Businesses monitor the cash flow demands on a regular basis. Nowadays, they use the invoice factoring, especially when they don’t want to get loans from banks. If you own a business and you want to submit a factoring application, consider the 5 tips given below before you go ahead and submit your application.
1. The Factoring Application
First of all, you need to get in touch with the factoring company so that they get to know more about your business. You can also talk to the company on the phone. The information you will provide is given below:
· The name of your company
· Business type
· Information about your valued customers
· Your contact information
The acceptance of your application depends largely upon the type of your business and customers. Most factoring companies prefer invoices owed by trusted businesses. Individual consumers are not that important in their eyes.
2. Aging Reports
In the aging report, details for the initial application are included. The report mentions the amount that the customers owe and the time they will take to make payment. Usually, customers that make payment within 30 days are considered better than those who take more time.
3. The Process of Factoring
The buying of accounts receivable at a good ratio of discount is called factoring. The factoring provider offers an upfront payment on invoices that are approved. The factor takes care of the collection process and then releases the balance as soon as the invoice is paid by the customer. The fee is deducted by the factor before the balance is released.
4. The Cost of Factoring
So, how much will the factoring cost? This is a common question. The cost depends upon the industry, customer strength and the time it takes for the payment to be received.
The pricing is also affected by the value of invoices. The rates will be better if the volume is higher.
5. The Underwriting Process
The factor is interested in your customers’ strength because they are going to buy the account receivable instead of putting together a plan. Moreover, the factor will conduct an evaluation of the creditworthiness of each customer.
Aside from this, the factor will look at the public records of the company to verify the titles. This search involves liens, judgments, corporate status, pending litigation, UCC, criminal records, back taxes and so on. It also includes other items that may affect the process of receiving payments.
On average, the process of due diligence may take 5 to 10 days on fresh accounts. As soon as the starting review process is finished, the approved customers can receive cash within 24 hours. So, the process is not as complicated as most people think and the cash can be received easily.
Factoring offers cash flow solutions for old and new businesses. And they can offer funds for expansion, growth, and expenses.
So, this was a brief introduction to the process of factoring. Hopefully, you can take the right steps now.