We are a Full-Service Business Financing Firm with Consultants
that Specializes in Factoring Financing and Spot Factoring Financing
What is Factoring Financing?
Factoring Financing also known as whole ledger financing or full turn financing is an Invoice Financing based product funded by a lender that will purchase a business’ Invoice Receivables at a discount, in exchange for a working capital advance against the majority of their invoices face value.
The lender factoring the companies Invoices will charge a discount fee (also known as a discount rate) that is usually assessed monthly, then from there on a weekly basis after the first month the receivables are outstanding. Generally, the advance of capital is split into two parts: The Advance and the Reserve Amount. The advance rate is typically 70% to almost 95% of the invoice’s full value and is paid upfront. The reserve amount is paid after the business’s customer fulfills the invoice.
The main reason that companies use Factoring Financing is to get paid on their invoice receivables quickly. Rather than waiting for the net 30, 60, or sometimes net 90 business days or even longer, that it often takes their customers to pay. With Factoring Financing, companies get the increased cash flow they need to pay employees, handle customer orders, and take on more business.
Factoring Financing is commonly used across multiple industries where lengthy payment terms receivables are part of the business cycle including but not limited to:
- Government Contracting
Wholesale or Distribution of Consumer Goods
With Factoring Financing a lender will outright purchase some or all of a business’s outstanding invoice accounts receivables. Typically the lender will factor an advance for the business between 70 and 95 percent of the full value of an invoice receivable, at the time it purchases the receivable.
The balance, less the factoring fee, is released when the invoice is collected. This immediate injection of capital will be provided to the business as early as the same day to max 48 hours. Since most large scale clients pay on invoice terms that range anywhere from net 30 to up to net 90 business days, this capital infusion can come in very handy.
The company can then use that funding to either cover the expenses of the business or to take on additional work at the same time. The lender having purchased the invoice will take over the collections aspect of the invoice directly with the company’s client.
This can be seen by some as a benefit as the lender is now acting as a partner of sorts in aiding in the collections process of the invoices. Which can become an additional saving to the company as they Factor more and more of their invoices, it would lead to less and less of a need to collect on their own invoices? Therefore the capital that is being expensed on a companies collections department can thus be redirected into other areas to help grow and scale the company.
Once the client pays the lender the full invoice payment the lender will remit to the company the balance of the invoice minus the Factoring Financing cost of capital fees. The factoring fees are based on the total face value of the invoice, not on the percentage advanced, depending on such aspects as the collection risk and how many days the funds are in use they typically start at 1.5 for the first 30 business days.
There are also two types of invoice factoring: Recourse and Non-Recourse factoring. Recourse factoring is a type of invoice factoring that provides less risk to the factor. If the customer fails to fulfill the invoice, the factor has the right to collect payment from the business owner. Non-Recourse factoring, on the other hand, absolves the business owner of responsibility for the invoice.
If the customer fails to fulfill the invoice, the factor is left on the hook. Because of the increased risk, fewer lenders offer non-recourse factoring, and if they do, they may offer it with stricter terms and rates.
Factoring Financing can be a great way for businesses to free up additional working capital by utilizing the companies own invoice receivables.
Factoring Financing is not a loan it does not create a liability on the balance sheet or encumber assets.
Factoring Financing allows for companies to access immediate capital from their own invoice receivables
This product can provide funding for new companies. Factoring Financing is based on the creditworthiness of the clients issuing the invoice receivable. This can be the ideal solution for allowing new companies to leverage their customer’s credit to build up their companies.
Factoring Financing could provide companies with unlimited growth. Traditional banks although they can be great simply operate on a line-based financing model and there is no getting around it. Line-based financing only takes into account what the business has already done and the assets it currently owns. Underwriting that solely places value on a company’s current sales can stunt a business’s growth. This product is designed to help with a company’s continued business development. As the company produces additional invoices the Factoring Financing will rise with a company.
This product provides a significant and quick increase in the cash flow to the business. While companies are confident the invoices will be paid. It can be tough for businesses to juggle all of their expenses and grow when customers extend payment terms beyond net 30, 60 & 90 business days or more.
Invoice factoring provides companies the ability to land the bigger accounts. By being able to extend terms to the customers for their receivables.
This product can allow companies to choose how much of their invoice receivables they factor depending on their unique business needs. Some companies may factor all of their invoices, while others may factor only invoices for customers that traditionally take longer to pay.
Time is money- and chasing down unpaid invoices can be very time-consuming. Factoring Financing can offer companies protection from bad debts and could provide useful information about the creditworthiness of its customers chosen. It can be a cost-effective way of outsourcing the sales ledger at the same time managing the business collections assistance. With Factoring Financing you’ll get regular reports about your accounts receivable, as well as problem-solving assistance.
What is Spot Factoring Financing?
Spot Factoring Financing which is also known as either Single Invoice Factoring or Single Invoice Financing is an Invoice Financing product funded by lenders that is a type of Factoring. This product allows a business to sell only one invoice or several invoices to a lender to be factored, without signing a long-term agreement.
A Spot Factoring transaction occurs when a lender factors up to 85% to 90% of a company’s single invoice as a one-time purchase. Whether it is in net 30, net 60 or up to net 90 business days, once the client finally pays the full invoice to the lender. Then both the Spot Factoring transaction and the finance relationship with the lender can be over, if the company chooses to end it there.
This product tends to be more expensive than traditional Factoring, however, the additional cost is usually worth the flexibility for companies that do not have ongoing Factoring needs. Businesses generally use Spot Factoring to finance either a single, very large order or for a client that takes longer to pay.
Companies that utilize Spot Factoring can easily transition to a full turn to either a long term Factoring relationship or an Accounts Receivable Financing relationship. As their businesses grow and their needs for capital become more significant. Spot Factoring can be a great tool for businesses to not only free up instant liquidity for up to 90% of the full invoice value of a single invoice. It can also be a fantastic way to introduce companies to Factoring Financing.
Spot Factoring by companies that want to only submit one invoice for factoring financing is commonly used across multiple industries where lengthy payment terms receivables are part of the business cycle including but not limited to:
- Government Contracting
Wholesale or Distribution of Consumer Goods
Once a business secures a lender to provide Spot Factoring they will have a convenient way to monetize one or several invoices over time without signing a long-term Factoring Financing agreement. Instead of tightening their belt during a contract, passing on bidding for new jobs, or having to juggle cash flow for anywhere from net 30 to up to net 90 business days until a client pays their invoice receivables owed.
This product could provide immediate capital to a business for an Advance rate of up to 90% of their invoices full value, often within 24 hours of submitting the invoice.
The businesses can immediately plow that capital right back into the company to manage cash flow better or take on additional jobs. After the set time once the client pays the full invoice amount to the lender, the remaining balance of the invoice minus the Spot Factoring cost of capital fees will be remitted to the borrower.
This completes the Reserve State of that specific invoice receivable. With the Spot Factoring transaction complete the relationship with the lender for further use of the product can be placed on hold. Until the next time the company would like to Spot Factor an individual invoice receivable. The instant capital infusion that this product could provide a company can be allocated into other areas of need within the business to grow and scale.
Spot Factoring could be a great Invoice Financing tool that companies can use to provide liquidity to their businesses for a myriad of reasons:
For starters most lenders that provide Factoring will require a minimum of six months to up to even an 18-month contract. With Spot Factoring there is no long-term contract. This is a great option for businesses that need an immediate infusion of capital and want to give factoring a try.
This product offers more flexibility than traditional high-volume Factoring Financing which is also known as whole ledger financing or full turn financing, which can require a company to factor all or most of their invoice receivables.
Since there isn’t an expected long-term Factoring Financing commitment with Spot
Factoring the underwriting paperwork required is minimal in comparison.
Spot Factoring can provide businesses with quick access to capital for up to 90% of the face value of a single invoice within 24-48 hours. That liquidity could be used to fuel business growth, cover costs during jobs, or take on additional projects.
The following documents will be needed. These following list of requirements may vary from lender to lender:
- A Standard Factoring Financing Application
- Min of 2 most recent years of both corporate or personal tax returns
- Min of 2 most recent years of corporate financial statements and a Personal Financial statement
- Articles of incorporation, (if a corporation)
- The partnership agreement, (if a partnership)
- Current Aging of Accounts Receivables Summary
- Current Aging of Accounts Payable Summary
- Copies of any UCC filings if you presently have assigned your accounts receivable to another secured party.
Companies must operate a U.S based business
Factoring Financing or Spot Factoring Financing only work for B2B Commercial or Government clients
This product is based off the business client’s commercial credit, therefore a full client list of all invoices that wish to be factored in order to make certain the clients are good
In order to qualify for Factoring Financing or Spot Factoring Financing the companies profit margins must be above 20% to 30% (varies)
The companies invoices must be free of liens or encumbrances in order to be accepted
The company needs to be either be free of any tax liens and if the company does have tax problems or a tax lien, their must have a payment plan
The business should not have an open bankruptcy and any past bankruptcies should be discharged by at least one year from the date of applying for Factoring Financing or Spot Factoring Financing.
Although the majority of the underwriting hinges on the creditworthiness of the clients paying the invoices. The owners of the businesses background must also show good character
Standard Interest Rates or Cost
Rates start at 1.5% for 1st 30 days
Typical Underwriting TimeLine
3-5 Business days
Available Capital Limit
Up to $100M per Invoice
Average Term Limits
12 to 24 Months
In Closing, Recently reported numbers have US Manufacturing and Merchant Wholesale B2B revenue reached 5.79 trillion U.S. dollars in just e-commerce sales. Not to mention the B2B Non-Ecommerce sales, the Transportation and Medical Industries as well. The vast majority of this business is paid out on a minimum of net 30 business days invoice receivables terms.
This can leave a lot of small to mid-sized businesses trying to find ways to juggle cash flow while waiting for their clients to pay their invoice terms. Factoring Financing or Spot Factoring Financing can both provide businesses with access to immediate working capital that can be used to manage day to day expenses and or to fuel growth.
Troy Business Group has a team of seasoned Business Financing Consultants that specialize in providing clients with access to Invoice Factoring Financing or Spot Factoring Financing. Please apply online, email us for an appointment, or call us today.
Our team is committed to helping your business grow with Invoice Factoring Financing or Spot Factoring Financing and will guide you through the loan process each step of the way.