Who uses factoring? Factoring works for any business that generates invoices for goods or services to other businesses, institutions, or government agencies. This includes all types of manufacturing, distribution, & service industries, as well as the construction industry, & medical providers. If you are a business owner, accounts receivable funding frees you from the lengthy & burdensome process of invoice collection, & gives you the opportunity to collect the money owed to you by your customers immediately.
What's wrong with my current arrangement? Absolutely nothing --if your customers pay their invoices as soon as they receive them. But time is money and the longer it takes you to receive payment for your goods or services, the less that invoice is worth-- which places you in the unfortunate role of loan officer to your customers at 0% interest! And because your working capital is tied up in unpaid invoices, your own expenses may go unpaid-- placing your own credit standing at risk!
How would I benefit from factoring? Factoring allows several distinct advantages. First of all, by receiving your money for the invoices you submit within 24 to 48 hours, you would be able to pay your day-to-day expenses --payroll, utilities, supplies and rent-- for starters. Also, you could lower your supply costs by taking advantage of cash, volume, or term discounts.
What other benefits are there? With additional working capital, you could purchase new equipment to increase production; or you might choose to launch new marketing campaigns or products to increase sales and grow your business. With improved cash flow, you have the freedom to utilize your working capital where it can work for you best.
How much is it going to cost my business? The rate will vary based upon several factors including: parameters of the funding source, services offered, and the invoices being transacted.
How can I profit if I have to sell my invoices at a discount? If you were to analyze the cost of waiting for your invoice payments today, chances are it is costing you at least that much-- and you still have to wait for your money! But with cash in hand to negotiate better terms with your suppliers, increase production, and take your business to the next level, those savings often far outweigh the funding source’s discount. Another significant benefit is that the funding source will assume responsibility for the collection process, communicate on a regular basis, and provide you with a weekly aging report of the factored receivables.
Who exactly are these funding sources? They are professional investment firms who, rather than risk their capital in unpredictable returns on investment, seek more secure investments in the private sector for a pre-established yield. These firms conduct their business with you in a fair, ethical, & confidential manner --but they also compete for your business in an electronic marketplace-- allowing you, the business owner, to receive the best rates possible.
How does all this differ from a bank loan? Banks undoubtedly play a critical role as the financial backbone for many businesses. However, in today’s entrepreneurial marketplace, there is an increasingly growing number of businesses finding it difficult to obtain bank financing-- if only because their receivables are outpacing their growing sales! Here is where banks & funding sources take divergent paths…
* Banks provide loans at an established interest
rates whereas funding sources purchase invoices
at an established discount rate .
* Banks loans create additional debt for your business; funding sources pay you cash for your invoices-- creating revenue!
* Unlike banks, factoring attaches no liens on your assets -- so it does not impact your existing credit line with your bank.
* While banks focus primarily on your debt/equity ratio, funding sources focus primarily on the credit worthiness of your customers.
* While bank loans can often take weeks to be approved & acquire, funding sources pay you within 24 to 48 hours of invoice submission.
* Banks determine your loan potential based on your financial assets; whereas funding sources base the funding amount on your invoices.
* Whereas banks (as lenders) are strictly regulated, funding sources are not and can therefore offer greater flexibility to accommodate you.
What will my customers think? Although many businesses position this as a simple “change in billing” to their customers, many others position the new billing procedure as a business growth strategy in order to better serve their customers.
If factoring is so good, why aren't more businesses doing it? Actually, more businesses are doing it, and are realizing that the benefits of accounts receivable funding far outweigh the more conventional methods in helping them manage their cash flow. When you hear about your competition bidding on a job at a price that exceeded your cost of production, chances are your competition is utilizing factoring-- giving them a competitive edge!
How long does it take to get started? Once you have completed a client profile and provided an accounts receivable aging report, the funding source must perform due diligence on the accounts you have listed. Once that is complete (generally five to ten days), the funding source will submit a contract for your approval, outlining the entire terms of agreement. Once signed & returned, funding is available immediately.
Who pays for the "due diligence" performed by the funding source? That is a one-time fee incurred by you. The fee will vary, depending on the number & complexity of accounts provided – but is also established & approved by you prior to any signed agreement.
Once I sign the agreement, how long am I committed? Although funding sources vary on lengths of agreements, they are sensitive to the fact that we all conduct our business in an ever changing business climate, and attempt to provide you with as much flexibility as possible. These terms, too, will be clearly stated in the agreement.
What if I don't like the funding source's service? Funding Sources will generally go to great lengths to earn your trust, satisfaction, and long term business. However, if a situation develops which cannot be promptly resolved, Diversified Funding Services is committed to seeking an alternative funding source for you.
How can DFS help my business? We have access to billions of dollars through our nationwide network of the industry’s leading funding sources. It is this vast network that allows Diversified Funding Services to obtain the lowest discounts, the greatest value, and the widest service offerings to meet your specific business needs.
How do I get started? You can get started by calling us for a confidential, no-obligation evaluation. We look forward to hearing from you today!
