, you can negotiate better terms with your suppliers, increase production, and take your business to the next level.  These savings often far outweigh the funding source’s discount.  Another significant benefit is that the funding source will assume responsibility for the collection process, keep you up-to-date on a regular basis, and provide you with a weekly aging report of the factored receivables.

Who exactly are these funding sources?

Professional investment firms that seek more secure investments in the private sector for a pre-established yield rather than risk their capital in unpredictable returns on publicly available investments.  These firms conduct their business not only in a fair, ethical, and confidential manner, but also in a very competitive marketplace that benefits you, the business owner, so you receive the best rates and terms possible.

How does all this differ from a bank loan?

Banks undoubtedly play a critical role as the financial backbone for many businesses. However, in today’s entrepreneurial marketplace, there are an increasingly growing number of businesses finding it difficult to obtain bank financing, if only because their receivables are outpacing their growing sales.

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