Tag: factoring companies

Considerations Before Signing a Contract with Factoring Companies

When you deal with factoring companies so you can get the funding you need, you’ll need to sign a contract. But before you sign on the dotted line, you should make sure you understand all the business finance terms. That way, you can anticipate what’s going to happen. You’ll know how much capitalization you’ll receive, and how much you have to pay.

The problem is that sometimes you may not be fully aware of what the business finance terms in the contract mean. Before you enter into an agreement with factoring companies, make sure you take note of the following considerations:

  • Advance rate. This is the money you get in advance, represented by a percentage of the value of the account receivable. Most of the time, The advance rate hovers around the 80% mark. Some of the more inherent industries may only have a 70% advance rate average. However, some specialist factoring companies in certain niches may promise an advance of up to 95%, although this rate depends on the credit history of your customers.
  • Discount rate. This is the fee represented by a percentage of the value of the account receivable. The discount rate similar to the interest charged by a bank when they give you a loan. When your customer finally pays up, the factor takes the percentage from the payment before they pass on the payment to you.

Usually, this rate ranges from 1 to 6 percent, but you also have to pay some attention to the period of time it covers. For example, a 1% discount rate may only apply for 10 days, so an invoice which sets 30 days for payment may actually have a 3% discount rate, and payment within 60 days would then cost you 6%.

  • Reserve amount. Usually, the factor holds back an amount of money from the payments to cover any instance of non-payment. The amount of money for the reserve differs with each factor, and obviously you want this to be as low as possible, so that you get more working capital.
  • Length of time. This is the specified time during which you make use of the factoring process. You’re usually locked in for a specified period, and in that time frame you’re required to submit some accounts receivable for factoring.

The contract may also define which account receivable should be factored. You may be given a choice, or there may be a minimum number of invoices involved.

  • Fixed fees. Many factors charge additional fees aside from the discount rate. For example, there may be a fee to set up a factoring line, while each particular account receivable may have a fixed factoring fee as well. There may also be a fee when you end the factoring agreement early.
  • Late fees. There may come a time when a customer pays late. Every instance of this entails a penalty because the factor didn’t get back their money on time.

Take note of all these considerations and you can use them to compare which contract is better when you’re trying to choose among several factoring companies.

Choosing the Right Company to Handle Accounts Receivables Factoring

By: Chris Lanchech
 
cash-in-hand

Accounts receivables factoring, or invoice discounting as it is known in some places, is necessary for any new or growing business. It provides the needed capital for initiating production and it is a much safer and cheaper option than taking out a business loan. However it can be quite difficult to choose the proper factoring company since many of them offer different terms and fees. Here’s a list of things you will want to look into before striking a deal with any factoring business.

 

Read Customer Reviews

This is the first thing any business should do before they turn to a company for accounts receivable factoring. There are many websites that have unbiased reviews concerning factoring companies and you can even find video reviews on Youtube. When looking through reviews, the most critical aspect is to go through the factoring company’s credibility and customer service. Do they charge hidden fees? Was the process as quick and easy as advertised? How smooth was the communication between the company and their clients? Many reviewers are quite candid and blunt in their reviews so you’ll immediately get a good idea whether or not that specific factoring business can be relied on or not.

 

Check Their Experience in Your Industry

Most factoring businesses are also knowledgeable in some industries while others are flexible to handle several more. This is important to take note of because some industries have different financial structures. The way they pay clients and the way they handle open invoices could be different. If the factoring company you are considering does not have experience in your industry you might want to look elsewhere.

 

Shop Around for Quotes

Just because you found one factoring company that offers a good deal it doesn’t mean you can call it a day. Shop around and compare quotes. Sometimes they will lure you in with low fees but then get back at you with penalty fees, especially if your client goes bad and does not fulfill the open invoice.

 

Check Their Collection Procedures

This is very crucial because it can determine how well your relationship with other clients will evolve. Some factoring companies do not interact with your customers and allow you to collect the amount and then close the invoice. Others will openly interact with your customers and close the invoice on their own. Some businesses relate with their customers better if their debt collection and financial assessments with factoring companies is discrete. It is entirely up to you to decide which collection procedure is best and it is wise to know beforehand which type your factoring company of choice utilizes.

 

With these tips in mind you’ll be able to find the very best factoring company to handle all your invoice discounting needs. Yes, there are fraudulent companies out there and there are some that require more than others, but these elements will help you sort out the good from the bad. Accounts receivable factoring is inevitable for many businesses and doing business with a good factoring company is key to your success.

Factoring Company Benefits: Stabilizing Business Cash Flow

By: Chris Lanchech

 

Some businesses refuse to turn to a factoring company because they believe that doing so means they could incur more debts. But this is very far from the truth. There are many reasons why factoring your accounts receivable can be beneficial for you. Simply take the following into consideration:

factoring companies, company factoring
Neebo Capital specializes in the Factoring of invoice receivables for companies who maintain commercial accounts receivables.

 

Benefit #1: You Will Have a Starting Capital

If your client gave you a huge project, you can expect that the first few months will be quite difficult.

You won’t have any immediate funds to start with. You won’t have cash for orders, employee benefits and incentives, and production expenses. Most of the time, businesses take out a loan just so they can get started with work. But with the help of a factoring company, you’re getting paid for your work quickly. In a way, it’s like the client has already paid you 80% in advance.

 

Benefit #2: You Get Your Money Fast

Have you ever tried getting a business loan from a bank or a credit union? It could take two months for a loan of $60,000-$100,000. When you turn to invoice discounting the procedure usually takes no more than five days. In just five days you’ll have your invoice purchased and the money deposited to your bank account.

 

Benefit #3: Credit History is Not a Factor

A new business will not have good credit standing. This is because it has little to no credit history to show. A business starting to fall off the grid will have weak credit scores to provide. In both cases, getting approved for a loan can be tough. However, factoring businesses do not look into credit history. Instead, the company will assess the value of the open invoice and of the client that is going to pay for it. This means that a small or new business that is still thriving or a company already leaning towards debt can still get money up-front to regulate cash-flow and stabilize its finances.

 

Benefit #4: Having a Wealth of Funds in Preparation for Seasonal Demands

As months go by your business will see a flux in demands. If you put out several or all of your open invoices for account receivable factoring you will have a steady supply of cash right from the start to prepare you for these issues. You never want to be caught off-guard and factoring invoices is a sure-fire means of being prepared, financially.

 

If you need immediate cash without suffering from the downfalls of a bank loan, approaching a factoring company is a very smart – and in many ways the best – option you can turn to. Check out the various factoring companies online and decide which among them will offer you the best deal.

Should You Choose Factoring Companies Over Banks?

By: Chris Lanchech

Factoring companies purchase accounts receivable from various businesses and will enable you to get immediate cash on-end to serve as resource for your day to day operations. Of course each time they lend you an amount it will depend mostly on the quality of your assets. However there have been accounts of people getting duped by fraudulent factoring companies and there have been factoring institutions cheated by fraudulent borrowers as well. With banks offering business loans and other credit options, why would factoring invoices be a better option?


Reason #1: Bigger Cash Out
The problem with getting financial assistance from a bank is that they normally give you only up to 60% upon payout. Some banks and credit institutions do purchase invoices and assets but they won’t pay you enough to get your cash flow back on track. With a factoring company, however, you can get as much as 75-80% right on day one. That is pretty much the same as saying you got paid for the job right on the same day you started working on it. It becomes even better if you factor multiple invoices at the same time.

Reason #2: Lower Costs
Credit unions and banks can charge a pretty hefty fee. You’ll see charges that can go all the way up from 4% to a whopping 12%. They can literally rob you of your profits. A factoring company will generally charge you less than 2%. This means you get to use your money and they still get to earn a little profit along the way. One of the best things about factoring invoices with dedicated companies is that they sometimes offer factor insurance. This means you won’t have to pay them the money in case your client defaults on his payment. Instead, they’ll give you the rest of the loan and will then chase after your client to get the money back.

Reason #3: Faster Processing
Your business may not be able to function until you get some funds to start with and the problem with banks is that the application and assessment procedures could last for weeks. The good thing about a factoring company is that the entire procedure only takes a few days. Usually it only takes three to five days and you’ll have the amount deposited to you. To make the process even faster, factoring invoices usually only requires you to fill out two pages of information. This is quite the opposite of applying for a business loan or factoring invoices with a credit union because that would require piles of paperwork and information.

The Verdict: Factoring Companies versus Banks and Credit Unions
Banks and credit unions can be an option especially if your business has good standing with them but remember what your company’s main focus is: profit. Profit is derived from steady cash flow and lower overhead costs. You can only attain these by having stable resources, less costs, and less time wasted. With all of these taken into consideration, your company can benefit more if you choose factoring companies instead of banks.

An Introduction to Factoring Invoices

By: Chris Lanchech

Factoring invoices is one of the things any business will need to continue operations and growth despite seeing financial instability caused by slow overturns and residual returns. It can be very difficult for your business to progress while you are still waiting for your clients to pay. Wouldn’t it be great if all your clients could pay you immediately? That might seem impossible but with factoring you can make it happen.

 

What is Factoring?

Factoring, also referred by some as invoice discounting, works much like a regular loan except in this case you are considering your invoice or accounts receivable as the ledger. The factoring company will consider your invoice and upon reaching an agreement will lend you the amount that you will be paid by your clients. Consider the example below:

An IT company was requested by a marketing company to develop a dynamic website and overall the payment was to be for $150,000. The IT company, needing resources to start with, factors the invoice with a factoring company. They lend the IT Company 80% of the accounts receivable (in this case it will be $120,000). They will only give the remaining 20% when the client pays the IT Company. The $150,000 that the IT company receives will then be paid to the factoring company, less the fees that the company will have to pay, such as interest fees and administration fees.

Is It Beneficial to You?

Every small or growing business requires liquid cash if they desire to move forward. A business cannot rely solely on their own minimal funds while working towards their accounts receivable, lest they fall into stale debt.

First of all, one has to consider the fact that factoring invoices yield more immediate cash. Most factoring companies lend up to 80% up-front. Banks will usually only agree to give you 50-60%. This means that you can get more resources to get cash flow back in order.

 

Secure Your Business’s Finances

You might be wondering about the likelihood that your client turns bad and does not fulfill the agreement and your invoice is left unpaid. In this case most companies have insurance offer that remedies the problem. They will still give you the full amount of the loan and they will be the ones to chase after the client to get the payment owed.

 

If you are still starting with your business or if you are in need of steady cash flow to finance your company’s expansion then factoring or invoice discounting may be your best solution yet. The process yields higher immediate cash-payback than what banks offer and you can get approved in 3-5 business days.

Processing fees, interest rates, and miscellaneous fees are much lower than what you’d expect and you can even avail of insurance to protect you in case your client defaults on the payment. Getting your cash flow in a steady rate is crucial for your business’ growth and factoring invoices is a much better, faster, and efficient means of achieving this.

Factoring Is Faster Than Small Business Loans

Well for starters, if you have ever received a small business loan then you know small business loans require a lFactoring Is Fasterot of paper work. Small business loans also require you to submit paperwork out the wazooo…

This is why many business owners are turning to factoring invoices as a stronger solution. Simply put there is not as much red tape, and the contracts for lending can be as short as 30 days.

Factoring Invoices has always been a financial method to raise capital.  Cash on hand allows businesses to expand, market, put on new employees, take advantage of supplier discounts, or just manage overhead better.

Additionally, credit is becoming more difficult to get for small businesses without years of financials or vendor references. Therefore factoring is a way to quickly raise cash for working capital needs.

As mentioned above, getting a bank loan can be difficult and take months. As opposed to factoring in which you can have funds within 2-3 days.

Approval for bank loans for small businesses is difficult to come by, as loan requirements get stiffer and stiffer in the post- credit crisis world.  Bank loans also require application fees, lengthy application procedures, and lots of paperwork and preparation. And don’t forget the interest on a bank loan.

DEBT

That’s right, a large benefit of factoring vs. a bank loan is that with factoring you do not add debt to your company. Factoring established a credit line against your incoming sales. A bank line establishes a credit line against you, your business and its assets.

Invoice factoring gets your business cash fast, without the paperwork and debt, this is why it is a growing finical tool for small business.

Credit Insurance Policies on Receivables

So you have a business and you sell to clients on credit terms. Maybe you should consider credit insurance policies on your receivables. Why?
Credit Insurance Policies on Receivables
The simple answer is to reduce risk, and strengthen your businesses financially in order to establish a stronger bankline in the future.

However the deeper answer has to do with your business and its potential loss. The saddest stories in the factoring world come from businesses who lose their largest accounts overnight.

These accounts can be large fortune 500 companies with sound financials.However one bad press release or shock to the economy can have a trickle effect and bring their business to a halt. A perfect example of one of these unforeseen chain reactions, was the filing of bankruptcy of one of the largest food processing companies in the industry.

All it took was one massive press release about the “pink slime” found in processed hamburger meat and The King of Prussia,  a PA-based food processor was devastated. Prior to the release the company processed about 500 million pounds of beef annually!

Now imagine if you are a suppler for this company with over $50,000 or $100,000+ in outstanding A/R. Prior to the pink slime press release you may have not been worried. The King of Prussia may have been one of your largest and secure accounts. However you now can see how quickly things can change in today business environment.

why should you buy credit insurance?

Had suppliers had credit insurance policies for their large customer “the king of Prussia” they would have recovered $0.80 to $0.90 cents for every dollar they were owed.

Sometimes – and this is the reason for credit insurance – there are unforeseen factors that influence the performance and survival of your customers.  Whether those are the court of public opinion, mismanagement, or a bad acquisition, companies go bankrupt, leaving you and your company paddling up shits creek.

Visit Neebo Capital for Credit Insurance Policies on Receivables

APR vs Discount Fee’s

Every now and then we get a business owner looking for the difference between APR (Annualized PERCENTAGE RATES) and Factoring Discount fees.
APR vs Discount Fee’s
As an analyst these questions can still confuse me. Business owners juggle many different financial tasks and terms. However there is a huge difference between factoring discount fees and annualized percentage rates.

The difference is complicated:

– Annualized percentage rates are dependent on a businesses risk over the year.

-Factoring discounts fee’s lower the risk to net 90 terms at the most.

*keep in mind if you try and compare an annualized rate with a short term rate(factoring discount fee), you must ALSO compare a company that can qualify for a long term loan and one that cannot. Those two companies are not the same, neither is the cost of funds.

Above is the definition, and as you can see trying to compare the two is like saying ducks and eagles are the same because they both fly. I say this because if you attempt to multiple a 30-day invoice fee by 12 you will not get a accurate number of the annualized percentage rate.

For example: When a factoring company funds your  30-day invoice with net 90-day terms, your invoice will be repaid between 25-45 days on average. This means the risk of the outstanding invoice is only over a short period of time.

This short term reflects the risk your company brings into the equation. Factoring companies accept this risk and offer a factoring discount fee.

On the other hand a bank will make a loan that they expect will be paid over a year or more, because they make calculations whether or not your business will be better over a period of time. If banks see any risks that your business cannot pay back the loan, the you get no loan!

Factoring companies will give your business funds within 24 hours to 3 days. Their lending is dependent on the creditworthiness of your customers.

Hope this helped
Chirs L.

How To Select The Right Factoring Company

There are many variables besides just the “lowest” discount fee that will come into play when selecting the factoring company best suited to your company’s needs. This Article has the important things you should look for when picking a factoring company:
pick the right factoring company

You can find several key attributes you should search for before picking the right factoring company for your business. A reliable factoring company should have a high quality credit department, a professional collection staff, a long history, financial strength, and current systems for keeping their customers informed with real time information.


In contrast to a standard bank or perhaps a finance company, factoring companies have a day-in, day-out relationships with regards to their clients, so selecting the right factoring company boils down to who can you see your business aligned with?

Generally, the response for this question is most likely the factoring company with the lowest discount fee and quite often it is the factoring company that fits various other needs better than the comapany with the lowest fee. In the end, determining the overall cost can prove difficult, so you may want to consider additional critical variables. Heres points to consider in order to pick the most suitable factoring company for you:

Does the factoring company have a fully staffed credit department?
Any factoring company that has a good credit department, could be your choice if you’re searching for a factoring company which will help you make prudent credit limits for your customers. A factoring company which does not have a fully staffed credit department is likely to not approve ideal credit limits and because of this, may expose your company to incorrect levels of risk. However, a factoring company in which does not approve enough credit to have capacity for your needs might entirely restrain your companies capacity to grow.

Does the factoring company have a collection department?
You just might pick a factoring company with a fully-staffed collection department.Why? Because It might stun you to know that a large number of factoring companies don’t have a collection department. For anyone who is considering choosing a factoring company which takes their duty of collecting receivables seriously, the factoring company will assign your business with two contacts: an account representative + a collection specialist.

This is important because factoring companies WITHOUT a collection department are forced to assign the task of collections to one account representative.

Does the factoring company have a good track-record?
A factoring company in which has been in business greater than ten years likely comes with the expertise needed to supply an quality level of service. A factoring company that’s endured various business cycles demonstrates effectiveness. However If in doubt, ask the factoring company you’re talking to for bank references or information about their financial shape. Most of all, ask your factoring company for client testimonials if possible customers that are in your industry.

Does the factoring company have a specialist in your industry?
You most likely are searching for a factoring company that knows your industry. Industry specialists are extremely vital. If you happen to run a staffing company, you should seek out a factoring company with staffing specialists. For instance a staffing factoring company will be familiar with your regulations and payroll needs and provide unique services such as payroll checks, payroll deposits, payroll reporting, payroll software, invoicing and invoice mailing. since, a staffing factoring company will certainly have their own first hand experience in dealing with hundreds of other staffing companies. If a staffing factoring company already knows your customers, you will save money because you will not need to spend money on credit reports.

Is the factoring company the best size for your company?
Perhaps you may be interested in a large or small factoring company, based upon your philosophy. Your best bet could be a factoring company that is somewhere in between small enough to provide personalised service and the means to access top management, then again large enough to deliver financial stability, the capacity to accommodate your needs, as well as the skill to survive challenging economic times.

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