Invoice Factoring Month

Jun 102010

In hopes of bringing a bit more order to this website, we’ll be focusing on one topic this month. For the next thirty days we will be focusing on invoice factoring. This means that during the next thirty days (June 10 – July 10) any questions you ask about this topic will be covered. If I don’t know the answer, then I’ll find it out through emails, phone calls, searching the Internet, whatever it takes.  In addition, we have a special offer for any invoice factoring companies out there (read below for more information).

Special Offer for Those who Own or Work with an Invoice Factoring Company

Because we are going to find out just about everything there is to know about invoice factoring, we’ll also want to find out a few good locations to perform this type of work. With that in mind, if you want your company to be covered during this week please send me an email at clockworkaccountant (at) gmail (dot) com. The first few factoring companies to respond will get a complete post dedicated to their company (email for details, it is free).

For Those Wanting to Learn More about Factoring

If you have a question about factoring invoice then simply go to the bottom of the page and fill out your questions in the comment box. I would prefer to have all of our discussions there so other people can benefit from your questions. Before you ask basic questions, you may want to look around at some of the articles on this website already posted. This one on factoring receivables is a good place to start.

For those of you who may have stumbled across this page without the foggiest of idea of what factoring is about, I’ll provide a brief description here.

To understand why people started factoring is not difficult. Successful businesses that were making a lot of sales on credit were starting to realize that there cash position was undesirable. At first managers were baffled because sales were increasing and so was the need to buy more inventory, but cash flows were insufficient to buy more inventory. Managers kept financing their business needs with more money from the banks but businesses that were growing extremely fast could still never seem to have enough cash.  That is when banks and investment groups realized that these fast growing companies could sell them their invoices or receivables at a discounted price. This was a win-win situation because the banks made a profit off the interest without taking considerable risk, and the companies received cash upfront for their sales on credit.

Note that discounting is slightly different than factoring. You can read about it at this invoice discounting post.

That sums up our discussion on the topic today, feel free to leave your comments and questions below and hope to see you this week.

Factoring Company Guide

Apr 252010

Many businesses are looking for a way to cut down on the amount of time it takes to collect their accounts receivable. Accounts receivable factoring is one way to dramatically decrease the average day outstanding in receivables. Below is a list of some of the invoice factoring companies out there that you may want to consider.

Creative Capital Associates – This factoring company originally started out as a consulting firm back in the late 80’s. As with a lot of new businesses, it morphed to meet the needs of its client base. Towards the late 1990’s it started factoring receivables. It is still a relatively small company, but is growing quickly.

1st Commercial Credit- This is an account receivable factoring company located in El Paso, Texas. This company does more than invoice factoring as it focuses on providing asset based financial services for all types of companies. This company allows smaller businesses (as small as $10,000 per month in revenues) to factor invoice. They claim they can focus on these smaller companies because of their industry experience. One other interesting tidbit about this company is that it does factoring in multiple countries.

Bay View Funding – Given the name of this company it seems like it is probably located in San Francisco, like a lot of other investment companies. This company has been around since 1985 and they claim a lot of expertise in solving emerging businesses’ cash flow problems. Given the amount of startups in the bay area, they probably do have a lot of experience.

Team Factoring – I honestly don’t know much about this company, but their website is a little archaic as it is like 100 pages in length and looks like it was last updated in the late 1990’s. However, they claim their employees have an average of 11 years of experience in the factoring industry. That is above average considering how recently factoring has become a hot item. They also serve nationwide as opposed to just local businesses.

21st Capital Corp – This is another invoice factoring company that looks promising. This business attempted to revolutionize the receivables industry by providing all of their services over the internet. However, given their website still has the copyright in 2006 I would assume things are not going so well. The idea they have started is very interesting. It consists of getting the factor, the company, and the company’s customers all online in a “virtual office” so as to speed up the collections process. I would definitely not just trust the website and would recommend talking with someone to see if this company is still in existence.

OCF – This company’s website looks almost identical to the Team Factoring site I mentioned above; in fact they are probably the same company using multiple websites. Therefore refer to my post above to find out more about them.

This list should get you started in your search for invoice factoring companies. Remember to look up the fees charged, the initial payments given by the factor, and the second payment given by the factor when trying to choose an accounts receivable factoring company.

Invoice Factoring Company

Mar 102010

Looking for a Good Invoice Factoring Company?

So, your company has decided that accounts receivable factoring may be a good option. Below is a quick look at some of the factors you may want to consider when looking for an invoice factoring company.

Initial payment: Most invoice factoring companies will make an initial payment for your accounts receivable; usually somewhere between 60% to 90%. All other things the same, most companies prefer more cash up front to less (in fact cash is probably the reason you are debating factoring invoices in the first place). If you can find a company that will give you 80% or more of the face value of your invoices then you are probably dealing with a reputable company. Note: certain characteristics about your invoices may make a factoring company want to give you less than this even though the company is acting ethically.

Second Payment: After the factoring company has collected the money from your accounts receivable, they will send you a second payment (if they don’t, then you should be really worried). This payment is for the remaining 40% to 10% of the balance. When considering which company to hire, poke around a little bit and see how long it takes them to send you that second payment from the time they receive it from the customer. If they are holding on to it for a significant period of time, then it really doesn’t do your company much good to factor invoices because you are still waiting for cash.

Fee: Invoice factoring companies need to make money as well. They are not running a charity service that simply infuses companies with cash. They charge a fee for advancing your company money. This fee is usually around 2% to 4% per invoice per month. Doing some quick math should show you that this is quite a high rate for a loan, but it may be a lower rate than some other cash advance options. If a company is charging your company much more than 4% to factor invoicing services, then you may want to start shopping around.

Collection Services: Your company has spent its sweat, blood, and tears trying to form relationships with customers so they will continue to shop with you. In fact, you may have decided to give your customers a lenient credit policy so that they would continue working with you; and this may have led you to need to do invoice factoring in the first place. Remember that these factoring companies may not be as accommodating when they are collecting money from your customers. Try to see if your company can still be the one collecting from customers if you are worried about this. Or at the minimum make sure that your customers will be treated respectfully from the factoring company’s collectors.

Hope this gives you some ideas of what to look for when shopping around for a factoring company.

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