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| INVOICE FACTORING / ACCOUNTS
RECEIVALBES FINANCING |
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| Invoice Factoring and
Accounts Receivable Financing takes several forms
depending on the structure of the loan facility that the
finance company or bank has provided. It might be part
of a working capital financing broadly based without any
limitation other than an amount. As the financing
structure gets more restrictive, the amount of financing
might be limited to a percentage of the receivable on
the company’s book to a case by case financing against
specific receivables. Generally banks provide the looser
form of receivable financing but lesser amount while
specialized financing companies such as Factors or
structured Asset Based Lenders provide the more
restrictive structure financing but more funding. |
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Factoring is very
structured financing. The funds provider, the Factor,
actually purchases the receivable from the ‘borrower’
the seller of the receivable without recourse to the
seller. Advance rates are generally from 75% to 85% of
‘eligible receivables’ or receivable that fits the
purchase criteria.
Generally eligibility requires a) that the receivable
represents a true sale and not a contingent or
conditional sale, b) does not represent a partial but
complete service or delivery of goods, c) has a near
term maturity date generally below 90 days, d) that the
receivable is current and not past due, e) definite
obligation to pay within a certain date., e) there is no
dilution but represent the total amount, etc. |
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The Seller has to be careful that it has the right
Factor. The Seller (“Borrower”) should check out the
following before entering into a factoring Agreement: |
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The reputation of the Factor |
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The financial ability of the Factor to provide
consistently the amount of financing needed. |
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The pricing is clearly stated and that there are
no hidden costs and fees. |
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A good factor is
an invaluable source for a borrower and can play
a very important role in it's viability.
However Factors do not provide the much need
funds to purchase the goods but only advance
funds after the goods have been bought and
shipped to the end buyer and invoiced. This is a
significant shortcoming of Factors as a source
of funding. On the other hand, the more specialized Purchase Order Financing
companies provide not only the funding to
purchase of the goods but also carry the
financing right through the receivable period.
In other words the financing starts from paying
the supplier, the transportation period and the
receivable period.
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A good PO Finance company can
be an invaluable funding source.
Contact Ashford Finance if you need
prompt finance to fund your full cycle of
funding from the purchase of goods through
in-transit inventory to receivable financing. |
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