Simply put, factoring is the sale of your business’ accounts receivable at a discount, providing your business with immediate access to cash without acquiring additional debts and without having to wait weeks or months for your customers to pay their invoices. Factoring provides a regular and predictable cash flow by closing the money gap between invoicing and payment.
Factoring helps companies that are short on cash to cover their monthly payables and/or meet other obligations on time.
It is also an attractive financing tool for new or rapidly growing businesses that cannot qualify for traditional bank loans or for those whose cost of sales outpace their available working capital or for those that have already exhausted their existing credit limit.
Generally, Factoring users are company owners who want to improve their business cash flow and accelerate their business growth by shortening the receivable cycle.
Bank loan applicants qualify based on the value of their current assets/collateral and past business and credit history.
Factoring applicants qualify based on the quality of their Accounts Receivable and the creditworthiness of their customers.
Bank loans create debts and fixed costs (as principal and interest must be paid back in regular intervals, typically each month). Factoring is simply a sale of one of your assets (accounts receivable) at a discounted price and therefore does not create debts and does not involve payback of principal and interest. With factoring, you turn the fixed costs of a loan into variable costs instead (i.e., you only create costs when you factor your invoices).
With bank loans, you need to re-apply when you need more money – and you may not qualify for a higher credit limit. With factoring, you will never need to re-apply. The facility size grows automatically with your sales. The more you sell, the more you bill – and the more you bill, the more cash becomes available to you.
Bank loan applicants may wait 60 – 180 days for the closing date of the loan. With Factoring, you can be up and running within a week.
If your business generates invoices and delivers a verifiable product or service to another business or government agency, you can qualify.
Yes. That’s the unique beauty of Factoring! Contrary to other forms of business financing, you don’t need an outstanding credit score and history to qualify for factoring your invoices. Your qualification depends primarily on your customers’ creditworthiness and their ability to pay, not yours. And as part of our service, we do the research to assess your customers’ creditworthiness for you.
Can my business qualify for Factoring despite my current credit line, loan, tax debts, or previous bankruptcy?
Yes. Multiple Funding Solutions will work with you and your current creditors (i.e., IRS, other banks, investors, etc.) to put an agreement in place so your invoices can be factored. And a previous bankruptcy is no show stopper either.
Once we receive your complete application, you can be approved within 24 – 48 hours. The entire process from application to first funding can be accomplished within 5 – 7 business days. Our all-time record is 2 days!
As soon as your product or service has been delivered to and accepted by your customer, your invoice can be factored – and you receive funds right away.
It depends. Some factoring companies will require that you commit to a minimum factoring value per month, quarter, or year. And they will charge you based on this minimum, even if you don’t have that many receivables to sell. Unlike those factoring programs, Multiple Funding Solutions' programs are tailored to your specific needs. Their flexibility protects you, as you are never required to meet or exceed any minimum factoring value.
It depends. Some factoring companies will indeed require that you factor all your invoices to all of your customers.
With Multiple Funding Solutions, you can factor all or only some of your customers and all or only some of the invoices. You decide! Our programs are specifically designed to allow you to use Factoring exactly as you see fit. You may even decide to factor only a portion of any particular invoice!
You can also choose to factor all or only some of your invoices one month, and none the next. You can always stop factoring and then continue as needed.
Many factoring companies will indeed require a one- two- or even three-year contract. And financial penalties for premature termination can range from severe to catastrophic – even when you don’t like the service (and would like to move to another factoring company) or don’t even need/want factoring anymore at all.
Contrary to that, factoring with Multiple Funding Solutions is much safer. You are not required to enter into any termed contract. We prefer to earn your business every day, week, and month. Therefore, you can stop factoring with us at any time you see fit – without any repercussions and penalties.
Yes. Aside from access to immediate cash, Factoring is comprehensive accounts receivable and cash management tool. In addition to freeing up money that would otherwise be tied to your receivables, it can reduce your internal cost for maintaining accounts receivable, such as billing, bookkeeping, collections, and credit verifications of your current and future customers. Factoring will also add or introduce another quality control measure to your sales process. In essence, outsourcing your accounts receivable management to a factoring company allows you to spend less time and money on “admin” functions, and more on productive activities like sales and customer service.
Some factoring companies will indeed want to be heavily involved in dealing with your customers at the various stages of the factoring process and may or may not pay much attention to your existing relationships.
Not so with Multiple Funding Solutions. If you factor with Multiple Funding Solutions, you will continue to work with your customers the same way as you always have. Our processes are designed to be extremely customer friendly and “white glove” only. We understand that your customers are assets to your business – and we treat them as such. In essence, you will decide how much involvement and help you would like from us concerning the management of your receivables. We can be as hands-on or hands-off as you see fit. It’s your call.
Factoring will allow you to extend better and more flexible payment terms to your customers and thus make it easier and more desirable for them to buy from you without adversely affecting your business and cash flow.
Your image? What would you think of your vendors if they suddenly had access to a credit line and were now willing and able to grant you (better) payment terms? Would they not become more of a “preferred vendor” to you? Think about it! Being able to secure any kind of business financing nowadays and being able to extend better payment terms is a sign of strength, not of weakness.
By the way, if your customers require payment terms and are “slow-payors”, there is a good chance that your customers are already working with other suppliers who use factoring, too. So, Factoring might not even be new or unusual for them at all.
Similar to a 2%-Net-10 discount that you may grant your customers for early payment, Factoring fees (i.e., the “discount” at which you sell your receivables) are typically calculated as a small percentage of the sales value of the invoices that you submit for factoring. This percentage will usually depend on a variety of variables: the credit quality of your customers, the length of time your invoices remain open, the total sales value you factor, and the range of services that you are purchasing from the factor.
In general, factoring is more expensive than bank financing. The Entrepreneur Magazine Guide to Raising Money said this: “if you take into account the costs associated with maintaining accounts receivable, such as bookkeeping, collections, and credit verifications, and compare those expenses against the discount rate you’ll have to apply when selling them, sometimes it even pays to utilize this financing method.”
A word of caution: Across the board, there is relatively little variability in total factoring costs. The real difference is usually in how the total costs are “packaged” or marketed. Be mindful that the lowest factoring fees (discount rates) are hardly ever the best value. They typically go hand-in-hand with less service or inferior service quality, less convenience, costly restrictions (e.g. minimums to be reached, term contract, etc.), a myriad of other [often hidden] charges and revenue enhancing devices, and even potentially severe risks to your business that may not become evident before signing a term contract or even before actually using the factoring services. For example, when you are being charged for artificially set minimums that you don’t reach, or if it becomes cost-prohibitive to terminate a contract you no longer want or need, or when “abrasive” tactics alienate your customers, the “lowest discount rate” becomes completely meaningless.
But no matter what the circumstances are, utilized in the proper way, Factoring can be one of the most cost efficient funding solutions for your business because it provides a constant, predictable cash flow without the requirement of periodic payments or interim pay-offs. Remember, Factoring is not a loan and therefore does not involve paying back principal plus interest. And what's more, you only pay for factoring with money you have already earned. It has a very similar effect as running a sales promotion – you can sell more but at a slightly lower price; yet, your bottom line increases.
This depends on your current situation and your ultimate goal. Industry statistics suggest that many clients use Factoring for a period of about 18 – 24 months. Some companies benefit much longer and have made Factoring part of their way of doing business. Many of our clients have been with us for more than 6 years. Some have even celebrated their 10th anniversary with us.
Either way, we are committed to your success and to the improvement of your cash flow for as long as you see the benefits of Factoring in your business. Remember, a better cash flow should ultimately generate more sales, a better bottom line, better balance sheets, and help establish a strong credit history. So, when is it time to quit? You tell us!