Factoring can be an enjoyable option for financing your business when you understand how the process works. If you are a new factoring client, however, you may wonder what to expect and how quickly you can be approved.
The process for factoring has been designed to be easier and faster than getting a bank loan. These steps will help you get the money you need quickly and conveniently.
Research before Applying
Just as you would research information before applying for a bank loan, so should you do some fact checking before applying for factoring. Some of the information that you should know before going into the process includes:
- How much you will pay in fees
- How long the application takes to review
- How fast you can get your money if you are approved
- How and when will your factor contact your invoice clients
- How aggressive the factor will be in collecting accounts receivables
- What happens if your customers default on their invoice obligations
Knowing what happens in case of a customer default can be vital if you want to keep your cash flow intact. Your research should uncover whether or not the factor offers non-recourse factoring, which can be more expensive, but protects you in case of a default. You also can find out if your factor offers non-notification factoring, which involves your invoice clients not being notified about the factoring agreement at all.
Choose a Reliable Factor
Along with learning about fees, approval time, and default terms, you also should learn about the level of service the factor offers. You want to enter into a contract with a factor that has a reputation for being reliable and professional.
One aspect you may consider when choosing a factor involves its experience. Ideally, you want to work with someone who has extensive knowledge of your industry and has extended factoring to business owners like you.
You also want to choose a factor that offers quality customer service. Some of the details that its customer service department should know well include:
- The application process
- Approval criteria and time lines
- Account verification
- Repayment terms
- Fee schedules
These details and more should be provided to you in a fast and friendly manner. Even more, a good factor should make customer service help available to clients extensively throughout the day.
Complete the Application
Once you have found a factor that you are comfortable with, you can then complete its application. Some of the information that you may be required to provide include:
- Proof that you own the business
- Proof of its registration
- Your company invoices
- Signed UCC documents if you are approved
Once you complete and submit the application, you can expect it to take around three to 10 days to be processed. During that time the factor must verify your accounts receivables, which may include contacting your clients if it does not offer non-notification factoring.
If you are approved, however, you may have your cash in hand in less than two days' time. The factor may extend up to 80 percent of your accounts receivable's value to you and hold the remainder in a reserve account. Once it deducts the fees after your clients have paid, the remainder will then be transferred to you.
The cash is yours to do with entirely as you see fit. Unlike a bank loan, which may involve certain limitations to your funds' use, factoring lets you utilize your money in whatever way you deem necessary to keep your business alive and growing.
Factoring is designed to be a fast and convenient undertaking. You can decide if it is right for you and your business by knowing what steps to take to get started with this finance option.