- How is factoring different than a bank loan?
Factoring is not a lending service. It is a discounted purchase. A factor does not charge interest. A factor simply buys invoices at a discount and collects a fee.
Banks must follow very rigid guidelines established by the FDIC. Factors, on the other hand, are not subject to the same regulations, because factoring is an outright purchase, not a loan.
If a bank is willing to lend against your outstanding invoices, the bank would probably lend only 30-50% of the total value. Factors may advance up to 90% or more of your outstanding invoices.
When evaluating a loan application, banks must consider the amount of assets that your business has, and generally requires a great deal of collateral to secure the loan. When your business enters a factoring arrangement, the factor bases the purchase on the credit of your business's customers, not on the credit of your business itself.
Please take a look at our financing comparison chart for a side-by-side breakdown of additional financing options.
- How much does factoring cost?
There is a price to this financing. Our funding sources charge a discount on the purchase of the invoices. However, we would like to work with you to get the total "cost" of this financing mitigated through the acceleration of cash flow into your business. Some of our other clients have used this acceleration of cash to increase sales, hire new staff or go after new markets. Our underwriters will design a program that will fit your needs.
- How does factoring work?
Contrary to traditional financing, our funding sources are more interested in the financial strength of your customers, as opposed to the financial strength of you and your company. Once you enter into a relationship with the factor, the following steps take place.
- The factor advances a certain percentage of the invoice amount to your business.
- The factor also holds a percentage of the invoice amount on paper as a "reserve."
- The factor assumes the right to receive payment on the invoice.
- Your customers submit payment to the factor.
- The factor rebates your business the reserve amount less their fee.
- What will my customers think?
Your customers are going to love the fact that you are financing your invoices this way. This will allow them to continue to pay you on their terms. In fact, now that you will have an acceleration of cash, we recommend offering your customers extended terms in exchange for more business.
- Who are your funding sources?
We represent hundreds of funding sources with millions of dollars. These funding sources are looking to purchase outstanding invoices at a discount. Our funding sources range from private investors to major banks and asset based lenders.
- How can my company get started with factoring?
Please fill out our pre-qualification form to get started now.
- How long does it take to receive the first funding?
Initial funding usually takes between 3-10 business days after the factor has received your signed agreement. After the initial funding, your company can receive funds within 24-48 hours after invoice verification.
- Do I have to factor all of my invoices?
No. Usually, about 80% of your business comes from 20% of your customers and these are generally the most likely to be factored. However, you decide which invoices you want to factor and which invoices you want to keep as your own. There is no requirement to factor all of your invoices.
- Can I factor my consumer invoices?
No. Even though most consumers are credit-worthy, there is no method currently available for successfully factoring consumer invoices.
- If I factor, can my business still borrow from other sources?
Yes! Factors only take a security interest in your outstanding invoices. All additional assets are available as collateral for other lenders. On the other hand, if a commercial bank provides you with credit, they almost always take a security interest in all of your assets. This limits your ability to borrow from any other source, since you have no collateral to offer another lender.
