Understanding Asset Based Factoring
Asset Based Factoring also sometimes known as Asset Based Financing, Asset Based Lending or Asset Based Loan, is a financing method of choice for small to medium sized businesses particularly when they find themself in a position of illiquidity unable to enjoy a bank line of cedit.
Factoring is simply the sale of a company’s accounts receivable for immediate cash. In order for a business to grow it needs a strong cash flow. Without it, a business will struggle covering it’s monthly expenses and thus affect its growth.
Factoring companies will usually pay 80% of verified invoices within 24 hours of delivery. Then the outstanding 20%, minus a discount, is refunded to the client as soon as the customer / debtor pays the invoice. So for example, if a businesses invoices total $100,000, the factoring company will fund $80,000 right away to the business within 24 hours of delivery of goods OR procurement of the service. Once the customer pays the factoring company in full, the remaining $20,000, minus the fee, will be sent to the client.
History tells us that during times of economic recession, factoring has proven to be a practical alternative. When loans from banks are more difficult to obtain, many businesses consider paying a slightly higher rate for access to immediate working capital.
Asset based factoring is different than from a loan because lenders look at the creditworthiness of a businesses clients as opposed to that of the clients’ customers. In reality, the client does not incur any debt itself. A factoring company will provide funding for all its clients’ customers who are substantially creditworthy.
Clients’ customers don’t have issues with factoring accounts receivable because they do not have to pay any more or any sooner than if there was no factoring involved. Usually these clients’ customers / debtors are fairly large organizations and wanting to ensure the growth of their suppliers so they can to maintain their own future business.
When a business already has a loan, factoring is still possible but the bank has to release the receivalbles from the GSA (General Security Agreement).
Whenever a business is in arrear with its taxes, it may still possible to be approved for funding. CRA has been known to work with clients in this regard, knowing that for them to receive working capital from a factor, may be the missing ingredient for survival and future growth.
A business going through a bankruptcy will NOT be factored for obvious reasons. After resuscitation and with the correct profile, a prospect client may be entitled to funding.
To apply for funding through asset based factoring, the prospect client will need to fill out a simple application, provide a detailed customer list, an aged accounts receivable list, an accounts payable report, it’s Articles of Incorporation and its business licenses.
The process usually takes 14 days from the receipt of a completed application to funding. Usually funds are dispersed within 24 hours of an applicant receiving a Term Sheet or Proposal.
Asset based factoring gives business owners access to immediate cash, leveraged against their creditworthy customers. In light of today’s credit environment, more and more businesses are looking to factoring for growth.
iFactoring acts as a broker sourcing the best factoring company with the most relevant appetite for that particular industry with NO cost to the client. iFactoring is a privately funded company helping businesses leverage their assets to improve cash flow.