Factoring Accounts Receivables in 2010

Factoring was first documented in the American colonies before the revolution, at a time when materials and/or goods were shipped from the colonies to the Americas. Invoice factoring is not a loan but it's the purchase of financial assets, also known as receivables. It differs from traditional bank loans as follows. Bank loans involve two parties, and factoring involves three parties.

Factoring Accounts Receivables in 2010

Many businesses have stayed in business today thanks to working capital garnered from invoice factoring for small business. Tight credit at mainstream banks has made it otherwise challenging.

First documented in the American colonies before the revolution, factoring started at a time when materials and/or goods were shipped from the colonies to the Americas. Invoice factoring is not a loan but it's the purchase of financial assets, also known as receivables. Factoring invoices differs from traditional bank loans as follows. Factoring involves three parties, while bank loans involve two parties.

Factoring is based on the value of the receivables. Banks base their decisions on a company's credit worthiness. Accounts receivables factoring benefits businesses that do not get paid for 30 to 60 or 90 days by advancing up to 90 percent against invoices. The factor generally looks at the creditworthiness of the client's customers and can fund within as little as 24 hours. Most companies do not expect to buy 100 percent of a company's receivables.

Factoring accounts receivables became more focused on the issue of credit, as factors guaranteed payment for approved customers, during the Industrial Revolution. Invoice factoring became more focused on the issue of credit during the Industrial revolution.

It was before 1930 in the United States when factoring occurred and it was primarily for the textile and garment industries, and then after the war years, factoring expanded to other types of businesses. When interest rates rose during the 1960's and 70's, private reasons became intensified and the 80's due to changes in the banking industry and interest rates. Typically small businesses have been forced to find other sources of financing for expansion and growth so factoring became more widespread.

it is easier to keep your cash flow flowing by factoring accounts receivables. That way you'll have the edge over the other guy, so you can order more supplies to build more products, keep your employees and sales staff on, and pay all your bills.

Invoice factoring is actually the purchase of financial assets, or receivables, from a factoring company. Using this financial tactic keeps your cash flow going, so small businesses can pay their bills, keep employees or staff, keep an edge over competition, order more supplies, build more products, and in turn sell more, and make more.

Factoring invoices doesn't work like traditional bank loans involving two parties, as factoring involves three parties. Banks usually base their decisions on a company's credit while factoring invoices is about the value of the accounts receivables for a company. There are no minimums or maximums, and no long-term commitments.

The Interface Financial Group, Inc. (IFG) has found that single invoice factoring is a popular new tactic allowing its clients to factor one invoice at a time. Projections ahead for the year 2010 include the fact that businesses will be factoring accounts receivables - less for survival and more for stability and growth.

Kristin Gabriel is a writer who works with The Interface Financial Group (IFG), North America's largest alternative funding source for small business. The company provides short-term financial resources including invoice factoring, serving clients in more than 30 industries in the United States, Canada, Australia and New Zealand. IFG offers expertise in factoring, accounting, finance, law, marketing and banking. Visit: http://www.ifgnetwork.com

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The Basics of Accounts Receivable Factoring

Invoice factoring is a useful tool in acquiring much-needed working capital for businesses of any size. Even though factoring volume continues to grow each year, many business owners and financial executives aren't aware of this form of financing. This article explains some of the major components of accounts receivable factoring.




The Basics of Accounts Receivable Factoring

Invoice factoring is a useful tool in acquiring much-needed working capital for businesses of any size. Even though factoring volume continues to grow each year, many business owners and financial executives aren't aware of this form of financing. This article explains some of the major components of accounts receivable factoring.

Factoring is the sale of a company's business to business accounts receivable at a discount for immediate cash. Note that the services rendered or products sold must be to creditworthy business customers,not to individuals.

Important accounts receivable factoring terms:

Advance rate: The amount of cash the factoring company gives the client, expressed as a percentage of the invoice totals. Advance rates are typically between 70% and 85%, depending on several factors such as the overall credit standing of the customers and the type of industry the client is in.

Factor: The factor is the funding source for factoring transactions. Most of these companies are only involved with factoring and similar services such as purchase order funding.

Reserve: This represents the total amount of the invoices factored less the amount advanced by the factoring company. The reserve is remitted back to the client upon collection of the invoices less the factoring fee.

Letter of Intent: After the factoring company has received the application and other documents from the proposed customer and it appears that they can work with this client, a letter of intent is issued. The LOI specifies the proposed terms of the relationship, subject to due diligence.

UCC filing: The only collateral for a factoring relationship is the business receivables, so the factoring company files what is called a blanket UCC filing to protect its interests. When they make a UCC filing, they have a lien against the company's receivables in the event of bankruptcy.

Factoring fee: This is the cost to the client for the service and is usually expressed as a percentage of the receivables factored per 30 days. The fee can be anywhere from 2% to 4.5%, depending on the perceived risk of the account.

Due diligence: When a company applies for factoring, the funding source performs an investigation to:
(1) determine if there are liens on the receivables in question,
(2) validate the information contained in the application, and
(3) check the credit of the client's customers.

Subordination agreement: As stated above, the factor must have a "first position" on the receivables. In other words, they have the right to receive proceeds from the receivables in the event of default as a result of a blanket lien on the A/R. When another entity already has a lien on the receivables, the factor will require the bank, taxing authority or individual to release the encumbrance. The legal document that accomplishes the lien release is called a subordination agreement

Debtor notification: At the inception of the factoring relationship, the factor sends a letter to each business customer of the client. The letter explains that the company has entered into an agreement to manage the company's accounts receivables and that future payments are to be made to a new address. The debtor sends payments to a lock box that is controlled by the factoring company.

Spot factoring: Most factoring contracts require a minimum amount of factoring volume per month from the client. But there are other niche factors that allow the client to factor invoices only when needed. This type of funding is called spot factoring.

These terms are important to understand before entering into an agreement with a factoring company. The contract, which is usually for one year in length, should be studied thoroughly before signing on the dotted line.

Kent Harlan has been a CPA since 1984 and is the owner of Ozarks Capital Funding, a company offering alternative financial solutions for business and healthcare providers. We can give you a free, no-obligation invoice factoring quote. Just fill out our online application to get started.

Contact information: - EMAIL: kent.harlan@ocflink.com
- PHONE: (800) 560-4420
- WEB: http://www.ocflink.com

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Factoring In Account Receivables and Collections

The ventures accounts payable processing begins with the receipt of a customers purchase order authorization after they have received goods/services.




Factoring In Account Receivables and Collections

The account receivables factoring policy need not be rigid. You can make exceptions, for whatever reason. But, it is easier and better business when you have a policy to make exceptions from than when you are just making it up as you goes along.

Thus far, I have been writing about the written policy that you discuss with your customers ahead of time. There is another written policy which customers do not see. This one addresses those customers who are not willing to do business with you the way the basic policy states. This second policy lets your employees know how much they can deviate from the ideal policy.

In many businesses, it is essential that customers sign the policy, in addition to discussing it with them. Signing is required wherever there is a history of misinterpreting the policy or a history of nonpayment. Other than these situations, it isn't enough that you have a written policy. You explain it prior to doing business, and, wherever feasible. The customer also gets a copy of it. Another issue is the result of the new policy for paying your regular customers, compared with the new. New customers may or may not agree with your new policy for payment, but they have no basis for comparing it with your previous policy. But many of your current customers, some of whom have been paying you in accordance with their policy, will be deeply unhappy with the change.

If you think about it, this situation is about treating other people the way you would want to be treated. You'd want to know, in advance, what the rules of the game are and where your money is involved. You wouldn't want to be surprised. You wouldn't want one side to assume one conclusion if the other party could reasonably assume the opposite. That's why everything that can be spelled out must be. You certainly don't want to preside over a business where the payment policy depends on who you talk to, which is the case in far too many businesses today.

Collection Decisions

You begin with a decision about how long you will work on unpaid accounts and a policy for what to do during that time. I suggest that you make a decision to work on most accounts no longer than four months. Exceptions need management approval.

At the four-month point, uncollected accounts will either be written-off, sued in Small Claims, Municipal or Superior court, handled by an attorney, turned over to a collection agency or have a pre-collection letter series used on them. The discipline needed to bite the bullet at an early stage of delinquency is precisely what it takes to give an incentive to handle accounts systematically during the first four months. During that time, the key collection tool is the telephone. It is 10 times more productive than the most brilliantly written dunning message, because the phone provides feedback - it is a two-way communication.

The first phone call should occur no later than 10 days after sending the second statement. If the first statement has been ignored, there's no benefit to you in waiting another month to take action. You want to know where matters stand, and the sooner the better. Incidentally, there is no reason you must have a 30-day interval between statements, although that tradition has carried over from pre-computer days. Businesses and industries that have a high level of delinquent accounts often bill twice a month, which is far more effective than once a month.

For the latest tips on processing accounts receivable and collections, see: http://www.accountreceivables.org Account Receivables

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Things One Has to Look For Before Choosing an Account Receivable Factoring Firm

Main things one has to look for before choosing an account receivable factoring firm. There are many fake firms available in the market and hence before choosing an account receivable factoring firm everyone has to look for certain things and should ask certain questions to know about the firm.




Things One Has to Look For Before Choosing an Account Receivable Factoring Firm

An account receivable factoring firm provides great service to companies by reducing their tension in the cash flow. But at the same time there are many fake firms available in the market and hence before choosing an account receivable factoring firm everyone has to look for certain things and should ask certain questions to know about the firm. There are five things which everyone has to consider before getting into an account receivable factoring firm.

First one is that the firm you are choosing has to be familiar with your industry because then only it is easier for them and also for you to deal with them. Else it is merely waste of time as you have to explain all the conditions, payment methods and procedures of your company to them. Next thing one has to look for is the flexibility level they offer to their clients and they should answer all the questions in a proper manner. The questions which the business owner should ask are,

· Is there any need of personal guarantee for any unpaid invoices?
· Is the relationship valid for limited period of time?
· Should I sell all of my invoices?

Like this many questions they should ask to the representatives of the firm. The third one is the customer service a best account receiving firm is the one which provides great customer service. Because, if they didn't provide good customer service then their firm lacks quality and also check who are providing services. The fourth thing one should look is the stability of the firm because only if they are stable then you could get uninterrupted flow of cash to continue your business.

In case if they are not stable the tension increases and you cannot survive in your business. Hence before choosing a company is careful to check if they are affiliated with the International Factoring Association (IFA). Finally you have to check with the pricing of the factoring firm depending on the invoices. If all these are good then choose the same firm for account receiving factoring else look for any other firm which satisfy all the needs.

Account receivable factoring firm provides great service to companies by reducing their tension in the cash flow. Check our website at http://www.interstatecapital.com.

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Accounts Receivable Factoring - What Is It All About?

Many companies look to stay competitive in the world of today's business, many do so by unleashing the graces of cash flow. Accounts Receivable Factoring helps you do that. Factoring increases the cash flow by transferring the responsibility for the collection of your customer's debt and turning it into funds available for immediate use.




Accounts Receivable Factoring - What Is It All About?

Many companies look to stay competitive in the world of today's business, many do so by unleashing the graces of cash flow. Accounts Receivable Factoring helps you do that. Factoring increases the cash flow by transferring the responsibility for the collection of your customer's debt and turning it into funds available for immediate use. The company will lend you money on your discounted accounts receivable and they will keep a percentage after they are collected.

Accounts Receivable Factoring is attractive for a series of reasons. The most popular benefit is the increment in working capital. You do not have just anyone looking after your accounts receivable, but you have professionals doing it. Their expertise guarantees that you collect your money faster that you would using your own resources.

If you are a small entrepreneur, you would be highly attracted to Accounts Receivable Factoring. It will enable you to have a greater liquidity to face go about the daily activities of your company. What once was in the hands of your customers, now turns into funds that you can use to pay your bills, your employees and use for investments. Someone that you keep your money and pay for performance is not an option profits.

When considering the benefits of Accounts Receivable Factoring, we suggest you study in detail what Factoring companies have to offer to you, what they ask in exchange and if it is an appealing path for your company to follow. Many companies have enjoyed the benefits of AR Factoring and yours could too.

Factoring is an investment that has a cost. The price tag on factoring services obeys to a series of considerations done by the company. Your business is appealing to them when the benefits are higher than the risks they are taking and the costs it implies. They generally charge you from 65% to 90% of the total amount of your accounts receivables. Any given amount is always the result of conversations with the Factor and agreed upon the basis of the interests of both parties.

When looking at your proposal, the factoring companies will look at the following information:

Financial stability of your clients. The factoring company takes higher risks when the ability of your customers to pay their credit is limited. In short, customers with bad credit require more investment from the Factoring Company to collect.

The dollar amount being factored plays a large roll in the fee for the service.

If your commitment with them is long or not. The longer the better. The factoring company will see positively the fact that you stay with them for longer rather than shorter time and therefore they reward you with attractive interest rates.

Make sure you study the pros and cons of factoring for your company, and when you decide to enjoy the benefits of Accounts Receivable Factoring do not forget to read the small print.

Wade Henderson - Very Professional - 15 yrs in the Business
Finance Field - Gets the deal done. IMMFinancial.com
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Achieving Cash Flow Management Through Accounts Receivable Factoring

Accounts receivable factoring is another mode of receivables management and working capital funding to eventually increase the cash flow. Accounts receivable factoring involves buying and selling of accounts receivables in order to obtain immediate cash or working capital.




Achieving Cash Flow Management Through Accounts Receivable Factoring

Accounts receivable factoring is another mode of receivables management and working capital funding to eventually increase the cash flow. Accounts receivable factoring involves buying and selling of accounts receivables in order to obtain immediate cash or working capital.

Accounts receivable factoring helps in acquiring cash for the product or the services rendered. It results in immediate cash inflow without creating any debt or transferring the business ownership. Accounts receivables are the most values assets for any company. It is one of the mode for increasing sales and expanding business. The payment is done of the 80% of the invoice value. The 20% of the value is kept as reserved and is paid after deducting the fee once the amount on the invoice is due.

This practice if accounts receivable factoring is most suitable for small and medium business owners. Due to accounts receivable factoring small and medium business owners are able to generate cash and avoid the debt trap. It also helps in representing string financial status and avoids interest on any loans if otherwise taken.

Accounts receivable factoring also results in increased working capital as receivables are conditional on customer's creditworthiness and not the business owners. It helps to avoid loan repayment, transferring business equity, engaging the assets, and also avoid yearly loan review process. For a small business owner accounts receivable factoring represents gaining working capital without overtaking any debt or loan. It is also a mode to increase sales without any repayment tensions for any loans etc. Thus business is able to meet demands and the circle keeps on auto-rotating as accounts receivable factoring increases sales and increased sales asks for more money to complete more orders.

Accounts receivable factoring also provides relief from non-paying clients or slow paying clients. It generates more sales due to increased orders. It also offers flexible funding program to help heighten the sales graph and take vendor discounts due to availability of cash.

This practice of accounts receivable factoring generates cash to fund the payrolls and taxes due. The funds thus generated also help to increase the inventory or buy new equipments, tools, etc to flourish the business.

The availability of cash helps small business owners to negotiate for discounts from their vendors and suppliers. Keep it short book, Czech depositing, monitor collection process, and helps to prepare a report for recovery. Brokers or agencies also provide their services for accounts receivable factoring. They help the business owners to manage their collections, payments, generating more cash and managing their cash inflow process.

Henry Byers, Business Factoring advisor - focusing on Factoring Services and Accounts Receivable Factoring [http://www.factoring-and-invoice-discounting.info]

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How Factoring Companies Deal With Existing Liens on Accounts Receivable

When a business owner wishes to engage in an invoice factoring relationship, the factoring company performs due diligence to insure that the potential client is a good fit. One facet of this process is a lien search, which gives the factor adequate assurances that they will have clear title to the client's receivables. This is critical, as the factoring company will be advancing sizable funds to the client.




How Factoring Companies Deal With Existing Liens on Accounts Receivable

When a business owner wishes to engage in an invoice factoring relationship, the factoring company performs due diligence to insure that the potential client is a good fit. One facet of this process is a lien search, which gives the factor adequate assurances that they will have clear title to the client's receivables. This is critical, as the factoring company will be advancing sizable funds to the client.

The reason that a clear title to all of receivables is important is illustrated by the following example: Suppose that the factor has increased by 80% of the nominal value of bills totaling $ 100,000. The client's customers typically pay within 45 days and payments are made to the factor's lockbox. Between the time the funds are advanced and payments are made by the customers, the factoring client has defaulted on a term loan with a local bank. Among the assets pledged to secure the loan is the company's receivables. In other words, the bank, at the time the loan was granted, made a UCC filing on all the assets used for collateral. This would typically include the receivables, so they have a secured interest in this asset. When the company defaulted on the loan, the bank took control of the assets, which included payments on all the receivables on the books. Had the factoring company not done a lien search that exposed the UCC filed by the bank, they would be greatly exposed and lost the $80,000 advanced to the client.

Another example of a lien filed against receivables is when the company has neglected to pay federal payroll taxes withheld from employee's paychecks and their share of FICA and Medicare taxes. After several notices have been mailed to the company, the IRS will eventually "play hardball" and file a lien against the company's assets. Needless to say, the same type of exposure would exist for the factor.

How invoice factoring companies deal with an existing lien on receivables:

The above scenarios occur all the time, so it's important to those considering the use of accounts receivable factoring to understand that there are ways of dealing with the situation. In the case of a lien filed by the bank, the factor will often analyze the proportionate amount of the receivables to the total collateral base so they can get an idea of what the bank might accept as payment to release the lien on that particular asset. Some banks are stubborn and won't do a partial release, but those that realize that invoice factoring will help the client increase their working capital base will be willing to work out a deal. They will often agree to accept a percentage of the initial advances until the agreed-upon paydown of the loan is made. That lessens their exposure and allows their client to take utilize the advantages that invoice factoring has to offer. In addition, the company has less of a debt load to contend with.

In the case of a lien filed by the IRS for non-payment of payroll taxes, a similar agreement is made. Typically, a subordination agreement. With this legal document, the IRS agrees to allow the funding source to have a senior position on the lien so they will be willing to continue the factoring relationship. In return, the agreement states that a certain amount of the advances will be made to pay off the delinquent payroll taxes.

Whether the lien on receivables is held by a bank, private investor, or the IRS, the lien holder should be flexible and open-minded in working with clients who wish to factor invoices.

Kent Harlan has been a CPA since 1984 and has provided consulting, accounting and financial services to several industries. He is the owner of Ozarks Capital Funding, LLC, a Springfield, MO based company offering financing for business and healthcare providers.

Get a free, no-obligation factoring quote by filling out our online application.

Contact information:
EMAIL: kenth@ocflink.com
PHONE: (417) 849-7394
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