Every day business owners juggle the cash flow demands of their companies. More than ever, they are turning to invoice factoring companies such as Capitol National Factors Company, LLC as a trusted solution, even when banks decline loans and credit lines.
If you are considering accounts receivable funding with Capitol National Factors it pays to be prepared. Save time and money by understanding these five tips before making application to factor your accounts receivable with us:
1. The Factoring Application
The first step in the process is helping Capitol National Factors get to know your company. This might start with a phone conversation but will eventually be formalized in a factoring application. This provides basic information including:
- Company name
- Contact Information
- Type of Business
- Information on Your Customers
The nature of the business and type of customers play the leading role in determining whether we have a mutual interest in moving forward with a potential factoring transaction. Please note that we factor only accounts owed by commercial debtors, not individual obligors. There are also certain industries, such as medical accounts receivable and construction, that we do not presently factor.
2. Aging Reports
The accounts receivable aging report provides the detail that goes along with your initial application. This report reflects the amounts owed by your customers and the length of time it takes them to pay on the subject invoices. A customer that pays within 30 days is more attractive than a customer that takes 45-60 days.
3. How Factoring Works
Factoring is the purchase of accounts receivable at a discount where the transaction is treated as a true-sale under applicable law. We generally factor on an advance factoring basis where we can provide you a cash advance against our purchase price on approved invoices on the date of purchase. We also consider maturity and collection factoring facilities, from time to time. As purchaser of your accounts, we handle bookkeeping, ledgering and collection therefore. We release the reserve balance when we collect on the purchased accounts, net of unpaid fees and costs owing to us, as set forth in the particular factoring agreement.
4. What It Costs
The first question every business wants to know is, What will factoring cost me? Don’t be frustrated when the response is, “It depends.” The industry, strength of the customer, and length of time it takes to receive payment affect the advance rate and the discount fees we will charge in any particular case.
The volume of invoices a business plans to factor also impacts pricing. A company desiring to factor $400,000 every month will receive better rates than a business factoring $15,000 on a sporadic basis. All terms offered by us will be negotiated and spelled out, often, in a non-binding letter of intent, and always in a definitive written factoring agreement signed by yourself, as seller, and by Capitol National Factors Company, LLC, as purchaser. We do not purchase accounts on the basis of oral agreements.
5. The Underwriting Process
We, like other factors, are very interested in the strength of your customers since we are actually purchasing the account receivables from you, and generally making advances thereon, rather, than providing a loan to you. We will evaluate the creditworthiness and establish credit limits for each customer.
We will also perform a public records search on your company to verify there is clear title to the accounts receivable which you propose to sell us. This search usually includes corporate status, judgments, liens, UCC, pending litigation, back taxes, criminal records, and any other items that might interfere with our ability to receive payment on the subject invoices post-purchase.
This due diligence process takes an average of 5-10 days on new accounts. Once the initial review process is complete it can take as little as 24 hours to receive cash for invoices with approved customers.
Factoring provides cash flow solutions to both new and established businesses providing funds for operational expenses, expansion, and growth.