What will Bankers Factoring Review to get you Funded?
- What will Bankers Factoring Review to get you Funded?
- What does Due Diligence Mean in Invoice Factoring?
- What is Accounts Receivable Factoring?
- What is factoring due diligence?
- A/R Factoring Due Diligence
- Typical Challenges during the Factoring Application for Clients
- Guaranteed Sales and Pay-when-Paid Clauses
- Fraud Management
- How long does it take to conduct factoring due diligence?
- Ready for the owner-employees of Bankers Factoring to fund your entrepreneurial dreams? Call 866-598-4295 or go to Bankers-Factoring-Application.
What does Due Diligence Mean in Invoice Factoring?
Has your business struggled to meet payroll, used costly MCA loans, or failed to obtain traditional financing? This issue is common to all small businesses during their first years of operations. As a business owner, the stress, sleepless nights, and lost sales are frustrating.
Accounts receivable or invoice factoring helps entrepreneurs and businesses of all sizes overcome their cash flow struggles. We help our clients path the way forward for new business development and reliable cash flow. Done correctly, it can improve customer relationships and allow you to offer extended selling terms.
When financing a client, Bankers Factoring must analyze certain client and its customer (account debtor) information to assess risk.
This process is called due diligence, and our top criteria include the following:
- Creditworthy commercial or government customers
- Gross margins from 20 to 30% or greater
- No liens on A/R or invoices
- Must not be in danger of bankruptcy or factoring can stop the bankruptcy
- No pending legal issues
Before we begin the due diligence process, let us first establish what A/R factoring is, or factoring for short.
What is Accounts Receivable Factoring?
Factoring is a financial transaction in which a factoring company acquires all or a portion of another company’s receivables at a discounted rate for an agreed term. This type of financing enables the client company, or seller of receivables, to obtain quick cash infusions to avoid waiting for payment from the account debtor. Payment might take up to 90 days, depending on the agreement.
For example, Bankers Factoring is the factoring firm that buys invoices from the seller or the client. Bankers Factoring purchases the right to the A/Rs from our client’s customers, also called the account debtor.
When you sell your invoices to Bankers Factoring, we buy your receivables and immediately cash advance up to 92% of your invoice value. We eliminate the stress of waiting for checks in the mail from your commercial clients. A/R factoring helps entrepreneurs focus on operations and business growth.
Suppose your company sells goods or provides services to commercial clients (B2B) or government entities (B2G). In that case, invoice factoring is for you. Keep reading to learn about obtaining working capital through A/R factoring with Bankers.
What is factoring due diligence?
Due diligence is part of the underwriting process for A/R factoring approval and funding. The process is where the buyer of an asset verifies and researches the seller’s offering through:
- Account debtor (customer) credit checks
- Financial statements
- Tax compliance
- General business operations
- Ownership interests
- Corporate structure
The goal of the due diligence process is to ensure there are no unknown risks and that the goodwill and tangible value of the assets exist for the buyer. We look at your customer’s credit, not our client’s credit.
A/R Factoring Due Diligence
When clients submit their applications to Bankers Factoring, we conduct the due diligence and underwriting process. Our approval process is hassle-free, and quick, and gets your business funding when necessary.
The main components of our factoring due diligence process include the following:
- Internal structure and good standing
- Financial reports and statements
- Licenses and permits
- Material contracts
- Product or Service Lines
- Customer Information
- Insurance Coverage
After we perform the initial due diligence, we conduct a credit check on the account debtor to ensure there are no signals of failure to make payment. The credit check shows our client’s customer’s history of on-time payment.
We are ready to arrive at an approval decision upon confirming and verifying the invoices, account debtor credit, organization structure, tax compliance, and potential legal action against our client.
Visit our previous article to learn more about our due diligence checklist.
Typical Challenges during the Factoring Application for Clients
Our underwriting team understands the importance of your business’s needs for funding. We work swiftly to remove the burden of cash gaps in your business. During the due diligence process, we assess your customers’ ability to repay us. The benefit of our non-recourse factoring is we take on the credit risk. This means if your customer fails to pay for credit reasons, we absorb the loss, not you.
- Incomplete or inaccurate documents
- Account debtor character issues or repayment issues in the past
- A client has liens against assets (receivables)
- Vendor contract provisions such as guaranteed sales and pay-when-paid clauses
- Client performance and quality have been suffering.
Our underwriters can act for your company by you completing our encrypted credit application. Our due diligence process ensures the future success of your business.
Maintaining and upgrading the credit application also aids in our ability to assess account debtor character. As your sales and invoices grow, your access to working capital grows.
Guaranteed Sales and Pay-when-Paid Clauses
The due diligence team evaluates your contracts to ensure that no terms could obstruct the financing process. The two most frequently problematic conditions are guaranteed sales and pay-when-paid clauses.
A guaranteed sale is a transaction in which you guarantee that your customer (account debtor) will sell all your products. It often gives the account debtor the option of returning unsold merchandise and requesting a charge-back.
A/R factoring is complex with this contract clause as the amount you invoice can change with the returned product. This reduced the amount of money repaid. However, suppose your client agrees not to return more than a specific percentage of merchandise. In that case, you can circumvent some of these concerns.
A pay-as-you-go sales contract provides that your customer will pay you when their customer pays them. However, you will not be compensated if your client fails to pay. Bankers Factoring views this arrangement as a significant credit risk, as we never know when payment will be received.
Fraud is a severe matter. Our credit professionals reduce risk by focusing on how the account debtors pay and the accompanying remittance guidance. We consider the following elements for fraud.
Are payments received from the client customer (account debtor)?
During our due diligence process, if we find the payments are coming through your bank statements from a different company than your customer, your application may have inaccurate information.
How are payments received?
We determine whether the account debtor pays by check, electronic funds transfer (ACH or wire), or credit card. Changes in payment methods can occasionally indicate the account debtor is in financial hardship or has misdirected/converted funds.
An account debtor who has always paid by check and then moved to EFT can increase payment speed and dependability, but only if the funds originate from the correct organization. In contrast, if an account debtor has always paid via EFT and then switches to a check or credit card, the account debtor’s financial stability may be questioned.
Is the remittance advice received timely, and is it clear and concise?
In the ideal scenario, the reimbursement includes the check, transmitted via EDI (electronic document information), or emailed directly to Bankers Factoring by the account debtor. Occasionally, handwritten remittances are provided and these should check with the account debtor unless it is evident that the payment is directly received. Remittance advice may also refer to “oldest bills” and not use them unless the account debtor provides written confirmation.
How long does it take to conduct factoring due diligence?
Although this procedure appears complicated, it is easy once you gather your information. 3-5 days is the norm. Bankers Factoring makes every effort to quickly facilitate smooth and timely funding. Often, the length of time required to conduct due diligence determines the complexity of the opportunity. We can usually complete the procedure within a day or two of obtaining the essential information.