Top 5 Accounts Receivable Factoring Questions Answered
It is not easy to make the perfect funding choice for your business. Getting financial assistance is one of the most important choices you make as a small business owner. It is essential to consider all the pros and cons and how it applies to your unique industry and financial situation. Here are the top 5 questions we get regarding Accounts Receivable Factoring:
How does AR Factoring Rates compare to MCA/ACH?
A Merchant Cash Advance (MCA) or ACH loan much like Factoring is considered a short-term alternative financing option. While getting a MCA or ACH loan is often considered easier to get than any other type of funding, this ease comes at a cost. The cost of the capital can be much more expensive, in other words you’ll pay very higher interest rate, much higher than conventional loans and higher than most any other alternative solution as well. Also, unlike Accounts Receivable Factoring, in a ACH loan, the Credit Company directly access your checking account in the same way automated payments might go to your mortgage lender from your personal checking account.
How Fast Can I Receive Working Capital?
The best factoring companies will purchase your receivables and advance you money within 24 hours. The advance amount can range from 80% to as much as 90% depending on the Industry, your customers’ credit histories and other criteria. Once they collect from your customers, the Factoring Companies pay you the reserve balance of the invoices, minus a fee for their services. So you have immediate cash in hand to operate and grow your business.
Can I Get Approved if I Have Credit Issues?
For Small Companies, start-ups especially, financing options are limited and the borrower is often discouraged when they try to ask a bank or other lender for a loan. Typically, a Business has to provide a minimum of two years of tax returns, profit-and-loss statements, and balance sheets supporting their profits. However, a Business can sell their receivables when it is burdened by weak guarantors or has a negative tangible net worth. Even if the Company has a highly leveraged balance sheet or the extension of credit terms stretches its cash resources, with Invoice Financing there is a funding solution to put the Business back on track.
Is Bad Debt Protection Included?
Although no business likes to think about it, it’s a fact of life that every day, companies go into formal insolvency. If one of these account debtors is one of your clients, it can prove extremely difficult to recover what you are owed without a bad debt protection in place. With Recourse Factoring you have to repay the funds your Factor has provided against their outstanding invoices.
This is where Accounts Receivable Factoring with Credit Protection steps in – to protect your business from the formal insolvency of a customer. Designed to complement your Factoring facility, non-recourse credit protection is an affordable solution that mitigates the impact of bad debt caused by the formal insolvency of a customer, giving you certainty of payment when things go wrong. Factoring with Credit Protection usually includes built-in credit limit analysis for all your customers. This simple step can often help to reduce the risk of insolvency in the first place.
What if I have IRS liens?
Working around ‘Internal Revenue Service’ problem is difficult; however, it can be done. Often the IRS could consider working out a payment plan with your Company and proceed to Subordination when you show them how Accounts Receivable Factoring will benefit your Business and increase your chances of satisfying your tax debt. The Factoring Company will be authorized to make the payments on your behalf (from factoring advances/rebates). Accounts Receivable Factoring can be a tailored solution even for Companies with tax problems.