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- What kinds of companies use factoring?
Factoring is more common than many people
would believe. Major corporations such as Shell Oil, Georgia Pacific, IBM, and Coca Cola together factor billions of dollars
a year. Now the benefits of this strategy are being discovered by small and medium sized companies as well. The companies
that use factoring most successfully are those that have a business strategy designed around the availability of ready cash
to maximize profits. If your business can immediately generate more sales as soon as your customers' cash is received, you
can benefit from factoring.
- Can my business use factoring?
Your business is a candidate for factoring
if you do business with large, creditworthy businesses or any governmental body (city, county, federal, school district,etc).
Your business must generate invoices to your customers/clients.
- What are the minimum and maximum invoice
amounts I can factor?
We work with businesses that factor $10,000 per month to over $1,000,000 per month.
- What
about the credit line we already use?
Factoring can often complement an existing line of credit if you would like access
to larger amounts of funding. Your funding source, or factor, will help with all necessary arrangements.
- We
see the benefits of factoring, but are concerned that our customers will think we're in financial trouble.
In the process
of verifying an invoice, the funding source typically tells your customer that you have been qualified for an unlimited credit
line based on your accounts receivable and receivable management is being provided in conjunction with that credit line. Factoring
enables you to continue to extend credit terms to your customers without interfering with your growth and profitability.
- Who
is the check made payable to? Where is it sent?
The payee on the checks can be either your company or the funding source.
Your funding source determines this. Payments are sent to the funding source or to a designated P.O. box. If the checks are
made out to you and sent to the factor, the factor will require a limited power of attorney to deposit those checks.
- Isn't
this pretty expensive financing?
Consider these benefits. No time or resources devoted to chasing your receivables.
You can concentrate on growing your business. No lost profits because you do not have the funds to fill new or larger orders.
If you had the choice to turn your business into COD, would that be worth a discount? Many businesses, possibly including
your suppliers, would gladly set that discount at 10%. Your costs should not be nearly that high, and cash on hand would enable
you to take advantage of those supplier discounts.
- What if my customer doesn't pay?
If you
have a non recourse arrangement with your factor, the responsibility for collection rests with the factor. A non recourse
contract typically costs you a higher discount. Most factoring is done on a recourse basis. This means that your customer
is still considered your debtor, and you are in control of the collection process utilized. Your funding source will allow
you to either exchange invoices, or pay the invoice amount out of your reserves. The discount fees will still apply.
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