How To Factor

You’re ready to learn how to factor. You've decided to take advantage of the many benefits provided by receivables factoring and now you want to know what's involved. You'll be happy to know it is a relatively simple and straightforward process, particularly when compared to bank loans.

How To Factor
The receivables factoring application and approval process often takes less than a week. After your first funding, future advances can be in your company’s bank account in a matter of hours.

How To Factor: Step-By-Step

  • Complete The Commercial Finance Company Profile – The company profile gives factoring companies a snapshot of your company, its business, and how you operate. The company profile should be returned with an accounts receivable aging report that shows each customer with an open invoice and the current amount owing.

The key to a fast approval process is a complete and accurate Commercial Finance Company Profile.

  • Review and Execute Your Terms & Conditions Letter – After a basic review and telephone discussion, the factor will most often issue a Terms & Conditions Letter by fax or e-mail, which will outline the proposed factoring arrangement, address issues of fees and procedure, and establish an initial advance rate. If acceptable, execute and return the Terms & Conditions Letter by fax or e-mail.
  • Review and execute the Account Receivable Factoring Agreement and any other required documents – Once you have returned your Terms & Conditions Letter, most factoring companies will prepare an Account Receivable Factoring Agreement and any other necessary documents which will be sent by e-mail or overnight courier for execution.
  • Time Saving Tip

    Understanding how to factor is easy; finding the right factoring company can be a little more of a challenge.

    A business financing specialist will be able to quickly pinpoint the factoring companies that can work with companies like yours.

  • Provide a list of customers for receivables factoring – You will be asked for an initial list of customers to set up for factoring invoices. Factoring companies conduct due diligence by researching your customers’ credit. Prior to purchasing the first invoices, your customers will be notified of your new credit facility and directed to send future invoice payments to the factoring company’s lockbox address. At this stage, all factoring companies perform a UCC Search and file a collateral lien on your accounts receivable. Finally, before advancing funds, factoring companies will confirm the legitimacy of each of the invoices directly with your customers.

Unlike banks which require an abundance of collateral and personal guarantees for even a small revolving line of credit, factoring companies generally require only a first priority lien on the accounts receivable of a business. This means that other collateral such as real estate, inventory, equipment, etc, are free to be used for other financing.

Knowing how to factor and which factoring companies to call does not mean receivables factoring is the best option for your business. In some situations, your business financing specialist may advise you to explore some creative alternatives, such as credit card factoring and equipment financing, or more traditional busiess financing methods, such as bank loans or government financing.

But if you have collectable and creditworthy invoices to sell, your company is probably a good candidate for receivables factoring. Factoring account receivables can be used by companies at every stage of development – even those working through a bankruptcy – in almost every kind of industry. As soon as you've received your first advance, you'll understand why its flexibility and unique problem-solving capabilities make receivables factoring one of the most potent and versatile business financing power tools available from the cash flow industry.

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