From Initial Contact to Commitment – Invoice Factoring in 5 Simple Steps
The invoice factoring promise of an injection of money now for invoices due to be paid by your customer later could be just what your company needs to succeed. However, rather like applying for a mortgage, or filling out your tax return, the process may initially seem intimidating.
Any application that involves filling out paperwork, and a request for detailed documentation, certainly requires a level of commitment. Once you have investigated invoice factoring as an option, consider the complete invoice factoring cycle to help you decide if factoring really would be a great fit for your company.
The steps are simple, but it pays to be prepared:
- Initial contact involves an introductory discussion, which will establish whether accounts receivable funding would be a good fit for your company.
- Filling out a simple application form will be the next step, along with supplying specific requested documentation. It should be noted that the most important documentation, throughout the whole process is a detailed list of your accounts receivables, both current, and aging. Your factoring company must verify your client’s creditworthiness, and ability to pay invoices when they are due. Excellent payment history means better rates from your factor. It is your customer’s credit that will be checked, rather than your own and it is essential that your customers show a history of prompt payment. Don’t let your less than perfect credit history stop you from applying. It is important to note that only invoices for goods or services already delivered can be considered in the traditional invoice factoring process. The factor will want to establish that goods or services have actually been received. Extended payment terms of 90 days or more may also prove problematic when it comes to factoring.
- Your factor will want to see documents that verify the legitimacy of your company. They wish to confirm that you are registered with the correct government agencies so there is no issue with the possibility of fraudulent transactions. Issues with late tax payments, books that are not up to date, or liens using accounts receivables as collateral, can all prohibit the ability to qualify.
- Once all the documents are produced and risks are taken into consideration, a member of the underwriting team from your accounts receivable financing company will contact you. The offer will usually be between 70 – 90% of the invoice amount depending upon any risk the factoring company believes they may be taking by advancing money. The amount of risk will also determine the rate you are offered. Throughout this process, an experienced invoice factoring company will be able to offer you advice and help when it comes to filling out the forms and gathering the required information.
- Commitment - once an agreement has been signed, your factor will advance you the stated percentage of the invoice, with the remainder paid to you once your customer has paid according to their terms. Your customers will pay the factor. If you are at all nervous about a third party handling payment, you should thoroughly discuss the process so you feel reassured that collections will be undertaken in a professional manner.
Once your factoring agreement is in place, and your customers continue to pay in a timely manner, you can repeat the process and continue to maximize your cash flow and grow your business.
At Bay View Funding, each member of our dedicated team promises to genuinely, and personally provide you with the best factoring solution to meet the unique and specific needs for your company. We are committed to a 100% satisfaction guarantee.