FAQs
Common Questions
Do I have to factor all my invoices?
No, you can choose which customers to factor. When you select a customer to factor, you must factor all the invoices for the customer.
Do I have to factor a minimum amount each month?
No, there is no minimum and no penalty fees. All you have to do is select the customers to factor and factor any invoices for those customers.
How much can I factor?
You are only limited by the amount you sell. If you are experiencing a high growth period, factoring is perfect. We can continue to provide financing as long as you have valid invoices.
Where do my customers send their payments?
All checks must be made payable and sent to Factors Southwest. We will notify your customers of this in writing. However, if some of your customers send payments to you by mistake, you must send those payments uncashed to Factors Southwest immediately. This is extremely important. If this event occurs, we will re-notify your customers to direct all payments to Factors Southwest.
How does Factors Southwest treat my customers if they need to speak with them?
FSW understands the relationship between the client and its customer is key for the client to continue to succeed and get repeat business. So while we do make contact, we explain our role as lender and that the primary relationship still lies with the client. We are not a collection company and will not hound your customers for payment.
How are factoring companies different from banks?
Any bank that performs depositary services must be regulated by the federal government. Federal regulation requires banks to comply with very stringent reporting and liquidity measurements. When a bank lends money, they also must require their clients to comply with many provisions such as minimum net worth, monthly financial reporting, annual audits and other proof of financial stability.
A factoring company generally makes loans on the accounts receivable and does not perform depositary or other banking functions. Thus, factoring companies do not have to comply with the same type of regulations banks do. This gives factoring companies the flexibility to offer very innovative and flexible financing solutions to their clients.
Banks often refer businesses to factoring companies for clients they are unable to provide financing. For example, banks usually require a business to have positive cash flow in the previous three years. If a business has experienced some type of negative cash flow issue such as rapidly growing sales or a period of slow collections, this could cause the company to be non-bankable for a time period. This is when factoring can provide the necessary financing which enables the company to regain credit and later the factor can refer the business back to the bank.
Definitions of Commonly Used Terms in Factoring
Account
A collection of claims or invoices against a particular customer for goods or services delivered.
Account Debtor
The person, business or organization responsible for paying an invoice.
Accounts Receivables
A commercial debt due for repayment usually in 30 – 90 days.
Advance
A percentage of an invoice advanced to the client by a factor.
Assignment of Account
The client’s right to an account is assigned to a factor.
Authorized Signatory
An individual who is authorized to execute a binding document on behalf of a corporation, partnership or other legal entity.
Bill of Lading
A shipping document providing instructions to the freight forwarder or shipper. This instrument also indicates who the seller and the buyer are.
Bill of Sale
A document used to transfer title of goods from the seller to the buyer.
Cash Flow
The difference between cash received and cash paid out.
Clients
The individual or company that sells or assigns its accounts receivables to a factor or other financial entities.
Collateral
An asset that is promised or given to a creditor (a factor or a financial institution) to guarantee the discharge of an obligation by the debtor. Upon default, the creditor may seize the asset and sell it to pay off the loan.
Concentration
The amount of one client's accounts receivable due from a single customer. A large concentration for a single customer is considered high risk.
DBA: Doing Business As
Used to designate the name of a business as it is commonly known rather than its legal name, the name of the owner, etc.
Debtor
A person or party which owes payment to a creditor.
Delivery Evidence
A document that proves delivery and invoicing of a shipment.
Factoring Fee
The amount earned by a factor on each invoice advanced upon. It is based on the period of time the invoice remains outstanding (unpaid) and is set forth and agreed upon by both parties in the factoring agreement.
Face Amount or Face Value
The total dollar amount of an invoice.
Factoring
The process of advancing on commercial accounts receivable (invoices) from a business for a fee.
Funding
Advancing money (based on the advance rate) to a client.
Invoice
A legal debt instrument which indicates the amount due from a customer to pay for delivered goods or services.
Invoice Aging Report
A classification process, as reported on a schedule by time intervals (30 day increments & current), 30 days, 60 days, 90 days, 90+ days, used to analyze the amount of money owed to a business by its customers.
Notification
Process whereby the factor lets an account debtor (a client's customer) know that an invoice(s) has been assigned from a client, and that the debtor is to pay the factor directly.
Personal Guarantee
An agreement in which a principal of a corporation assumes personal liability for the obligations of the corporation.
Purchase Order
A document or form used by a customer to issue an order for goods or services.
Recourse
A form of factoring where the client is liable for payment in the event the customer does not pay.
Reserve Account
An account established by the factor to track funds owed to a client as factored invoices are paid. The account amount equals the invoice face value minus the advance, the factor's fees, charge backs and administrative charges.
Schedule of Accounts
A summary report give by the client to the factor when submitting invoices to be factored.
UCC-1
The document filed with the Secretary of State and/or the County Clerk's office(s) to perfect a factor's lien on a client's assets (accounts receivable).
Uniform Commercial Code
The State Code which regulates the transfer of property.
Verification
A step during the due diligence process in which a factor confirms the validity of an invoice with the customer.