Factoring is the sale of invoices (accounts receivable) at a discount. Factoring is used by small and large businesses to increase cash flow and raise working capital without the use of debt. Factoring has been used by companies in many industries for hundreds of years. It has only been in the past 20 years that the use of factoring became common in nearly every industry.
A loan creates debt on the company’s balance sheet. Factoring is the purchase of the company’s invoices from creditworthy customers. This is a way of improving cash flow without incurring debt. Banks focus on your company’s financial history, where factoring focuses on the creditworthiness of your customers.
When we have the signed agreement and all your documents, it can be as soon as the same day. Sometimes it will take 2-3 days to receive first funding. Factoring is fast, and is transaction driven. A bank looks at your credit history, and takes it to their committee to make a decision. This can take weeks to months before you receive a decision.
Chances are they will not notice or care. Factoring is very commonplace, and it is more than likely that your customers are already paying a factoring company for services from their other vendors. Companies in growth, survival and start-up mode all use factoring.
If a bank has a lien on your company’s assets, you should let us know right away. We will ask the bank to subordinate that lien. Some banks will accommodate the request and others may decline depending on your circumstances. Our number one referrals come from loan officers willing to help out the client in cash flow needs. They are very familiar with this kind of interim financing. The other alternative is to pay off the loan if there is plenty of receivables to leverage the buy out.
Tax problems are handled on a case-by-case basis. Please let us know immediately so that we can discuss a lien subordination with the tax entity or request a payoff amount.