I have created this article to give you straight forward content hoping to provide information into some of the things that factors are looking for when qualifying a prospect before entering into a financial relationship with them.

Lets face it, your time is very valuable and you do not need to waste it filling out applications or talking on the phone when you may be able to identify issues in this article that would prohibit you from being able to enter into a factoring relationship.

I also created this article because we want your business; however we want to earn it.

So if you find out that this information is helpful in your process of seeking out a financial solution for your company, we would love the chance to set you up with one of our highly recommended factoring companies. Even if you find out you do not qualify for factoring right now, you may be able to clear up the issues and qualify at a later time. We would love to be your choice then as well to help resolve your working capital issues.

Some of this information will be basic and you may already be familiar with it, however some may not. Just read through the article and I am sure you will find some helpful information.

We want to thank you up front for giving us a chance to serve your company. Lets get started.

Lets take a look at what factoring is:

Factoring is a form of financing where a business sells its creditworthy commercial accounts receivable to a financier known as a factor.

This is a good starting point; you need to be invoicing creditworthy businesses for your product or service. Your product must be delivered and your services rendered (no pre-bills). If they are not creditworthy and you are already having collection problems, a factoring company will not be interested in purchasing those receivables. You may need a collections service.

How much do you invoice each month:

If you are invoicing under $10,000 a month this will limit the number of factoring companies that will enter into a relationship with you. If you are speaking with a factor, let them know up front what your monthly volume is and find out if they are willing to work with companies of your size. This could save you from filling out an application and wasting your time with that particular factor.

How many customers do you invoice:

Factoring companies prefer to fund companies with more than one customer; this helps them lower their risk. If you have just one customer, the factoring will have a concentration issue, meaning if something happens to your customer they do not have any other receivables from other customers to recoup their money. Let the factoring company know this up front as well. Some factors will not work with you if you only have one customer. (If your one customer is large and stable this will help).

Do you have any financing currently in place:

If you have an existing loan or line of credit you need to find out up front if the bank has a UCC-1 against your receivables. The factoring company must have 1st position on your receivables to be able to enter into a financing relationship with your company.

I would suggest if you have a current loan or line of credit to double check and make sure of this.

I have had many businesses tell me that the bank did not have their receivables as collateral and then proceed through the application process and return the contract.

The factoring company would begin due diligence and the lien search would return a current UCC-1 on the receivables. Many times the customer does not realize the bank placed a blanket lien on their company covering all assets, including the accounts receivable.

If this is the case, you still may qualify for factoring. If your loan or line of credit is small enough, the factor may be able to pay off your loan or line of credit out of your 1st advance and the bank has no choice but to subordinate (release) the receivables. If not, they may have enough collateral that they will allow the factoring company to have 1st position on the receivables and allow you to get the needed capital for your company.

So if you have current financing, check on this issue. You may find out the bank will step up to the plate and allow you access to more funds when they realize you are about to leave.

This has happened many times.

Also be aware that our factoring companies can help negotiate a subordination, so discuss this with us if you need more clarification on this topic.

Your aging report:

Your aging report is very important to a factoring company; this is the pulse on your cash flow. An accurate detailed accounts receivable aging report should be aged from invoice date and not due date. Some companies accounting software is set up to age the receivables from due date, this will reflect an inaccurate report to the factoring company.

If you have an unhealthy aging report you will have a hard time qualifying for factoring. Plus the fees you pay to a factor increase as the days outstanding increase.

Make sure you have a cash flow issue and not a collections issue.

Remember, creditworthy customers are the key.

Outstanding taxes, liens, judgments, litigations, felony convictions or bankruptcy:

If you have any of these issues, it does not mean you cant qualify for factoring, you just need to be forthcoming at the beginning and find out if the issues are too complex for the factoring company to work through. This may save you some time.

Are you incorporated:

Some factors will not work with Sole Proprietors, others will, we have some that do. Find out at the beginning of the conversation.

Financial Statements:

Some factors will require financial statements and others will not.

Providing financial is usually where you will find the most aggressive rates available.

If you do not want to deal with providing financial statements, ask up front if they are required. We have programs available that requires no financials.

Personal Credit

Even though your customers are the primary focus, your personal credit is taken into consideration. If your personal credit has taken some severe hits recently, discuss this up front with the factor to find out how much it will be taken into consideration.

This covers some of the basic, I hope it helps!

Thanks for reading.



Thanks to Mark Little for contributing this article to our Factoring blog:

Cash Flow Funding

If you have just started your transport company, then you would probably be wishing for a way, to have ready cash in your hands to pay off your daily and recurring expenses. Well, there is a way for making your freight company grows and it is called ‘Freight Factoring’.

Freight factoring is a financial tool available in the market, wherein you can “sell” your freight credit invoices to a freight factoring company. This factoring company will take the freight invoice off your hands and collect the invoice amount from your customer on the due date. They will pay you the invoice amount in 2 installments. The 1st installment will be wired to your account immediately within 24 to 48 hours and could be around 90% of the Invoice value. The 2nd installment will be wired after your customer makes the payment on the due date minus the factoring company’s ‘factoring fees’. The percentage of the factoring fees is around 1.5 to 5% and will depend on the credit you have given to your customer, the credit worthiness of your customer in the factoring company’s eyes, and the total volume of business you give to your factoring company.

The first advantage you get in factoring is that your cash flow breaks the credit period span and starts flowing immediately, thereby enabling you to pay your fuel bills, your salaries and even help you in expanding your business. You can now take up more hauling business, which would have been difficult earlier, due to finance constraints holding you back. The second advantage is that most freight factoring companies can take care of your payment receivables, i.e. they will collect the payment on the due date from your customer.

This can enable you to be free from the tension of payment recovery and you can divert your staff to another department. Hence, again you save your time and money. The third advantage is that some factoring companies also offer non-recourse factoring i.e. they take complete responsibility of payments from your customers and in case of non-payment, they will not hold you responsible. This will ensure that you sleep well at night, knowing that you will not be running after late or non paying customers.

You could also apply for a loan from your local bank, but that would require you to submit collateral and various documents such as your previous 3 years profit and loss statements and balance sheets. If you are a startup company, then you will not be able to submit the previous 3 years statements and if you were doing really well, then you would not be requiring a loan. Anyway, even if you do get a loan, you would still have to pay interest on it. So, a freight factoring company can get into action within the least number of days and with the least amount of documentation.

So, in short, a freight factoring company is not only a financial tool, but is more like an extension to your company by helping you increase your cash flow and also taking care of your collection side of your business. It also grows along with your business and in future, the more business you give them could result in even less factoring fees to be paid to them. So, it is a win-win situation for you and hence could make your transport company grow along with your freight factoring company.



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

Instant Working Capital

Factoring is defined as a practice where you sell your receivables at a discount before they are due. Earlier, the term factoring was associated with industries such as garments. These days most of the factoring companies are willing to buy receivables from any industry. This has resolved many issues such as reduced time in receiving due amounts from clients.

Invoice factoring companies help you with immediate funds. It especially benefits smaller companies who cannot afford to wait for such a long time. The process of business factoring is quite simple you don’t have to wait for months. The funding transaction takes place within 3 to 5 working days. With less paper work and very little underwriting, business factoring makes owners quite happy and satisfied as they get the funds within few days after completion of few formalities. Thus, factoring companies have become the viable source of providing monetary benefits to many businesses.

Sometimes it so happens that you don’t have substantial cash reserve, few owners try to get bank loans. But sometimes that also doesn’t help. Bank Loans are difficult to get as they need a lot of paper work done and most of the banks ask for a profit return statement of about three years. Usually, new entrepreneurs face this constraint. That’s when they resort to factoring. Factor financing helps you eliminate your long time wait and provides you with ready cash for the invoices within a short period of time.

Now let’s see how business factoring works and helps you in expanding business.

Factoring companies usually buy your accounts receivables or freight bills at a discount and provide you with a lump sum amount. Consequently the company sells the accounts receivables at a lower value to get quick cash and don’t have to wait for 30 to 45 days. Once you deliver the product and get an invoice, factoring company can get you money within 24 hours thus helping you speed up your cash flow. This money can definitely increase your working capital, helps you pay bills and taxes and can avail discounts by making early payments.

Usually a factoring company pays 80 percent of the invoice value immediately and then they issue the remaining amount once your client pays the amount, deducting a small amount as factoring fee. The factoring fee is determined on the basis of credit worthiness of the customer, the invoice number, size and the volume of factoring. The structure of the factoring fees may vary but the rate usually ranges from 3 to 5 % of the invoice value. The financing fees may fluctuate according to the credit worthiness and the performance of individual receivables.

Thus, the emergence of invoice factoring has given the business owners a better option for smooth running of the cash flow in the company without waiting for their clients who usually take 30 to 60 days to release payments.

So go for business factoring today to achieve tremendous growth, help in management of cash flow, and deliver working capital of the business.



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

Asset Based Lending Funds