Factoring FAQ

Invoice factoring or receivables financing can be an education for some as not all people are familiar with it. Some of these sections may seem long but our intent is to be open and ‘above board’ with the process. Over $200 Billion accounts receivables are factored annually as you read this keep in mind that the process goes back to the days of the Egyptians.

With that said you can move on to the questions and answers below or better yet: If you really think that you know factoring and business financing the end of this section,

Before that though: We’ll ask you to take a moment and read the following as we feel that it is as important that if you are about to make a decision about capitalizing your company via invoice factoring that you educate yourself.

As you read through the questions below please know that we believe in educating our clients as in depth as we can because we do not agree with companies that hide fees, processes, and/or procedures in their contracts (and if any others come to mind email us EMAIL or call us directly toll free at 1-877-813-2923).

When we look to build our relationship we compare it to a triangle which we see as a powerful structure proven by the longevity and tests of time and parallel this to what the Pyramids of Egypt have withstood. After all: They started the process of factoring!

With that said we envision the tip of the triangle or pyramid as being your customer successfully having had their orders filled, you and your company paying your bills on time, you improving your company and your personal credit position, your business growing while it maximizes profits, and you as the owner realizing success.

The base of the pyramid we see as being formed by your relationship with us as your working capital provider while you realize the successes you deserve to achieve at the top of the triangle or pyramid.

To accomplish this we both need to set expectations and then understand each other completely so that there are no misunderstandings moving forward and this is why you should read through the questions below … and again: If you have any questions email or call us!

No! Nor do you have to factor all of your invoices from any one customer (many factors require this and it get’s costly to say the least). Unless there is some special need existing you can select what you factor and when you factor it and you only pay a discount for the time that the money is out on the invoice. We work with our clients to ensure that both the timing as well as the volume and the best available discounts are available all of which adds up to our clients receiving the most “value added” from the process.

1.2.0 Do I get charged for factoring my invoices on the day the invoice is written?

No! This is how many factors charge you a lot of money and for no other reason than to drive your fees up. You can most always hold your invoice for up to 30 days before your submit it for factoring (and if we know ahead of time can let you hold the invoice for as long as 60 days!) because we work to align your invoice factoring program to work with the pay patterns of your customers and your payment obligations to your suppliers as well as your employees. When we do this we discount your invoice from the day that we provide you money and close it out when the invoice pays. This is the way it should be – don’t you think?

Once you have decided which of your customers you want to factor we work with you to present the outsourcing of your receivables to them so that the process is seamless. We have found that the way that we manage this your customer will see nothing from this except positive things about your company (See the “Your Customer and the Process” section below as this focuses on this exact point).

There are two ways that you go about receiving what call an ‘advance’ on an accounts receivable: By request and/or via a schedule.

By request is pretty self explanatory: When you need working capital you factor as you need to or want to.

Scheduled Factoring means that you schedule a working capital advance to be sent you in time for such things as payroll or rent etc. at which time we will wire or mail (your choice) the money as requested. ALSO! If money comes in to you even though you have set up a scheduled working capital advance to you then you can call us and we’ll reduce what we were going to send you and at no cost to you in any way. If you want control of your money you’ll have it with us! And of course: If you need to increase the amount and your receivables level is high enough you can increase the advance also … pretty much all with a phone call.

Whether you schedule or request working capital all that you do is fax/email us the invoices that you want converted to cash and tell us when you want the cash in hand. We will, at our option, verify the invoice with your customer to ensure that they are happy with your product and are planning on paying the invoice within terms and the money is either on it’s way or the invoice(s) is considered a ‘qualified’ invoice and whenever you need that working capital we are ready to send it. (See the “Your Customer and the Process” section below as this also expands on this)

Once we approve an invoice (and for this example let’s say that the invoice is worth $1,000) we will “advance” you up to an agreed upon amount which is usually at least 80% of the face value of the invoice (in this case $800.00) meaning that we will wire you the funds or mail you a check as you prefer. The 20% portion of the invoice ($200.000) that is not advanced is called the “reserve” portion of the invoice.

When your customer pays for your services let’s say in 30 days, we have already advanced you 80% ($800.00) of the invoice amount and we will now keep our discount amount (as this can vary for simplicity let’s say it is 2.5% of the invoice amount or $25) and send back to you the rest of the reserve portion of the invoice (in this case $175.). This means that you had $800.00 a month early to run your business and paid a fee of $25 to do so.

We have set up an agreement that we will factor invoices for you with an 80% advance and a 2.5% discount for a thirty day period.

2.) We approve the invoice, and when you want the money, we send you $800.00. (80% of the invoice value of $1,000.00)

3.) When the invoice pays 30 days later we keep $25.00 as our fee (2.5% of the invoice value) and you will receive back an additional $175.00 for a total of $975.00 of the invoice.

NOTE: If you processed this on a credit card it probably would have cost you more!

Whereas we, in factoring invoices, purchase your invoice in exchange for working capital we typically have your customer make the checks out in your company name but have them sent to a lock box that we control. Many of our clients simplify this even more and have the checks made out to us as we do offer full management of accounts receivables if that helps new companies grow faster.

Of note: Out sourcing of business services is common place so why not accounts receivables management?

ALSO: If the customer sends us a check that is for an invoice that you did not factor then we just return the funds to you providing everything is in order with your account and unless there is something stated in a contract to the contrary there is no discount or service fees associated with this (you haven’t committed fraud or you don’t have customers that are stringing you out for time etc.).

Yes! We offer full online access to your account and too if you have a question we have an account representative that is assigned to your account in case there are any questions … as well as back up people in case your primary account person is not available.

Yes. If you have a question we have an account representative that is assigned to your account in case there are any questions … as well as back up personnel in case your primary account person is not available.

Of note: During the process of invoice factoring your account manager really becomes a relationship manager working for you to ensure that your customers are happy with your product or services and that they are paying on time. We treat your customer as if they were our customer because you are our customer. As we said early on: This is a relationship that we take very seriously!

Knowing the importance of cash flow if ever there is a problem or question we will all roll up our sleeves and dig in. Your best contact is the account representative but always remember that everyone involved will do their best to be available if something is amiss.

1.8.0 If the customer sends me a check and it’s supposed to go to you what do I do?

Although when you see our agreement you will find in it references to a ‘Misdirected Payment’ if this happens you simply fax us a copy of the check and then send the check to us ASAP. In our agreement you should not cash an errant check as this does cause a lot of confusion for everyone.

The only customer’s that will know that you are factoring are the ones whose payments you decide to factor. Many large companies send checks to factors and some even have departments that only manage factored receivables. Why? These companies like using small vendors as they can often times get better service and more favorable pricing but these smaller companies need prompt access to working capital which is where we come in. This is also common when large companies utilize minority contractors as more often than not these companies are just starting out and don’t have the where with all to withstand the high demands of a large company without invoice factoring.

Still concerned? The buyer at a large company more often than not is not in contact with the person in accounts payable so your buyer is not apt to know that you are factoring … and the reality is that if they are getting the best product for the best price there is no reason for this to even be a concern never mind an issue!

First of all: Large companies with good credit most always have checks being sent to factors because they like to do business with new and upcoming suppliers because they get competitive prices. What is important to them is that their product or service is delivered in a timely manner and most of them know that if their suppliers are factoring that they will cash flow. Along that line: We have a program with some large suppliers whereby we act as an intermediary and pay their suppliers in advance at a discount allowing these large companies to share in the value added of what we do!

There is no reason not to. It’s all a matter of comfort on your part but please know that we work with our customers to ensure that this is a smooth and seamless change in their business practices and that it does not disturb their relationship with their customers.

An example of this is that we sometimes suggest to our clients that they let their customers know that they are going to factor invoices using a letter, or something similar, worded as follows:

Dear “Customer”:

In order to support our growth and to keep your costs down we have accessed a working capital line for which we will be outsourcing the management of our accounts receivables.

Although this is a change in how we are doing things this will improve our ability to ensure quality service through immediate feedback from you while keeping our costs competitive and allowing us to grow and further service you better.

As part of this agreement our service company will contact you to ensure that we have supplied a quality product and that you are happy with our service under the terms of our agreement and hope that you will provide them the feedback they request.

Of note: If ever we have not provided your services or product that has not met or exceeded your expectations of us we want to know as we look forward to a long and lasting relationship!

Thank you,

YOUR COMPANY

Respecting that your customer is your most important relationship in your business if a customer goes out over the agreed to terms without providing a reason (product or service problem not resolved etc.) we have a format that we will ask you to follow up on whereby we will ask of you to initiate contact and provide us feedback as to the progress of your collection attempts. Of note: Many companies completely out source this to us as we have a proven history of respecting your relationship in so doing. If a customer tells us that they cannot pay we will not force this issue however we will come back to you and work with you to find a solution to the situation as we want to maintain your relationship with your customers.

Our primary collateral are the accounts receivables on which we will require the filing of a UCC1 however if we are able to secure additional collateral we will look to do that unless we are asked not to. We can also file a UCC1 on one customer or all of your customers as well as facilitate a UCC1 with other lenders (inter creditor agreement) so flexibility with this is fairly common.

NOTE: A “UCC1” is a Uniform Commercial Code filing. This creates a lien or collateral right for a lender or funder that in the case of a default by a borrower the lender or funder can take possession of and liquidate the collateral to pay off their loan or capital advance. This is similar to a mortgage on a house HOWEVER a UCC1 can be placed on all assets of a business and/or any single asset and/or any combination of assets. Contact us if you would like to discuss this in additional depth.

Factoring agreements have involved the factoring of one invoice one time or have been set up to last for months and/or years. This is one of the primary things that we discuss and customize to your business needs.

We primarily require a guarantee that you will not defraud us and that if something goes wrong with our receiving a payment for an invoice that we have purchased that you will guarantee to work with us until it is resolved (unless we have factored the invoice in a non-recourse agreement and we will do both). With a non-recourse agreement, which we prefer not to utilize, unless you defraud us or cheat us by submitting a bogus invoice our only recourse is to your customer.

We will discuss with you how we insure your invoices and/or we can refer you to other sources that will do this. Our pre-purchase credit work will usually avert this however having insurance on the invoices, which we most always do as a service, should cover this.

This varies with every client. Most always if a minimum monthly fee or minimum monthly volume is in our agreement it is set well below what is predicted to be factored monthly and too when we know a certain volume is going to be transacted we can typically offer a lower discount rate which saves you as a client a fair amount of money.

3.6.0 What if my customer is late paying? Will you pursue delinquent debt?

Our first solution to this is to talk with you about it and then we will do whatever you typically would like unless we are vulnerable to a loss due to an advance we have made.

Of note: We have developed a follow up program that we like our clients to utilize with their customer that is based on past experience and good business practices. We know that this has saved out customers collectively millions of dollars over the years not only in avoiding late payment fees but in debt that may have gone uncollected had attention not been paid to slow paying account when they were.

If you have delinquent debt that needs to be collected on we are happy to discuss this and are very experienced at bringing these situations to reconciliation in a professional and prompt manner.

We most always structure what is called a “block invoice factoring” pricing i.e. the discount is the fee – end. Our agreement will contain other fees that we can enforce if you abuse our services as can any funding source. We are happy to discuss anything in our agreement that you would like changed so if you see something that you want explained please ask. As we said at the beginning of this section: We will take the time to educated out clients before our agreement is signed so that there are no surprises.

Some examples: What if a client is very late paying? We can add in a ‘late fee’ penalty … but when do we do this? If you support our efforts trying to collect the payment then typically we do not penalize you. However: If you are not making any attempt to collect the payment then we can at our option penalize you because we have to commit our manpower to the collection efforts.

NOTE: It is not our desire to add in late fees or penalties however we do expect your business to act prudently in the management of your receivables as this is primarily in your company’s best interest anyway. Of note: Companies that have worked with our systems keep them in place long after they have factored with us as maintaining solid collection practices can save you a lot of money and time!

This is a wonderful question and we hate to say it but you might sometimes ask us “How do you solve a puzzle?”

In answering this question we primarily facilitate what is called a ‘block price’ discount as there are primarily two types of pricing models: Block and Structured.

Invoice Factoring that is done with Block Pricing, which we primarily use, means that so long as the invoice is paid within reasonable terms and there are no penalties incurred then the discount is what the discount is – end. Of note: Penalties, as referenced here, are discussed in the previous paragraph and can vary from late payment fees to collection fees. Structured Pricing will also have these fees built in however we will negotiate these with you while most companies using Structured Pricing as they use this as their mechanism to get their overall fees as high as they can.

Our programs are what is called “selective factoring” i.e. you factor what you want and when you want to with no hidden agendas.

Invoice Factoring that is set up with Structured Pricing is an interesting blend of fees that start off simple but that can then get very complicated as well as costly. Although companies using this structure offer a low – or even very low – factoring fee these programs are set up typically to enable the factoring company to add fees almost at will and mostly on the back side of the agreement. The sad part is that you don’t know that they are coming until it has cost you a lot of money and it’s too late because now you are very often committed to a contract. Here are some examples:

The advertisement that you saw is truthful in what it says: “We offer the lowest factoring fees” … however the add doesn’t tell you about line fees, line employment fees (what you pay when you take the money); days outstanding fees; and too that you have to factor all invoices or all of the invoices from any customer you submit. Note: These are some of the more obvious ones as this can go on and on.

Companies might also add in a ‘minimum invoice fee’ and if you have invoices under that number you have to pay a minimum invoice fee plus all of the above fees.

Does it make sense that a factor can provide full receivables management services for next to nothing? Often times when you add these structured fees up you can end up paying 20 – 40% more than if you used a factor offering block pricing and the really horrible part is that factors that offer Structured Pricing can sometimes all but come out running your company instead of you.

What if you have ten invoices from one customer but you only need to factor three of them but the structured pricing factor requires you to factor all of the invoices from that client any time that you factor? The block priced factor charges you more with a 2.5% discount then the structured factor who only charges you a 1% discount but by the time you are through paying the invoice factoring fee with the structured price factor you end up paying far more than you would with the block priced factor!

On $10,000 in invoices with the Block Price factor’s discount it costs you $25 per $1000 of cash that you need so if you only need $3,000 your total cost is $75.00.

On $10,000 in invoices with the Structured Price factor’s discount it costs you $100.00 because you have to factor all of your invoices even though you only needed $3,000 in working capital and the reality is that you paid a 3% discount right out of the gate and for no reason!

Ready for this? Now add in a line fee (1% of your approved facility); interest on the $3,000 (employment fee); and a few other fees and by the time you are done you are paying well over the 2.5% the block priced factor charges.

In fairness: Structured Pricing can be effective if you have to factor all of your invoices all the time HOWEVER this is dangerous thing to do because if you have a problem invoice in your portfolio this can cost you the game. Call or email us to discuss.

We most always use block pricing for invoice factoring as is explained in Section 3.8.0.

Recourse This means that if an invoice doesn’t pay in time that the factor can drive their collection efforts toward the customer due to pay the invoice as well as the company that sold the invoice to the factor.

Non-Recourse This means that the factor can only drive their collection efforts toward the customer due to pay the invoice but not the seller of the invoice. Most factors that are non-recourse factors are aggressive with their collections. Of note: If the invoice is proven to be fraudulent or the product/service in fault the factor does have the right to pursue the company that sold the invoice to make the invoice good.

Modified Recourse (what we provide mostly!) This is the best of all worlds in that the factor will work first with the company that sold the invoice to the factor to allow them to resolve a problem directly with their customer so as to allow the customer relationship to be protected as best that it can be. Of Note: The factor does reserve the right that if this does not occur that the factor can drive collection efforts toward the customer paying on the invoice but prefer that the seller of the invoice act first. Please know too that many of our clients are confident enough with the professional approach that we employ to have us do their collection calls and free up their people to focus on sales and product quality!

There is no fee to apply for a proposal. We will typically require a small due diligence fee because it can cost up to $2000 for us to set up a factoring account from start to finish.

Our Due Diligence fee is typically $350.00 compared to some who will charge up to $2500 to set up an account. Some companies will do this for free HOWEVER we have found that companies that do this often times just file a UCC1 on the company and are not in a proper collateral position to protect themselves nor you. It is often times these companies that end up in a legal mess and put your cash flow at risk so be sure to look into and understand this part of the process. Of note: The main cost to us is paying someone to actually go and do a physical search of the public records to ensure that there are no loans, liens, or pending judgements out standing.

4.2.0 How long does the application process take and how long does it take you to fund us?

We will have a proposal to you normally within 24 – 48 hours from the time that you provide us an application, a customer list, accounts receivables aging report, and a copy of your Articles of Incorporation. Of note: Companies that have you ‘Apply on Line’ really are not taking you through an application process … they are merely getting you to contact them. If they are not up front with you during the application process keep this in mind when you are reading their contract as you better be very careful before you sign anything!

From application to funding typically takes 7 – 10 working days if you send us the information we ask for in a timely manner. We have set up accounts in as little as three days but the norm is the 7 – 10 working days.

We need to be sure that you are doing business with solid companies that pay you in a timely basis and that your company, or at least the accounts receivables, are not encumbered by a UCC1 filing or other legal action. Once we have this we are usually good to go! If you have some “challenges” let’s discuss these as we can work with many circumstances that other funders cannot.

We base what we do on your customer’s credit and your being able to show us that you can deliver a good product or service that you can warranty or stand behind.

We can work with liens and judgements so long as there is an agreement in place that shows that these are being paid and/or that the holder of that lien knows what we are doing and will promise not to take legal actions against you without notifying us ahead of time.

If the bank loan has a blanket UCC1 (meaning that the bank has the collateral pledged to back their loan) then we need to work it out with the bank to allow us to file a UCC1 on either the Accounts Receivables or just on one invoice or just on the invoices of one customer (the most common). This is called an inter creditor agreement and we put many of these together. Of note: Some banks just will not cooperate … and if you are in this situation hopefully yours will. If you are in this situation we suggest strongly that you contact us before you contact your bank so that we can coach you on this discussion or have the discussion for you!

So … you think you know finance? Read these questions and if you would like the answers and explanations for them contact us and we’ll gladly send them! EMAIL

1.) True or False: When you factor an invoice you are obligating yourself and your company to more debt?

2.) True or False: When you factor an invoice the only value added service that the factor provides to your company is sending you money in exchange for your invoice?

3.) True or False: Over $200 Billion dollars in accounts receivables are factored annually (NOTE: This number does not include invoices factored privately)?

Offering a 2% net 10 day discount or factoring at a cost of a 4% discount on 30 days?

Offering a 1% net 10 day discount or factoring at a cost of a 3% discount on 30 days?

6.) Which costs the seller/supplier more? Credit Card Processing or Factoring?

Utilizing a credit card (s) for capitalizing your business or factoring your accounts receivables?

8.) What are the two results most often realized by offering credit card processing and/or factoring?

1.) Larger orders? 2.) Faster payment? 3.) Pre-screened credit? 4.) All (1 – 3)

10.) True or False: If a customer takes a 2% net 10 day discount then you as a business owner will have that money in your bank and working for you in 10 days?

11.) True or False: If a customer takes a 2% net 10 day discount then you as a business owner will most likely have that money in your bank and working for you in 16 days?

12.) Which is more risky? Taking on a Fortune 500 client @ net 30 terms for factoring or taking on a profitable but privately held company doing <$10MM annually in sales?

13.) True or False: Offering net 30 terms means that your client will pay you in 30 days?

14.) True or False: The cost of having an internal credit monitoring and receivables collection department exceeds the cost of factoring?

15.) True or False: Owners of companies in business less than three years spend more or less time chasing their money from slow paying customers than they do planning their business?

17.) Are you protected? When you ship product you verify with your customer that they have received the product, are happy with the product, and are going to pay within the terms agreed upon on the invoice … or you ship the product, assume the customer has received it and is happy with it, and assume that you will get paid in 30 days … or you wait until the invoice is not paid in 30 days, contact the customer, and find out that there is a problem with the product and until you correct the problem are not going to pay the bill?

18.) Are you protected? When you are taking on a new customer you verify their credit and ensure that they are both credit worthy and that their payment history in the market place aligns with the terms that they negotiate?

19.) True or False: You should acquire credit insurance for all of the invoices for all of your clients?

20.) True or False: A 2% net 10 discount offered by the seller of a product or service actually costs that seller the equivalent of 72% in interest on an annual basis?

21.) You Decide: When a customer or buyer of your product takes advantage of a 2% net 10 day discount offered by you, the seller of a product, and is actually making a 72% return on their money?

22.) Why do they do this? A business owner offers a 2% net 10 discount. Based on a 100 company survey of small businesses in how many days does that business owner actually have the working capital in hand to apply to their business? 10 days? 12 days? 15 days? 16 days? 19 days?

23.) True or False: Customers of clients that factor dislike factors and the fact that their supplier/servicer sold their invoice?

25.) True of False: When a customer of a factoring client does not pay on time the factor puts that customer into a collection mode and begins harassing that customer thus putting the factoring client at risk of losing that customer?

26.) True or False: There is only one type of factoring program available to companies that want to factor?

27.) True or False: A factor only provides working capital when they purchase an invoice?

28.) True or False: Factoring requires a personal guarantee AND requires the pledging of all personal and business assets to the factoring company?

29.) True or False: Factoring is the lending of money using an invoice as the collateral?

30.) True or False: When a factor advances 80% (+/-) when they initiate the purchase of an invoice for their client then that is all of the money that the client will receive from the factor?

1.) False! When you factor an invoice you convert the invoice to cash thus there is no debt created … unless the invoice is a fraud!

2.) False! A good factor provides value added in that they do ongoing credit checks, should offer credit insurance, as well as provide collection support and accounting.

4.) The 2%-10 discount. Why? Based on the time value of money a there are three ten day periods in a month thus the 2%-10 day discount equates to a 6% discount over 30 days … thus the 4%-30 day discount is less costly based on time and money!

5.) Based on question #4.): These are the same. If you factored an invoice however you would have the money on day one … not ten or 30 days later … thus if you are utilizing a factor that is the cheapest way to go!

6.) Actually? Credit card processing as this is usually a 2.5% - 3% discount applied in the first two to three days vs. a factor taking their discount on the 30^th day. The reality? These come out to be sort of a wash as the important thing is that you get access to your cash early on and have it work with ASAP!

7.) Utilizing credit cards to capitalize your business is a dangerous game as you create debt when you use the card to access cash. You also pay a dispersion fee (3 – 4%) and interest so it is costly – more than factoring! Sadly: If you pay late? Your credit is affected and you can end up in a real mess very quickly. Be careful considering this option!

8.) Answer: #4.) All. Offering open terms; getting paid sooner; and dealing with pre-screened credits are all benefits of using merchant card services and/or factoring.

9.) Believe it or not: Accepting credit card processing. When factoring an invoice is verified before funds move HOWEVER with credit card processing the funds actually move and the buyer has the right to challenge the sale. Of note: Merchants using credit card processing have you as a buyer sign an agreement that they can collect from you if you negate the transaction but it can become a real adventure if this happens.

10.) False. We have polled business owners for over ten years and the average amount of time that this takes is 14 days to receive the money; a day to deposit the check; and a day to clear i.e. 16 days pass. Want more? Many of these companies customers hold the invoice 30 days and take the two percent discount anyway … so now what do you do? If you factor: You have the money when you want it … not when your customer feels like sending it!

12.) Credit Approval is always complicated. Some large companies say they’ll pay in 30 days and 60 or 75 days later you still don’t have your money. This is one of the benefits of using or outsourcing credit work for your sales approval process … and please know too that there information is only as good as what happened yesterday but it’s better then guessing at it!

13.) False! It only means that they agreed to buying under those terms. They will pay you when they are ready to … and never forget that!

14.) False: The beauty of using a factor is that they are experienced in credit work; are up to the hour regarding credit information; and you only use them when you need them. Maintaining one person let alone a staff of people is costly.

15.) This is going to be a question we can argue over however having put this question on the table as often as we can the answer is the same: Collecting money and worrying about cash flow is a huge distraction for business owners – bar none!

16.) False … from the majority of all that we have talked with. Many have heard of it; many have heard stories about it; and many perceive it as a negative way to capitalize a company … until they try it. As one of our clients who delayed factoring for almost a year said: “What a wonderful process!”

17.) We put this in because when you factor with us we are going to infuse into your company good shipping and documentation practices. Why? If something goes wrong with your customer then you are protected and be aware of this too: These good habits you get for free and they stay with you forever!

18.) Maybe you do and maybe you don’t but if we are going to do business together you will and again: We want you to maintain solid business practices to ensure that you are protected. This is why many companies make it and many companies don’t!

19.) True … but what does this consist of? You can do this in a formal way i.e. hire an insurance company to do this for you but minimally you had best have some credit criteria in place to ensure that you are doing business with customers that will and that can pay you!

20.) Sitting down? Based on the time value of money this is actually true. There are three ten day periods in a month therefore three two percent discounts monthly comes to a 6% - 30 day discount and if you multiply that out over a year then the real cost is 72% … but only for the base amount of the money. Of note: When you are factoring you might align this calculation and feel that it is horrible however you also need to understand that if you factored $100,000 monthly that over the course of the year the transactions are not $100,000 (correlates to the 72%) but are actually $1,200,000 which correlates to the 2% - 10 day rate. Always keep in mind the time value of money – it is how the most successful businesses succeed!

21.) As in #20.) this is the reality. There is nothing wrong with it … one just needs to understand it.

22.) 16 days. We’ve talked about this several times and want to make sure you understand it as it can be a pitfall for some and a savor for others.

23.) False, and in fact some companies actually have departments that only manage transactions involving factors. Remembering that we are a ‘modified recourse’ factor probably enhances this some but for the most part factors are not half as much of an issue to your customers as you not being able to deliver …

24.) The Assignment of Claims Act actually states this however liens etc. have a precedence. The other precedence is if you are doing confidential work for the government and/or Armed Forces.

25.) In a modified recourse agreement this is false; in a non-recourse agreement this is true. Know your factor and get this in synch before you sign any documents!

26.) False: Factoring programs vary universally as factors are not regulated as they purchase assets … not lend!

27.) True: A factor only provides working capital when it purchases an invoice. A factor does not advance on work to be done (Mobilization Money or Trade Financing or Purchase Order Financing).

28.) False! Factoring only liens the accounts receivables. The guarantee may be personal however it is minimally that the seller of the invoice will sell only good invoices and not de-fraud the factor.

29.) False: Factoring is the purchase of an invoice. There is no debt created i.e. if money is loaned against an invoice debt is created but if an invoice is purchased then the invoice is converted to cash and no debt is created.

30.) False! When a factor advances 80% (+/-) on an invoice to a client the 20% of the invoice not advanced is called a ‘reserve’ and then the invoice pays the factor keeps their 2.5% (+/-) and returns the balance of the reserve less the factor’s fee to the client.