FREQUENTLY ASKED QUESTIONS
What is Asset Based Lending?
Asset based lending (ABL), is a great solution for businesses that have needs that are outside the realm of what traditional banks can offer. Whether it’s greater leverage, softer covenants, or more flexibility, asset based structures can be customized to meet the needs of each individual company. Asset based lending provides a line of credit based on your company’s eligible:
• Accounts receivable
• Machinery and equipment
Asset based lending offers more flexibility than other methods of financing, and is a fast and cost-effective way to obtain working capital. Unlike certain types of structured financial products, with an asset based lending relationship, you do not have to give up equity in your company. ABL gives your company the flexibility it needs to grow, recapitalize, take advantage of supplier discounts, buyout shareholders, or even to fund payroll. It can increase or decrease based on your current business size and needs, and you’ll have daily and weekly access to your line of credit when you request it.
Who uses Purchase Order Financing and why?
Purchase order financing is designed for growing businesses with little access to working capital and/or poor cash flow. The type of business that qualifies is usually a producer, distributor, wholesaler or reseller of manufactured products.
How does factoring differ from bank funding?
Factors make funding decisions based on the credit worthiness of their customers. Banks make credit decisions based on a company’s financial history, cash flow, and collateral. For this reason, banks tend not to lend to startups, businesses operating for a short period of time, businesses that have had losses (even if the loss was due to startup costs), past problems in the business, and a wide range of ‘red flags’. The factor is more interested in the credit worthiness of your customers and not in any skeletons that may be in the closet. A factor is more interested in what you are doing today, what you can do tomorrow, and less concerned about what happened to you yesterday.
Why would a company sell their accounts receivable?
Sometimes, companies with recurring cash flow problems can’t afford to wait 30, 60 or even 90 days for invoice payment. They need cash to meet immediate financial demands. Factoring helps provides this cash by funding the purchase of accounts receivable, often within 24 hours after invoices are created. More often, companies are looking for a safe, simple way to fund their company. Factoring provides a continuous and reliable form of funding. This allows a company to better plan their production and purchasing for the next sale, without having to plan around potential wide fluctuations in cash flow waiting on customers to pay.
What type of invoices can I factor?
You can factor almost any valid invoice for a service already performed or a product already delivered to a credit worthy business.
How much money can I obtain through factoring?
Factors typically advance 80-90% of your receivables immediately, and the balance (less fees) when invoices are paid. Example: if you have $10,000 in accounts receivable on your books, you could receive up to $9,000 to support working capital needs. The balance due to you of $1,000 (less fees) will be paid to you when your customer pays the invoice. As your sales increase, so will your receivables, and so will the amount of working capital support available to you on an ongoing basis. Factoring may be the best way of financing sales, because the amount available to fund your cash flow needs grows in direct proportion to sales success.
What if my company has a bankruptcy, bad credit, poor financials or other derogatory information or history?
Most Factors funding decisions are based on the credit worthiness of your customers, not on your credit. Factors are less concerned about your past and are more interested in what you are doing today, and what you believe your potential is for tomorrow.
Will my customers think I'm in financial difficulty if they find out I'm using a factor?
Absolutely not. Factoring is a viable financing option for all businesses. As long as it is handled in a professional manner, your clients will understand you are doing what every business does: Putting in place a well thought out working capital facility to insure your business continues to grow and support your customers. Most of your clients are accustomed to dealing with factors, which is a $150 billion annual business in the U.S. alone. Factoring has been around for several centuries. Most business professionals today are aware that factoring is a common financial tool used successfully by companies of all sizes.
What size credit lines are available?
$100,000 to $500 Million
What advance formulas are available?
Up to 95% of eligible Accounts Receivable
Up to 50% of eligible Inventory
What is Purchase Order Financing?
Purchase order financing (or PO Funding) is a short-term commercial finance option that provides capital to pay suppliers upfront so your company doesn’t have to deplete cash reserves. Here is a representative scenario:
A business has a solid purchase order ready to fulfill, but not the funds to pay its suppliers upfront; nor is the bank willing to extend the amount of credit that would be required. Using a purchase order finance company, the suppliers are paid directly usually via a letter of credit. The business fulfills the order; with proceeds arriving after shipment is received.
What does factoring cost?
Rates are based on individual and specific circumstances. Factoring rates depend on the credit worthiness of your customers, your average invoice size, average payment cycle, factoring volume, and other elements.
If a Factor purchases my company's invoices, will they bill my customers?
No. You invoice your customers as usual and fax or email a copy of the invoice to the Factor. After verifying the invoice, the Factor will make an immediate cash advance to your company. Then, you or a Factor specialist will follow-up with the customer to ensure prompt, accurate invoice payment
What size business will Factors finance?
Most Factors can factor your business if you have $10,000 or more in outstanding accounts receivable from credit worthy customers. Some clients can begin factoring with their first sale; others were well-established businesses.
How long does the process take to get started?
Within 24 hours of receiving your basic company information, the Factor will issue a proposal. If it is accepted by you, the Factor will conduct due diligence and complete all documentation. Initial funding typically takes place about one week from the time the Factor receives all necessary documents. After that, funding generally occurs on a recurring basis within 24 hours of your invoice submissions.
Do I need to sell all my invoices?
No. You decide the invoices you want to submit for factoring that help you successfully manage your financial needs. The Factor provides you with a flexible financial service that allows you to create the cash flow you need.