Factoring And Invoice Finance Demystified

When faced with a factoring service contract for the first time, you may find it complicated. In fact the concept of invoice finance is quite simple.

Factoring is a financial facility that allows your company to get paid on the invoices almost as soon as they have been issued. The facility effectively allows small or medium sized companies to turn your invoices, to include slow paying invoices into cash. Also known as accounts receivable financing, this is merely a way of helping small businesses capitalise on their future income today. It is a very easy way of improving the cash flow of your company and bridging the cash flow gap created when selling to another business on credit terms.

Factoring is similar to invoice discounting. The key difference is that with factoring, the financier runs the ledger, whilst with invoice discounting there is no credit control element to the facility. The business simply becomes the agent foe collecting in the funds on behalf of the financier. Invoice discounting can be disclosed to the customers or confidential, enabling you to go about your day to day activity without any implications as par as your customer?s perception goes and without any impact on the good relationships you have built.

What exactly can factoring do for your business?

Most businesses trade on credit terms, so when services and or products are delivered and the relevant invoice raised, there is a period of time (usually 30-90 days) before payment is received from your customer. There are a few solutions to assist you in trading and growing your business.

A Bank loan or overdraft is not the ideal way of financing a growing business. Overdrafts can be recalled at anytime and are not often granted at the right level to aloe you to optimize your business. In addition, often personal security is required.

The best cash flow solutions is invoice finance. The factoring/Invoice Discounting company will fund your invoices once the goods/services are delivered and the invoices raised. The rate your financier will advance against your invoices can be up to 90%. Invoices are typically financed for 120 days from the invoice date. Once your customer pays the outstanding balance, you will then receive the percentage you have not been paid against an invoice less your charges.

Charges can vary dependant on the type of facility and the level of service you opt for. The choice of the right solution for your business comes down to what your business?s specific requirements are. If it is particularly important to outsource the sales ledger management aspect of your business, then you may find it useful to opt for a factoring facility. This will free up some time and assist to reduce your debtor days.

An additional service offered by such companies is protection against bad debts, which would typically cover up to 90% of the outstanding balance on any customer, where you have a designated protection limit in place.

You?ve signed up with a factoring company. Now what?

When you invoice a customer, you send an electronic copy of that invoice to your factor.

The factor advances you the agreed percentage of that invoice. The factor is then responsible to collect the money from your customer. When the factoring company receives the amount due from the customer, it will pay you the rest of the money, minus the fees. Fees are usually broken down into two: Service fee, charged for running the ledger, collection activity and monitoring and a Discount Fee, which is charged over base rate, usually on a daily basis on the outstanding borrowed balance.

Who can benefit from using a factoring company?

Factoring is the best solution for any business that relies on a timely payment of outstanding invoices.

The most common indicators that you need a factoring facility are:

- When you are a new, cash flow dependant business.
- When your business doesn?t rely on a small number of major customers.
- When you need to finance the growth of your turnover
- When you foresee an increase in sales and you want to be able to take advantage of it.
- When you simply don?t want to get involved with anything other than what you do best, that is production and sales.

Now you have the basics. All that?s left for you to do is consider the benefits and decide if factoring or Invoice Discounting could be the solution to speed up the growth of your business.

By Iulia Pascanu sponsored by http://www.decision-finance.co.uk/ Decision Finance provides financial solutions such as term loans, stock & factoring: http://www.decision-finance.co.uk/ Please link to this site when using this article.

Can Medical Factoring Financing Fix your Cash Flow?

Most healthcare businesses have to wait between 15 to 150 days to get claims paid by private insurance, Medicare/Medicaid and HMOs. Although most payments are made in 15 to 45 days, a simple change in billing codes or a request for additional documentation can add weeks or months to the expected payment date of a medical claim.

However, if you own a healthcare practice, DME, hospital or testing center you have expenses that must be paid like clockwork. Payroll needs to be met. Rent needs to be paid. Equipment must be bought. Not surprisingly, all these expenses have one common element - you either pay them or you go out of business.

This leaves you with two possible options. Either you must have a cash reserve sitting at the bank or you need to get financing to cover the wait.

Many healthcare businesses try to get a loan or a line of credit. Although they can work reasonably well, they have one serious drawback. They have limits. And once you reach them, you are usually out of luck if you need additional financing.

The best alternative is to factor your medical receivables with medical factoring. Medical factoring provides you with financing based on your insurance claims, eliminating the wait and providing you with funds to operate your business. And opposed to traditional financing, you have no set limits. You can factor as many insurance claims as you can generate. It's really a tool for growth.

Factoring is easy to implement and incorporate into your business. Here is how it works.

1. You send your claims to the insurance company and to the factor
2. The factor advances you up to 85% of your expected net collections
3. 15% is not advanced and is used as a reserve to handle charge backs
4. You get immediate use of the funds while the factoring company waits
5. When the claim is paid, the transaction is settled

Since factoring relies on the insurance company's payment habits and financial strength, it can be a great tool for new and growing businesses that may not qualify for - or have exhausted - their bank options.

About Commercial Capital LLC
Are you looking to factor your medical receivables? We can provide you with a medical factoring quote. Call Marco Terry at (866) 730 1922. Need more information? please go to our medical factoring resources area

Growing Your Supply Company With Medical Factoring

Medical supply companies in general are very profitable enterprises. However, most medical supply companies operate on a very tight cash flow. Unfortunately, the challenging billing procedures and slow payment cycles of insurance companies, HMOs and Medicare/Medicaid create a situation where many companies wait 30 to 60 days before getting paid.

Cash flow can get even tighter if the company?s sales grow, or if the owners decide to open new locations. When this happens, most company owners try to obtain bank financing through a loan or line of credit. However, qualifying for bank financing is incredibly challenging as they will only lend money to a business that shows profits for three straight years and can provide audited financials.

There is a financing alternative in the healthcare industry that has been used with success with medical supply companies. This solution provides you with quick financing based exclusively on your sales. Furthermore, since financing is tied to sales, the line of financing grows as your sales grow. The solution is to factor your medical insurance claims using medical receivables factoring.

Medical factoring provides you with immediate financing based on your slow paying insurance and Medicare/Medicaid claims. Rather than waiting 30 to 60 days to get paid, with medical factoring you can get paid in a few days. This frees up significant cash, allowing you to finance operations, and more importantly, to buy supplies and fuel new sales.

As opposed to bank financing, where the bank lends you money, the factoring company buys your invoices and pays you immediately for them. The process is fairly straightforward. But more importantly, this also means that you are free from the traditional bank lending requirements. Medical receivables factoring is easier to qualify for, and often, the owners? personal credit is not a consideration.

Factoring your medical receivables can be an ideal solution for your medical supply company if your main challenge is that you cannot afford to wait up to 60 days to get paid by insurance companies. If that is the case, medical factoring should provide you with the working capital you need to operate and grow your business.

About Invoice Factoring Group - http://factoring.qlfs.com We can provide you with a free medical factoring, medical receivables factoring or invoice factoring quote for your healthcare company. Marco Terry, the president, can be reached at 1 866 730 1922 or at http://factoring.qlfs.com/html/medical_offices.htmlCommercial Capital LLC.

What Is Invoice Factoring And Invoice Discounting

The Romans were the first civilization to sell promissory notes at a discount, beginning the industry of factoring. America was built largely on the possibilities of factoring, when colonial businesses were factored by Europeans willing to invest cash in exchange for the promise of large returns, and government bonds also use the same principles applied by businesses when they engage in invoice factoring.

Invoice factoring is, at its simplest, the sale of the right to collect cash owed on your outstanding invoices. Most businesses engage in invoice factoring when they need cash up front quickly, or when they have customers that are slow to pay and don't have the resources to build an accounts collections department. Though some companies are large and established enough to get accounts receivable financing through a regular bank, it can be handy to have access to invoice factoring companies as well.

Most businesses use invoice factoring to get fast cash. In the intense and fast paced business environment of today, ready cash can be invaluable. With the sale of your invoice futures, you can get the cash today you need to capture customers that will move your business forward.

Invoice factoring is not a loan; rather, it's an outright sale of an asset. Another way of looking at it is as a cash advance: you give up a certain portion of the money you expect to receive in the future in exchange for ready cash today. While some businesses purchase invoices outright, others give you a down payment toward the invoice, paying you the balance less their fee when they receive payment from the customer. One of the best things about invoice factoring is that your credit has no bearing on whether you are approved; instead, your customer's credit qualifies the invoice for factoring.

Many different industries take advantage of invoice factoring, including:

* Transportation
* Manufacturers
* Distributors
* Wholesalers
* Staffing and consulting firms
* Telecommunications companies
* Service providers

Because ready cash is so important in their business, industries that are heavily vested in human services and need to be able to meet payroll are among the best able to leverage invoice factoring. However, any business that generates at least ten thousand dollars in accounts receivable should be able to use invoice factoring, provided they've acquired creditworthy customers.

Other situations that might make invoice factoring a wise choice for you include:

* A young company with creditworthy customers, but not sufficient credit history for your own business to be considered creditworthy by banks
* A company with the necessity of taking advantage of new, time-limited sales and profit opportunities, but inadequate cash flow currently to do so
* Companies with income, credit, or tax problems
* Companies that have filed for bankruptcy, but that stand to turn a profit
* Companies that are growing too rapidly for ready capital to keep up with business needs
* Companies poised to grow very soon but do not want to incur debt
* Companies that are growing rapidly, but do not have good enough credit to take out bank loans.
* Start-up companies with no capital base currently
* Companies with seasonal sales patterns or uneven sales patternsHenry Byers, Invoice Factoring advisor - focusing on Accounts Receivable Factoring and Factoring Financial Services

Financing Legal Fees (Factoring)

While most small and medium sizes law firms want to grow and prosper, few have the necessary working capital to handle increased case loads or extended settlement payment. Factoring, which is the purchase and sale of accounts receivable (in this case, legal fees) at a discount at or near the time of creation (settlement), can help solve this all too familiar cash flow problem.

Financial transactions with attorneys are shaped by ethics issues. The intrinsic problem is that the non-lawyer entity has an incentive to attempt to "maximize its earnings to the detriment of the representation of clients." However, once a case has settled, these issues are not in play any longer and the ethics issues go away. Legal fees on settled cases are just like any other account receivable and can be sold, assigned, factored or otherwise financed.

Specialty finance companies like CapTran (www.captran.com) will purchase legal fees on settled cases. Most companies will deal in all fifty states.

• Minimum Transactions amounts are as low as $5,000

• Individual fees can be aggregated to meet minimum

• Maximum Transactions amounts are generally in the millions as most factoring companies are very well capitalized

• A portion of a fee may be sold

• Generally, there are no application fees

• The fees must have no known motions or actions challenging the settlement

How it works

Once a case has settled and all documents have been properly executed by both plaintiff and defendant, the fee receivable is purchased for a small discount, usually between 2% and 12% depending on the payor and amount. The main difference in rates is the factor’s estimation of the time it will take to collect the fee.

Step 1 – Master Fee Purchase Agreement

A Master Fee Purchase Agreement is executed specifying the terms of the under which fees will be purchased, including minimum and maximum amounts, advance rates, fees and rebates. Before you begin factoring, please fax us the following documents:

• If your firm is a Proprietorship:

o Fictitious Business Name Statement or other document you filed with your local governmental agency allowing you to conduct business under your company name;

• If your firm is a Professional Corporation or Limited Liability Company (LLC):

o the document stamped by your state governmental agency confirming your company's registration and allowing you to conduct business under your company name. This is often known as a Charter or Articles;

• A copy of the declarations page of your malpractice insurance policy.

Step 2 – Submit Fee Purchase

Submission of fee for purchase using factor’s submission process/forms. (CapTran has an online e-from to make the process of submitting fees for purchase as easy as possible.) The documentation is simple and closing is usually within 24-48 hours.

Documentation:

• Copy of client fee agreement

• Copy of settlement or judgment

• Must be signed by defendant

• must be signed by insurance company or other payor

• Letter of instruction from attorney to payor directing payment to factor’s bank or lockbox.

Step 3 – Acceptance

Purchase of fees is subject to the factor’s acceptance,(acceptance occurs when you receive your advance), at their sole and absolute discretion at a the discount from face value agreed to in the Master Fee Purchase Agreement, which is usually wire transferred directly into your checking account. The discount will include the factor’s fee as well as any margin or “haircut” form the face value, which the factor has required. Usually, the factoring of legal fees requires no haircut if the payor is of unquestioned credit worthiness.

The assignment and letter of instructions from you is sent to the payor of the fee (usually an insurance company).

Step 4 – Payment

The payor sends their checks to the factor, which amounts are credited to your account, as received.

If the payor pays in a timely fashion (less than 90 days), you will also receive a Rebate when enough money has been collected to close any particular transaction. The Rebate is calculated by a predetermined formula that adjusts the original discount in Step 3. Here's an example assuming a 12.5% factoring fee and a rebate of 4.8% for payment within 90 days:

Amount of Fee $10,000

Less Advance Disocunt (12.5%) $1,250

Net Advanced to Attorney $8,750

Rebate if payment within 90 days (4.8%) $480

Net retained by attorney if paid within 90 days = $9,230

Net retained by attorney if paid after 90 days = $8,750

Every factor has its own rules, preferences and idiosyncrasies. However, the welcome mat in clearly out for accomplished small to medium sized law firms.

Some firms also offer working capital loans which may, for certain firms, compliment factoring very nicely.

Wayne C Walker, President of Capital Transaction Group Inc www.captran.com

Wayne C Walker, president of Capital Transaction Group Inc http://www.captran.com

Invoice Factoring Rates

Invoice factoring rates are the rates charged by invoice factoring companies for the services offered and cash advanced to businesses. Invoice factoring, otherwise called invoice discounting, is a business strategy by which a company’s invoices or receivables can be signed off to an outside company, thereby securing immediate cash. Invoice factoring provides ready cash, which otherwise would be available only after a stipulated period.

The service charge is usually a certain percentage of the sales factored and the service charge is calculated depending on the annual turnover of the company, the number of invoices and the number of customers. The interest charges are along the lines of normal secured bank overdraft rates. Invoice factoring rates are time-sensitive and are usually a fixed percentage of the total invoice, usually calculated in 30-day increments.

The best plan for factoring fees is that based on a per day basis. The average per day factoring fee may be between 0.095% and 0.085%, and continues to be so as long as the invoice is with the factor. Some companies charge fees on a per 30 day basis; this is not a very agreeable arrangement because there is minimum flexibility. If the customer pays after 31 days, one will be charged for 60 days. However, the interest per day scheme is advantageous because one has to pay only per day.

Invoice factoring rates vary widely from lender to lender, with commissions and incentives to lure customers. Most companies make invoice factoring quotes available within 24 hours. Alternately there are invoice factoring services which aid in locating the quotes most ideal for a particular company. It is worthwhile to avail of the services of these organizations since they can minimize the effort of hunting for an ideal invoice factoring rate.

Invoice Factoring provides detailed information on Invoice Factoring, Invoice Factoring Companies, Invoice Factoring Discounting, Invoice Factoring Rates and more. Invoice Factoring is affiliated with Loan Factoring.