Factoring - Frequently Asked Questions
Q: WHAT IS "FACTORING"?
A: "Factoring" is a form of accounts receivable (invoice) wherein your company sells to the factor, its current invoices that are due from credit-worthy customers.
Factoring is more expensive than bank financing.
For some types of businesses factoring should be regarded as a temporary source of funding until a conventional bank loan can be acquired. Factors Funding Company does not require long term contracts to prevent clients from moving freely to conventional bank financing. FFC can also be a strong credit reference later on when a bank loan is pursued.
Q: IS THE FINANCIAL STRENGTH OF MY COMPANY IMPORTANT?
A: It is not important. We are not lending you money. We are buying your invoices, we rely on the creditworthiness of your customer – not your own creditworthiness. Before buying invoices we will want to verify that (a) the customer if financially strong and (b) the customer is satisfied with the goods/services that you have provided.
Q: WHAT KIND OF INVOICES DO YOU ACCEPT AND REJECT?
A: We accept business to business invoices that are due from creditworthy business firms and are "verifiable" which means that we can readily obtain verification that the goods have been delivered or that the services have been performed.
Q: WHAT IS THE COST OF FACTORING?
A: Factoring companies buy invoices at a discount off of the face value of the invoice. The discount rate that will be applicable to a new customer is negotiated and set up at the time the contract is signed. Generally, but not always, discount rates are between 2% to 4% of the face value of the invoice. Put another way, we are paying between $960 to $980 to buy an invoice of $1,000.
Q: CAN I GET AN EXACT RATE QUOTATION?
A: To obtain a proposal that will set out rates for your company, send us a recent accounts receivable aging. We will analyze the aging and in a day or two we will fax a firm rate quotation for your company.
Q: IS THERE A RESERVE ACCOUNT?
A: Depending on the terms of the factoring contract we hold a reserve of 10% to 20%.
Q: CAN YOU GIVE ME AN EXAMPLE OF A FACTORED TRANSACTION?
A: Yes, Acme Company has a factoring contract with Factors Funding Co. (FFC). At the time the contract was set up, rates were negotiated. For purpose of example, suppose the rates agreed on were a cash advance rate of 80% and a discount rate of 3%.
On March 1st the Acme Co. sells to FFC an invoice of $1,000 due from its customer called Baker Co. FFC sends Acme a check for $800, holding a reserve of $200. The invoice is marked with instructions that tell.
On March 30th the Baker Co. sends its check FFC then sends the Acme Co. a settlement check $170, which is a portion of the $200 reserve amount, less our factoring fees of $30. Therefore, the final purchase of the invoice by FFC is $970.
Note:
Rates shown are hypothetical, for purposes of example. Actual rates may be higher or lower, please inquire.
Q: WHAT HAPPENS IF I WANT TO PROCEED?
A: We will send an application and a factoring contract After you have completed the application and contract our approval procedure takes two weeks to complete.
With the completed application we require an application fee of $150 which we credit to the first $150 of factoring fees.
Q: WILL MY CUSTOMERS HAVE A NEGATIVE REACTION TO FACTORING?
A: Talk to our clients who are on our reference list. Each will tell you that they too had asked this question prior to signing on and found it to be an imagined concern and not a real one.
Q: WHY SHOULD I CHOOSE FACTORS FUNDING COMPANY?
My name is Alan Bernson, owner of Factors Funding Co. During my business career I started, grew and successfully sold a lumber mill, pallet plant and a trucking company.
Since 1991, FFC has provided an opportunity for me to work with business owners and provide them not only with short term capital, but also with access to my varied business experiences and contacts.
My home number appears along side my office number. Other clients will tell you that they enjoy dealing directly with the owner, who can be reached quickly, even after business hours, rather than with a board of directors or a major lending institution. As such, decisions do not require layers of executives and staff people.
Q: CAN I TALK TO OTHER FFC CLIENTS?
A: Yes. The best way for you to answer your, questions about factoring in general and about FFC is to call past and present FFC clients. We encourage you to contact them and are happy to furnish names and telephone numbers. See sampling below for types of businesses.
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