Is your business in the process of considering invoice factoring as an effective solution to address cash flow concerns? You may have already submitted your application, and are wondering what happens next.
Let’s take a moment to review how invoice factoring works. Your invoice factoring company will be purchasing your outstanding accounts receivable from you, and providing you with a cash advance for approved invoices due to be paid later. A professional A/R team will manage the receivables, saving you time and A/R management expenses. Once the invoice is paid, you will receive any amounts held in reserve, minus a factoring fee.
The factoring company is here to help you, and wants the process to run as smoothly as possible so that you can quickly turn your unpaid invoices into cash. The longest time you have to wait is during the verification/underwriting process, which may take a few days, but once the review is complete, it can then take as little as 24 hours for your company to receive cash for invoices submitted from those approved customers.
One of the key elements affecting not only the decision making process, but also the cost to factor, is the creditworthiness of your customers. This is because the factoring company is purchasing the accounts receivable from you, rather than providing a loan. To this end, your customer’s credit is always checked. Clear title to the accounts receivable needs to be established through a public records search on your company, as well as checks for tax liens and tax liabilities. Tax liens may not disqualify your company as long as they have been addressed with a payment plan or some form of intent to pay. Accounts receivable UCC liens will also be checked. The factor is simply attempting to identify any potential items that may interfere with invoice payment.
Since qualification for factoring is based on the creditworthiness of your customers, it means that imperfect financial statements will not prevent your company from qualifying. The added benefit of having your accounts receivable managed by experts reduces the stress of in-house cash flow management for those invoices your choose to factor. Your company may also be concerned with taking on too much debt, and invoice factoring means not having to borrow money as you are using your own receivables as cash, so factoring will not show up on your balance sheet.
While we can list the main considerations for the approval process, each factoring company will have slightly different policies and procedures for funding new customers. Bay View Funding is able to serve companies in many different industries, under many diverse circumstances.