What is a Factoring Company?
A factoring company is a company that purchases invoices at a discount in exchange for immediate cash.
What kind of businesses factor?
More than 80% of businesses that factor today do so out of growth mode so they can have access to more working capital. It is a perfect solution for small or young businesses that are not bankable.
Where Do Your Customers Come From?
Most of our customers are small business owners that have been in business for at least one year, and are experiencing cash flow difficulties mostly out of growth in their business. By increasing customers and sales, inevitably the amount of cash held up in accounts receivables increases as well. Eventually, sometimes rather quickly, there is more cash tied up in these invoices than is on hand to grow or even operate the business effectively. At this point, most business owners realize present value of cash is much more valuable than the future receipt of those invoices. But they also come to realize that most small business owners must resort to credit card or personal debt in order to increase short term cash flow. Many times, a bank or other lending institution will not come to the rescue in this situation.
Factoring is a sound financial strategy that has been in use for thousands of years and is used today by small businesses and fortune 500 companies alike. For the big company, it is a convenience. For the small business, it is sometimes the difference between staying alive and even growing exponentially, and going out of business.
Global Factors was founded by entrepreneurs for entrepreneurs. When you deal with us, you deal directly with the principals of the company. Find out how we can help your business get the funding it needs to succeed. Contact Global Factors today!
Is factoring a loan?
No. Factoring is an advance - a discounted purchase of your receivables. It does not show up as a loan on your balance sheet and will not affect existing bank loans or covenants.
Do I need good credit to factor?
No. The creditworthy of your customers gives you the ability to proceed with a factoring transaction. Once that is verified, funds are available almost immediately.
What kinds of invoices are not eligible for factoring?
Although we can factor nearly any invoice, invoices that already have a lien on them or are pledged elsewhere are not eligible for factoring with GF. We must be in first position on the receivable.
How long does it take from application to review of my funding?
It normally takes just a couple of days to process an application. If your information is accurate and up to date, we can fund immediately after processing.
When Can I Get Funded?
Depending on your business and how quickly you can provide Global Factors with the necessary documentation, funding can be arranged in a quickly as just a few short days. By taking into account the industry your business is in, the funding amount, and the length of the repayment term, GF can tailor a funding solution to your individual business that’s right for you.
Whether you’re a small business or startup, or an established, successful enterprise, Global Factors can help you secure funding quickly and easily in order to solve your cash flow needs.
Do I have to factor ALL my invoices with GF?
No. You may use other factors for other invoices, just not on the invoices we secure.
Do you offer other services besides factoring?
Yes. We offer an entire suite of creative funding solutions including asset based loans, secured bridge financing, payroll funding and more.
What does factoring cost?
This is probably the most asked question by business owners considering using factoring. Most businessmen that have used factoring will tell you it doesn’t cost anything- in fact it pays for itself. That logic is better understood when viewing our Illustration of a Factoring Transaction. The bottom line is this: Our fees for advancing you capital immediately so you don’t have to wait for payment from customers is usually between 1 and 4%. If you can return more to your business than that by having access to those funds to expand, buy raw materials, secure closeout inventory, or whatever profit inducing endeavor you’d like to fund, then the factoring arrangement more than pays for itself.
Our clients have increased their bottom line and grown by factoring receivables. The question is not “What does it cost?”, but rather “What business will I lose out on if I forego an opportunity due to lack of adequate working capital?” Unless your margins are razor thin, factoring is usually a wise decision regarding the cash flow management of a business.
I just started my business and have a really big order but no capital to execute it? Can GF help?
Absolutely. Our Purchase Order Factoring program is designed to fund the small business startup, or to fund an existing business that has an extraordinarily large order and could profit substantially from the order if it had the working capital to execute it.
I really don’t have invoice receivables, I am a services merchant and most of my customers pay with credit cards. Can I get a factoring advance?
Of course. If your credit card volume exceeds $5000 per month, you are eligible for a credit card factoring arrangement through GF.
What documents do I need to submit?
Typically, those items would include our Application, your company’s Articles of Incorporation, invoices for services performed or products delivered, and an aged receivable report.
I work in the construction industry? Many factors will not work with me. Will GF help?
Yes! In fact, our management team has extensive experience in funding construction contractors or sub-contractors, and will tailor a plan for your specific needs. If you are local to the Dallas, Texas area, inquire about our Contractor Bookkeeping Services as well, to help you stay on track financially and focus on your business instead of accounting.
Is factoring only an option for large companies?
No. Although most Fortune 500 companies use factoring as a liquidity instrument to stay well-capitalized, factoring in general works very well with small businesses. In addition, GF specializes in funding the small business that is short on cash due to growth, and can tailor a plan specific to your needs. Our management team has over 100 years experience in financial services as entrepreneurs themselves, and wet understand all the needs of a small growing business.
Why should I use GF?
Because here at GF, our specialty is in finding the perfect creative funding solution for your small business. We aim to get you the working capital you need to grow and compete in the marketplace. Don’t allow business to pass you by and give your competitors the edge. Contact Global Factors and see how we can help your business today!
Glossary of Factoring Terms
Account Debtor - Refers to the customer of a factor's client or the company that actually owes the money due on the invoice(s).
Accounts Receivable - Monies due for products or services that have been already delivered due at a specific time in the future. Typically, these refer to Business to Business transactions. Also referred to as Trade Credit or sales on Open Account Terms. These funds are considered a liquid asset on the balance sheet and are generally expected to be paid in less than ninety days.
Accounts Receivable Financing - Refers to a financing strategy for securing working capital in the short-term. The factor advances monies to the business as a form of loan that is collateralized by a security interest in that company's account receivables. Loan amounts are determined as a percentage of the accounts receivables amount pledged.
Advance Rate - The money advanced to the client by the factor following invoice presentation and before actual collection of funds from the customer. Advances are calculated as a percentage of the total face value of the invoice and usually range between 70 to 90%.
Asset Based Lending - A form of business loan where the borrower pledges collateral, such as account receivable, equipment and inventory, to a lender as additional repayment security against monies advanced.
Charge Back - An amount of money owed to the factor or "charged back" to the client when the factor is unable to collect the Account Receivable that was factored, based on an agreed upon debtor non-payment clause in the Factoring contract. The factor will typically take this out of a reserve release or an advance.
Credit - The extending of time in relation to when payment is required in return for product or services provided.
Credit Analysis - The process of analyzing the records and financial affairs of a business to determine creditworthiness.
Creditor - Refers to the party or business, to which money is owed.
Customer - Also referred to as the account debtor, this is the party to whom the original products or services were provided and to whom the factor shall then collect monies from under the terms and conditions of the factored invoice.
Dilution - The amount of risk associated with collection of the accounts receivable including but not limited to returns, charge-backs, trade allowances, concentrations, slow pay, and bad debt.
Due Diligence - When a factor conducts a background check and research to assess the creditworthiness and validity of a prospective factoring client as well as that client's customers.
Factor - The agent and/or organization that purchases a businesses accounts receivables and assumes collection of associated invoices from applicable clients.
Factoring - The selling of a businesses accounts receivable to a third party at a discount, for the purpose of obtaining funding.
Factors Acknowledgment Form - A form used by factors to send to their client's customers, which verifies that the client's invoice does exist and that the customer will remit payment due under that invoice to the factor
Factors Client - Refers to the business that is selling its accounts receivable to a factoring agent or organization.
Factors Fee - Refers to the fee the factor charges for providing advance funding of the client's accounts receivables amount.
Factors Services - Services provided by the factoring agent to the client on behalf of the factoring process, such as credit analysis, credit guarantees and collection management.
Factors Verification - Refers to the process whereby a factor verifies that the goods and services represented as provided and invoiced by the client to the customer, were in fact provided and accepted, and that the customer intends to pay the factor the money due under the invoice. This process is performed and satisfied prior to making the advance payment to the client against the invoiced amount.
Full Recourse Factoring - In this type of factoring, the factor is protected against customer non-payment. If the customer does not ultimately pay the invoice, the client is responsible for paying back the funds advanced.
Non-Notification - In this type of factoring, the customer or account debtor is unaware of the factor purchasing the client invoice. They can however, be directed to make payment to a lock box controlled by the factor. Any contact that the factor makes is made under the client company name.
Non-Recourse Factoring - In this type of factoring, the risk of customer repayment is assumed by the factor. Factoring fees are often higher for this form of factoring and the client is still responsible for performance-related responsibilities relative to the quality of the products and/or services provided.
Purchase Order Financing - Refers to the assignment of purchase orders to a third party who then assumes the obligation of billing and collecting. Typically, this form of financing is tied to a specific transaction where the company requires cash to be able to acquire the raw materials to manufacture the goods for which it has received the purchase order. Because the third party assumes both the production risk and the collection risk, this form of financing can be costly.
Reserve - Refers to the amount withheld by the factor net of the advance. Can be used as a financial cushion to protect against shortages, disputes between the client and the customer or bad debt losses due to customer non-payment. The reserve should be released to the client after the customer has paid the factor the total money due on the invoice.
Reserve Release - The process of the factor releasing final monies due the client once the invoice has been totally satisfied less any applicable fees or charge-backs.
UCC-1 - A Financing Statement (Form UCC1) is filed to perfect a security interest in named collateral and establishes priority in case of debtor default or bankruptcy. UCC (Universal Commercial Code) refers to the collection of laws dealing with commercial business.
Working Capital - The amount of money that a business has available to conduct its day-to-day activities. It includes monies that that the owner or investors have invested in the company, retained earnings and supplier credit. A business with limited working capital benefits from factoring by eliminating the time that invoices are outstanding.