INVOICE FACTORING: THE EASIEST WAY TO UNDERSTAND

Invoice Factoring or Accounts Receivable Financing is when a business sells their receivable/s to a third party (Factor) for work that has already been completed. The factor will then purchase the invoice from you, and give you a percentage of the invoice upfront within 48 hours. The rest will be released when your customer pays them. There are multiple steps in order to get set up with a factoring company to use this service. The order in which these happen will vary from factor to factor.

1) Credit Qualify The Customer: The first thing I like to do is credit qualify your customers. There is no point in going through the application process if the debtors you are looking to factor, aren't able to be factored. The reason for this is the factoring company wants to make sure the company they are purchasing the invoice from is going to pay that invoice on time.When vetting the customer, they use various programs to determine the creditworthiness. Typically, they are looking at a few specific things to determine how much credit they can give to each customer. They want to know how long it takes them to pay on average, how much they owe to current clients, and to see if their are any active litigation suits against them. After carefully considering all the categories they deem necessary they will offer a factoring line of credit with each customer. Once the credit line is established, it may be increased or decreased in the future depending on the things I just mentioned.

2) Customer Must Agree To Work With A 3rd Party: After the Customer has been credit qualified, they need to agree to work with a third party. They can do this by signing what's called a Notice Of Assignment. This says they will pay "XYZ" instead of paying you directly. This will stay in effect until the factor states otherwise. This means, once you start factoring with that company, you must continue to do so. There are scenarios where you don't have to factor every invoice. In this case, the invoice will still be paid to the factor, but the factor won't charge you anything when they collect the payment. They will simply wire the funds over to you.

3) Application: The invoice factoring company will want to vet you as well. Starting with an application, a factor may require some financials to ensure your business is also credit worthy. While your personal credit score isn't a main concern, they still want to make sure your company isn't going to be going out of business anytime soon either. Some factoring companies will just ask for tax returns which is a less invasive process. However, typically your customers will have to be stronger because they aren't relying on you to carry the weight if something were to go wrong with the payment. Some companies will run personal credit checks, others won't. Your FICO score isn't that big of a concern, so don't worry if it's in the 500's, or low 600's. If you want a free credit score visit Credit Karma to get a better understanding on where you stand.

4) Invoicing: Congratulations! Your customer has been qualified, they've agreed to pay the factoring company directly, and you have been qualified! It's now time to submit your first invoice for payment. Depending on what industry your are in will depend on what type of paperwork you submit. In Construction, you will be submitting pay apps. In transportation you will be submitting a rate confirmation page, and bill of lading. Whatever it is you typically send in to your customer for final payment, is what you will actually send into the factor, and they will send it in to your customer.

After submitting the invoice, the factoring company will need to verify the invoice to make sure the amount listed on the invoice is the actual amount being paid. They don't want to pay you more than they will actually receive. If they do, they will use your escrow account to pull the funds from in order to compensate for the difference in amounts. The escrow account is the amount they are withholding from you on the initial funding. For example, you are being charged a flat 2.0% on a $100 invoice. Your program states you get an advance rate of 90%. The factor will give you $90, and $10 will go to your escrow (savings) account. When the invoice is paid, you will get the $10 dollars back minus the 2.0% or $2. If the company only pays $95 dollars, they will use that $10, to cover the difference. This happens a lot in transportation because damages are common during produce season. After everything checks out, the factor will direct deposit the funds into your bank account, and you are on your way! Typically this happens within 24-48 hours of receiving the invoice. It can be same day if the factor can verify the invoice.

The Solution: Invoice Factoring enables you to have the working capital upfront, when you need it, instead of waiting 30,60 or even 90 days. This is a great innovative financial solution that can be life changing for a business. It can pull you out of a slump, it can propel your company into a new sales breaking stratosphere. Anything is possible when the working capital you need is at your fingertips.

If you worked with Atlanta Finance Group I can ensure a seamless set up. Once we get the set up package from you we start working on your behalf. Using our knowledge of the different invoice factoring companies out there we ensure the best rate possible, with the best company. The set up process is simple, painless, and quick. I keep you informed through the whole process. If you, your client, or someone you know would like to use my services for FREE, please reach out to me @813-300-0790, or email me at AtlantaFinanceGroup@gmail.com. Don't forget to check out our website at Atlanta Finance Group.