How Factoring
Invoice Works
You begin by filling
out a simple client profile, which we will provide you. This profile
will cover basics such as your company's name and
address, the nature of
your business, and information
about your customers.
You may need to
supply an accounts receivable aging report, existing customers' credit limits,
or other related documents.
Remember the invoice factoring company will attempt to determine the
creditworthiness
of your customers independent of their credit history with your
business. We want a broader view of their
overall credit
status.
During this initial stage you will also cover basic financial
arrangements with the factoring invoice company.
For instance, what will be the monthly volume of
invoices you want to factor(i.e. how liquid do you need to be)?
What will the
advance rate and the discount rate be? How quickly will the factoring invoice company issue the
advance to you?
In most cases, the answers to these questions will vary
depending on the financial
strength of your customer(s) and the anticipated
monthly sales volume to be factored.
Variations between industries, length of
time in operation, and general reputation
of how risky a customer of yours may
be. For instance, a long list of high-risk clients will cost
you more in
invoice factoring fees than a short list of government agencies with a slow-pay
history.
In the factoring invoice business, volume is all important.
The higher
your volume(the dollar amount of invoices you factor), the more favorable your
rates will be.
The factoring invoice company will use the client profile you submit to
determine if your
business is suitable for invoice factoring. This
process is simply the
factoring invoice company analyzing the risks versus the rewards, using the information you
provided.
Once approved, you can expect to negotiate terms and
conditions. The negotiation process
takes several aspects of the deal into
consideration. For instance, if you want to factor $10,000,
you can't expect as
good a deal as a company that wants to factor $500,000.
During the
negotiation process, you will become well aware of what it costs to factor your
accounts receivable.
After you reach an agreement with the factoring invoice company, the funding
wheels begin to roll.
The invoice factor ing company conducts due diligence by researching your
customers' credit and any liens placed against your company.
The invoice factoring also
confirms the legitimacy of your invoice before buying your receivables and
advancing cash to you