What is factoring?
Factoring is the process of selling invoices or accounts receivable by a business. The factoring company takes a nominal fee for the service, and the business is provided with the future capital funds that it can benefit from at the present time.
How does factoring work?
Basically, a client sells us a schedule of their accounts receivable. We then provide the client with quick access to cash by advancing a percentage of the total dollar amount of invoices (typically 80-90%). We hold the remaining portion, less our fee, until the invoices are collected. This portion is called a reserve.
How often do I receive the reserve?
The reserve is disbursed back to the client on a weekly basis, after the invoices are paid by your customer. However, if there is an immediate need, we can make exceptions.
What documentation is necessary to get started?
We will need a completed application, aging reports and prior year and interim financials to help us determine if we can factor your company.
How long does it take to process an application?
The timing varies in each scenario. Once the application and required documents listed at the top of the application are submitted, a representative from our Underwriting Department or a Business Development Manager will contact you within 24 hours to advise you of the next steps.
How does factoring affect my relationship with my customers?
At Allied, we pride ourselves on customer service and strive to make every contact with your customers a very positive interaction. We have an extremely professional staff that excels in customer service and handling collections. Our services also reduce the potential for disputes by confirming that the goods or services have been delivered and received to the satisfaction of your customers.
Do my customers still make payments to my company?
No, we require that checks be mailed directly to our post office box because the receivables have been legally sold to Allied Affiliated Funding.
What are the fees and how are they determined?
Typically, our fees are 1.5-2.5% of the amount being factored. Fees vary from client to client and are determined by an analysis of the financial strength of your customers, the average payment cycle, the average invoice amount and the anticipated monthly volume.
Do I sell all of my invoices?
No, you decide the dollar amount of invoices you need to sell. We have no monthly minimum requirements to meet, allowing you to take full advantage of months with good cash flow.
How quickly do I get paid when I sell invoices?
We advance the funds the same day we receive a schedule of invoices for existing clients who submit their invoice along with the required supporting documents by 10:00 a.m. CST.
Will I still be able to secure traditional bank financing?
The factoring of accounts receivable can actually enhance your ability to qualify for low cost traditional long-term financing. Factoring is a selling of accounts receivable, and it will not show a liability on your balance sheet. This improves your firm’s debt to equity ratio, which traditional lenders follow closely.
How expensive is factoring?
Factoring can be more expensive than traditional bank financing because it involves dealing with businesses that are typically perceived as being too high risk for banks. Companies that can obtain traditional bank financing are naturally not a good fit for factoring or for Allied. However, for those companies that have cash flow challenges and cannot obtain bank financing, factoring is an excellent choice. It can provide the cash needed, but it can also provide other valuable services such as credit checks and collections.
Is factoring a long-term financing solution?
Factoring with Allied is designed to be a temporary fix, not a long-term solution. We are focused on helping the business owner with his/her immediate cash flow needs, but we will also work to help move the client to bank financing, when appropriate. Allied strives to create lasting customer relationships that position the client to improve their business to the point where they will eventually qualify for bank financing.