What is Factoring?
Factoring is a transaction in which a business sells its accounts receivable, or invoices, to a third party commercial financial company, also known as a “factor.”
This is done so that the business can receive cash more quickly than it would by waiting 30 to 60 days for customer payments based on offered sales terms. The funds are unrestricted, providing a company more flexibility than with a traditional bank loan.
Factoring of Accounts Receivable provides additional benefits.
- Credit Protection – Since Coral Capital’s analysis focuses on the credit strength of our client’s customers, we keep monitoring such credit and provide a quick approval or flag out concerns with respect to existing and new customers.
- Accounts Receivable Management – On an ongoing basis Coral Capital Solutions monitors the aging of the receivables, verifies timely payment by customers, and provides access to real-time on-line detailed report to our clients.
- Collection and Cash Management – Our clients use Coral Capital for their cash receipts and daily cash application, management of the Receivable and providing on-line reporting tool.
What is Purchase Order Financing?
Purchase Order Financing is a financial tool, which allows fast growing businesses to develop and expand beyond what their existing working capital can support. A typical client would be a fast growing importer, an undercapitalized business, or one that is outsourcing production of its goods to domestic subcontractors and distributing products in the USA or Canada.
We work in conjunction with international or domestic suppliers, committing to advance funds on the delivery of finished goods, thereby putting the weight of our financial strength behind the order and giving suppliers assurance that they will be paid in time.
PO financing is usually provided through letters of credit issued on behalf of our clients. By the nature of this instrument, suppliers of our clients limit their exposure to our clients by replacing it with an exposure to our bank’s credit.
What size companies use Factoring?
Factoring can be used by companies of all sizes, from small privately-owned companies to large multi-national corporations. Most companies that use factoring have annual sales between $1 million and $200 million.
What industries typically use purchase order financing and factoring?
Service Businesses including staffing; software management companies; call centers; Business Process Outsource Firms, consulting firms, design; technicians, IT providers, transportation businesses, janitorial companies, government contractors, Security Firms, B. Product Businesses including consumer goods businesses, food and beverage, toys, pet products, home goods, furniture, fashion, housewares, electronics, manufacturing, distributors, hardware, importers, engineering and printing firms.
What is the difference between recourse and non-recourse factoring?
Recourse means the client ultimately takes the responsibility for the payment of the invoice. Factors that purchase invoices on recourse basis are providing advances without providing their credit protection.
Non-recourse factoring allows companies to sell their invoices to the factoring company, which assumes all of the credit risks for the collection of the invoice. Some factoring companies offer both recourse and non-recourse factoring.
What are the benefits of factoring?
- Factoring can help companies of all sizes, from start-ups to mature companies
- Factoring is based on the quality of your customers’ credit, not your own credit or business history. Factoring provides a line of credit based on sales, not your company’s net worth.
Why should I use factoring?
Companies that turn to factoring include those that are
- Rapidly growing
- Saddled with a large customer concentration
- Strained by slow turnover of receivables
- Have high Seasonal business
- Operating on a lengthy manufacturing cycle
- Hurt by losses
- Concerned about adding fixed costs or additional overhead
- Early stage that don’t have fin statements to support bank line
How is accounts receivable funding different than a bank loan?
We focus on the creditworthiness of your customers, while banks focus on your company’s financial history and cash flow.Accounts receivable funding is not a loan; therefore no debt is entered on your company’s balance sheet. We can make a quick funding decision, while banks may take
Accounts receivable financing is not a loan; therefore no debt is entered on your company’s balance sheet. We can make a quick funding decision, while banks may take weeks, even months to approve a loan. Factors are able to provide additional liquidity during growth periods whereas companies are often constrained by a firm line of credit at a bank.
What information will you need to begin the factoring process?
- Most recent accounts receivable and accounts payable aging reports
- Customer List [including name, city, and state]
- Company Financial Statements if available
- Brief description of your business
What if I already have a lender?
We are usually able to arrange a subordination agreement or negotiate the release of any liens that may be encumbering your receivables.
Do you have any restrictions as to location of the client?
No. Coral Capital is a nationwide commercial finance company–we can serve clients in all 50 states and Canada. Our client’s customers may also be in all 50 states and Canada. On very limited basis we may consider international receivables for financing.
Do I have to be an established business, operating a minimum number of years?
No. Coral Capital prides itself on catering to the financing needs of small to medium size businesses and ones recently founded. Start-ups can be financed provided there are accounts receivable generated from credit-approved customers. We can help establish businesses importing goods by assisting with purchase order finance and paying suppliers overseas for finished goods.
Do I have to factor all invoices?
No. Coral Capital does not require you the fund all of your invoices. It is the client’s decision which invoices or customers it needs to submit for funding.