With Factoring Financing a lender will outright purchase some or all of a business’s outstanding invoice accounts receivables. Typically the lender will factor an advance for the business between 70 and 95 percent of the full value of an invoice receivable, at the time it purchases the receivable.

The balance, less the factoring fee, is released when the invoice is collected. This immediate injection of capital will be provided to the business as early as the same day to max 48 hours. Since most large scale clients pay on invoice terms that range anywhere from net 30 to up to net 90 business days, this capital infusion can come in very handy.

The company can then use that funding to either cover the expenses of the business or to take on additional work at the same time. The lender having purchased the invoice will take over the collections aspect of the invoice directly with the company’s client.

This can be seen by some as a benefit as the lender is now acting as a partner of sorts in aiding in the collections process of the invoices. Which can become an additional saving to the company as they Factor more and more of their invoices, it would lead to less and less of a need to collect on their own invoices? Therefore the capital that is being expensed on a companies collections department can thus be redirected into other areas to help grow and scale the company.

Once the client pays the lender the full invoice payment the lender will remit to the company the balance of the invoice minus the Factoring Financing cost of capital fees. The factoring fees are based on the total face value of the invoice, not on the percentage advanced, depending on such aspects as the collection risk and how many days the funds are in use they typically start at 1.5 for the first 30 business days.

There are also two types of invoice factoring: Recourse and Non-Recourse factoring. Recourse factoring is a type of invoice factoring that provides less risk to the factor. If the customer fails to fulfill the invoice, the factor has the right to collect payment from the business owner. Non-Recourse factoring, on the other hand, absolves the business owner of responsibility for the invoice.

If the customer fails to fulfill the invoice, the factor is left on the hook. Because of the increased risk, fewer lenders offer non-recourse factoring, and if they do, they may offer it with stricter terms and rates.

Factoring Financing can be a great way for businesses to free up additional working capital by utilizing the companies own invoice receivables.

Factoring Financing is not a loan it does not create a liability on the balance sheet or encumber assets.

Factoring Financing allows for companies to access immediate capital from their own invoice receivables

This product can provide funding for new companies. Factoring Financing is based on the creditworthiness of the clients issuing the invoice receivable.  This can be the ideal solution for allowing new companies to leverage their customer’s credit to build up their companies.

Factoring Financing could provide companies with unlimited growth. Traditional banks although they can be great simply operate on a line-based financing model and there is no getting around it. Line-based financing only takes into account what the business has already done and the assets it currently owns. Underwriting that solely places value on a company’s current sales can stunt a business’s growth. This product is designed to help with a company’s continued business development. As the company produces additional invoices the Factoring Financing will rise with a company.

This product provides a significant and quick increase in the cash flow to the business. While companies are confident the invoices will be paid. It can be tough for businesses to juggle all of their expenses and grow when customers extend payment terms beyond net 30, 60 & 90 business days or more. 

Invoice factoring provides companies the ability to land the bigger accounts. By being able to extend terms to the customers for their receivables.

This product can allow companies to choose how much of their invoice receivables they factor depending on their unique business needs. Some companies may factor all of their invoices, while others may factor only invoices for customers that traditionally take longer to pay.

Time is money- and chasing down unpaid invoices can be very time-consuming. Factoring Financing can offer companies protection from bad debts and could provide useful information about the creditworthiness of its customers chosen. It can be a cost-effective way of outsourcing the sales ledger at the same time managing the business collections assistance. With Factoring Financing you’ll get regular reports about your accounts receivable, as well as problem-solving assistance.

The following documents will be needed. These following list of requirements may vary from lender to lender:

• A Standard Factoring Financing Application 
• Min of 2 most recent years of both corporate or personal tax returns 
• Min of 2 most recent years of corporate financial statements and a Personal Financial statement 
• Articles of incorporation, (if a corporation) 
• The partnership agreement, (if a partnership) 
• Current Aging of Accounts Receivables Summary
• Current Aging of Accounts Payable Summary
• Copies of any UCC filings if you presently have assigned your accounts receivable to another secured party.

Companies must operate a U.S based business

Factoring Financing only works for B2B Commercial or Government clients

This product is based off the business client’s commercial credit, therefore a full client list of all invoices that wish to be factored in order to make certain the clients are good

In order to qualify for Factoring Financing the companies profit margins must be above 20% to 30% (varies)

The companies invoices must be free of liens or encumbrances in order to be accepted

The company needs to be either be free of any tax liens and if the company does have tax problems or a tax lien, their must have a payment plan

The business should not have an open bankruptcy and any past bankruptcies should be discharged by at least one year from the date of applying for Factoring Financing. 

Although the majority of the underwriting hinges on the creditworthiness of the clients paying the invoices. The owners of the businesses background must also show good character