Factoring Basics Questions
What is invoice factoring?
- When a company needs to optimize money flow, it can sell its outstanding invoices at a small discount to a factoring company. The factoring company then collects the debt.
What are the benefits of factoring?
- Large companies increasingly stretch invoice payment from 30 days to 90 days or longer. This puts small operations in a bind because their employee salaries, vendor payments, and taxes are due whether the customer pays or not.
- The solution for many companies is factoring. Sell your accounts receivable at a discount and get paid immediately. You get the money you need to meet current operating costs without incurring debt.
Better money flow is great. Are there other benefits when we factor our accounts receivable?
- Factoring takes the billing and collecting off your shoulders. Many of our clients find it relieves stress. It can also improve relationships with customers by taking payment matters out of your interactions. Factoring can allow you to pay vendors more quickly and take advantage of their discount offers, saving you money.
How is factoring different from accounts receivable financing?
- It isn’t. Invoice factoring goes by several names – accounts receivable financing, AR factoring and invoice financing. No matter what you call it, the process is the same: you sell your invoices at a small discount to a factoring company and get immediate money for your business.
Is factoring different from a bank loan?
Yes, very different. Factoring is immediate payment for invoices with a small percentage retained by the factoring company. The money is already yours. It just hasn’t been received from your customers.
- It’s faster. Loan processing can take weeks or longer. You might as well wait for the customer to pay you.
- It’s easier. You decide which invoices to factor and when.
- It’s more flexible. You aren’t locked into a long repayment period. Just factor invoices when you need extra money.
- You have more control. The money you receive for invoices is unrestricted, you can use it however you want. Many business bank loans require the money to be used for specific purposes.
Factoring Costs Questions
How much does invoice factoring cost?
It depends on the type of factoring you select:
- With non-recourse factoring, Whitmore Financial assumes all the risk of collecting the debt. That’s a lower risk option for small companies that can’t absorb the cost of unpaid invoices, but it does cost slightly more than recourse factoring.
- Larger companies often use lower-cost recourse factoring. If the customer doesn’t pay the debt, then the seller is liable to repay the factoring company.
Is there a flat percentage that everyone pays?
- The fee is based on a variety of considerations in the application process. We take into consideration the credit risk associated with your customers, the time it takes them to pay their invoices, and the monthly funding volume we forecast for your business. Pricing options range from “flat” fees, to rates which vary with monthly factoring volume, to rates which combine lower factoring fees with charges based on the net funds employed. We have options for almost all client requirements.
Are invoice factoring fees deductible?
- Yes, they’re deductible as a business expense.
What information do you need to process our application?
- With your application, please send us your company’s current aging report, articles of incorporation or other organizational documents, and an example of your invoices.
How long does it take to get money?
- Typically, we process your application within 24 hours, but we respond to you immediately. Once we process your application and verify the invoices, you can choose how you want to receive your money.
My business is a start-up and the bank turned me down for a loan. Do I qualify for factoring?
- We’re here to help your business grow. We are more interested in your customers’ creditworthiness than your time in business. If they have a good record for paying you, that will work to your advantage in the approval process.
What if someone already has rights to my accounts receivable?
- In order for us to factor your invoices, we need to have ownership rights. An arrangement can usually be worked out that will enable us to do our work.
What if we owe taxes, can we still get approved?
- Approval can usually be worked out depending on your arrangement with the government agency. It will be a case-by-case decision. We will do our best.
Do I have to finance all my invoices?
- You have total control over which invoices you want to factor and when. However, once you decide to factor one of your accounts, we generally require you to factor all the invoices for that customer in order to reduce payment confusion.
Customer Relationship Questions
Will I lose credibility with customers if I sell their invoices?
- Not at all! Invoice factoring is a recognized, established method for a company to optimize money flow. Banks have tightened credit policies for small businesses and start-ups, so many use factoring instead. When a factoring company is willing to finance your invoices that means you’re a solid company and a good risk.
Will Whitmore Financial deal professionally with my customers during collection?
- Our team is professional and courteous at all times, because Whitmore Financial is a factoring company, not a debt collection agency. We’re your partner and would never do anything to harm your relationship with your customers.
My customers are used to dealing with me. Will that change?
- Your relationships with your customers stay the same. All we do is take care of the invoicing and collecting of payments. Whitmore Financial has over a decade of experience, and dedicated teams that work closely with you and your people.
How do I tell my customers that they’ll be sending payments to another company?
- We have a simple form referred to as a notice of assignment. It can be a very smooth transition for you and your customer.
How will customers know where to send payment?
- Each invoice is stamped or notated with payment instructions.
How do I know the status of my factored invoices?
- Our online account management provides a full array of client reporting and real-time information. We can also accommodate any special reporting requirements. Our goal is to keep you totally informed on the status of your customers and accounts.