Many businesses face a typical problem of long delay ranging up to 60-90 days or even more to receive the payments for the job completed and delivered. In their attempt to achieve the next big order the businesses ignore the need for funds for this next order. So how do you arrange for capital required for various business purposes? Factoring is one of the solutions for it.

Factoring is a financial tool that allows you to get your pending invoices paid in two days. Factoring includes selling your invoices at a discount for immediate cash. The factoring company will collect payment from the client later and you are provided with immediate cash so that you can use it to pay the suppliers and for other business activities. It is not a business loan. It differs from a bank loan in three ways; firstly it is the value of the receivables that is considered and the creditworthiness of the company.

It is not a loan as it is the purchase of the receivables (which are assets), and it involves three parties, the seller who has to receive money, the debtor who has to pay the money and the third is the factor, which is the financial organization that collects money from the debtor. The major advantage of factoring is that as the sales grow, the borrowing capacity grows. This funding is necessary for growth. Also no other asset needs to be used for acquiring funds.

How does factoring work? The factoring company lends the borrowing company a certain percentage of each invoice that it issues and then collects the invoice on its due date and pays the balance to the company. The factoring company charges some factoring fee, a small percentage of the invoice amount and interest on the amount borrowed.

A company, which opts for a factoring deal should ensure that they inform all the related parties regarding it. Initially it would be the existing debtors, which will be taken on, thus involving large payment being made right in the beginning. Entering into a factoring deal is quicker than arranging for finance by any other means. The factoring companies are often more commercial than the lending institutions and help client companies to find a good solution. The biggest consideration for the factoring company is the financial reliability of the two companies. If the debtor pays the bills on time then the factoring company offers a better factoring fee rate to the seller.

Factoring is suited for those companies, which are growth oriented, need funds to increase production, add new clients and improve profits. Compared to other options for loan, which consider the assets, and other repayment options, factoring emphasizes on ability of the debtor to pay. The seller can also use this as additional working capital or pay off any tax liability. The advantage of factoring is that the seller can arrange to buy in bulk and avail of discounts from the suppliers thus concentrating on increasing production and the profitability. Factoring is cost effective as the cost involved is dependent on the application and has a specific fee structure with no hidden costs.



Thanks to Kris Koonar for contributing this article to our Factoring blog:

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Factoring is a simple and inexpensive tool which helps sort out the cash flow pressure caused due to non-paying or slow paying customers. It is a way to get immediate cash when your trucking company is in need. By giving your invoices and accounts receivables to the factoring companies you may even get up to 96% of the face amount in cash. The credit risk lies upon the truck factoring company who takes up the risk, depending upon the creditworthiness of the amount receivable.

Selecting a truck factoring company

Choosing the appropriate company which suits the needs of the organization is highly relevant to ensure smooth cash flow. The lowest cost is not the only criteria for selecting a factoring company. If they have a good track record and are specialists in the truck factoring business, they should be given consideration.

Check the track record of the truck factoring company

Check if the factoring company has a proven track record in the industry for the level of service you require. If the company has been in business for long, it would have seen many business cycles which can form a basis for proof of its strength in handling tough situations. You can have these things clarified from the company representatives or get references about them and the financial conditions handled. Most important, ask for references from the company’s existent clients as well.

If the company is a specialist in the truck factoring industry

You need to check if the company specializes in the truck factoring business. This is because in such a case, the truck factoring company is aware of the freight brokers and the shippers. They will have hands-on experience in dealing with such companies. This helps in saving your money that is put on the credit reports.

Does the company have a collection department?

You may check out if the truck factoring company has a collection department. Most of the companies may not have a collection department and the job is mostly done by the accounts representative. Having a separate department for collection is of help as the same person may not be able to do the two jobs perfectly.

Does the company have a credit department?

Similar to a collection department, a credit department that looks into credit related matters should also be useful. A credit team who takes care of the entire credit needs of the customer is better than one which does not have a credit department. The companies may expose you to inappropriate levels of risk by not having a credit department.

Is the company size suited for your trucking business?

There are companies of various sizes, large and small, giving the truck factoring services. A company which is small enough to provide personalized services as well big enough to provide financial stability may be ideal for you. A company which is very small may not be enough to satisfy your financial needs effectively. They may even prove to be insufficient to purchase all the receivables.

Is the company using technology?

A truck factoring company which is updated with the latest technological advancements is useful. A company which allows credit quotes via Internet can help in saving a lot of your time and money. With proper details about the company as well as timely online credit decisions you can speed up and maintain all your cash needs.

Such factors may be given consideration when you are selecting a factoring company. With such details, you will be able to get the maximum possible benefit of the factoring to help you with your cash needs.



Thanks to Kris Koonar for contributing this article to our Factoring blog:

Structured Settlement Funding

This year, small businesses are bracing for a slowdown during 2009. Why? Because smaller businesses are often the hardest hit during a credit crunch. Typically they lack the resources to get credit from suppliers or financial institutions.

According to the National Federation of Independent Business (NFIB) their Index of Small Business Optimism fell 5.4 points to 87.5. This is the third lowest reading in the 35-year history of the survey.

This low score may be in part because of today’s difficult economic times, where it is difficult for a small business to get a loan from a traditional financial institution.

A financial tactic that many companies already know about is called accounts receivable factoring. This can help keep a company’s cash flow going. However it is the business owners who are now using a newer factoring solution called single invoice factoring, or spot factoring, who know it is a more highly effective alternative.

Single invoice factoring is a discounting service that is simpler and superior to standard invoice factoring, receivable financing, receivable funding or assets based lending. Customers can sell credit-worthy invoices to factoring companies that handle spot factoring, and get immediate working capital, enabling them to ship today and get paid tomorrow.

This allows choices of invoices to be factored, which allows the small business to retain most of their money, while spending the minimum fees to guarantee just enough cash.

What has always been know as standard invoice factoring, has been around for more than 4,000 years. Why? Because many businesses do not get paid immediately for delivered products or services. In order to grow, every company needs cash.

Single invoice factoring benefits businesses that do not get paid for 30, 60 or 90 days by advancing up to 90 percent against invoices.

The factoring company will take a look at the creditworthiness of your customers and can fund within as little as 24 hours without expect to buy 100 percent of your company’s receivables. There are typically no minimum or maximum sales volume requirements with single invoice factoring. Each invoice purchase is a separate transaction and does not form part of a portfolio lending approach.

The transaction is modeled as a buy-sell transaction. Once the factoring company has completed its due diligence, which typically takes one to two business days, you are at liberty to offer invoices for purchase. Once the invoices are received, the company will check the credit of the debtor named on the invoice and make sure that the sale represented has been completed. Once this is done your customer will be advised of the purchase and you will receive your funding. At the end of the credit period the debtor pays the invoice factoring company directly, thus completing the transaction.

Single invoice factoring services speeds up cash flow and increases working capital. Many companies are already benefiting from this strategy, which is certain to be a much needed resource during the holidays and into 2009.



Thanks to Kristin Gabriel for contributing this article to our Factoring blog:

Invoice Factoring Company