Accounts Receivable Financing is the purchase of a company's invoices and has been around since the Romans. Accounts receivable financing companies are commercial finance companies that specializes in the purchase of invoices for cash. Fees vary from factoring companies to factoring companies and from client to client. They are determined by a combination of your customer base creditworthiness, average payment cycle, invoice size and factoring volume.
Accounts receivable financing provides over 100 billion dollars to industry each year. In fact, it is an old financial service used by multi-billion dollar corporations that is now available to smaller sized businesses to which banks are reluctant to lend funds. Accounts receivable financing is the best way companies are using to fill the tremendous void that banks have created.
The Factoring Receivables Client profile
You begin by filling out a simple client profile, which we will provide you. Please click here for company profile. This profile will cover basics such as your company's name and address, the nature of your business receivables, and information about your customers.
You may need to supply the factoring companies with an accounts receivable aging report, existing customers' credit limits, or other related documents. Remember the factoring company will attempt to determine the creditworthiness of your customers independent of their credit history with your company. Factoring companies want the broader view of their overall credit status.
During this initial stage you will also cover basic financial arrangements with the factoring company. For instance, what will be the monthly volume of accounts receivable you want fito 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 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 accounts receivable 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 accounts receivables factoring fees than a short list of government agencies with a slow-pay history.
In the factoring business, volume is all important. The higher your volume(the dollar amount of invoices you factor), the more favorable your factoring receivables financing rates will be.
The factoring company will use the client profile you submit to determine if your company is suitable for financing. This process is simply the factoring company analyzing the risks versus the rewards, using the information you provided.
Once approved by the factoring company, 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 in accounts receivable, you can't expect as good a deal as a company that wants to factor $500,000 in accounts receivable.
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 company, the funding wheels begin to roll. The factoring company conducts due diligence by researching your customers' credit and any liens placed against your company. The factoring company also confirms the legitimacy of your invoice before buying your receivables and advancing cash to you
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