What are Factoring Companies?

Factoring companies provide financing to businesses with cash flow needs. Invoice factoring is a type of financing, where a business sells its open accounts receivables to a factoring company, in exchange for immediate cash.  Businesses use factoring to get faster access to cash, instead waiting 30, 60, or 90 days for payment from their customers.

Factoring companies serve businesses in a variety of industries. Here are some of the types of situations common at a factoring company:

• Companies in expansion and growth mode.
• Companies with maxed-out lines of credit.
• Industries with slow-paying customers.
• Start-ups looking for funds to operate and grow their new business.
• Bank turn-downs.
• Companies with less-than-perfect credit.
• Companies with tax lien issues.
• Bank workouts.
• Companies working through a bankruptcy reorganization.

Choosing among Factoring Companies

There are factoring companies throughout the United States and Canada. Finding the right fit for your business can seem like an overwhelming task. Here are the primary kinds of factoring companies.

The Main Types of Factoring Companies

There are two categories of factoring companies: specialists and generalists. Specialists typically factor invoices for a specific industry, whereas generalists providing financing to companies in a wide variety of industries.

Factoring companies can also be either recourse or non-recourse. Most factoring companies are recourse factors. Here’s how they differ:

• Recourse: The factoring company has the right to sell an invoice back to you if payment is not made by your customer within the amount of time stated on the contract.
• Non-Recourse: Factoring companies take on the financial risks of collecting on invoices, even when payment extends beyond the standard terms. Because of the added risk, rates at non-recourse factoring companies are generally much higher. It’s important to read the fine print with these factors, as some of your invoices can still be excluded.

How Factoring Companies Work

There are many kinds of factoring companies, each with its own special way. But generally, we all follow a similar process to get you the fast funding you need. Here’s how it works:

1. You send your completed invoices.
2. The factoring company purchases your receivables and advances a percentage of your invoice total. The remaining percent is kept in a reserve.
3. Once the customer pays the invoice, the remaining balance (reserve) is remitted to you, less a factoring fee.

As we said, the process and requirements vary based on what kind of company you partner with, with many factors providing niche financing. Continue on to learn more about what you need to know when it gets to the nitty-gritty for all types of factoring companies.

Things to Know When Deciding Between Factoring Companies

Rates & Contracts

You are approved for factoring based on the creditworthiness of your customers. But you need to know what your financing needs are. For example, are you expecting to grow over the next year, or are you looking for short-term financing? Being transparent with your factoring company about your business volume and financing needs is crucial, because these will determine your factoring rate.

When you are at the signing table, you must read the fine print and ask questions to get clarification of what it will cost if you are unable to meet your obligations. You want to avoid these costs and sign up for a program that fits your business. The penalties for not meeting your volume obligations can in some cases be crushing. Sometimes speaking with an attorney might be the best choice if you are uncomfortable because of certain language.

At TCI Business Capital, not only do we walk our clients through the agreement page by page to answer questions, but we provide our clients the option of a monthly contract that adjusts based on business volume month over month, ensuring that they have just the right amount of financing to help you avoid extra, unwanted fees.

Back-Office Support

The next consideration is the type of support your factoring company can provide. Take a hard look at your resources to determine how your company could benefit from value-added services that some companies provide. For example, could you use an additional collector? Does your accounting department look more like an empty desk without a chair?

Filling supportive functions can be difficult for small businesses or start-ups, especially when resources are tight. For some established businesses, taking advantage of the credit checks a factoring company could provide can reduce costs and assist the bidding process.

At TCI Business Capital, we provide a full suite of back-office support functions to all of our clients to ensure that together we position our customers for success, and build a strong partnership along the way.

Conclusion: Ask Questions and Know Your Needs

Know what your financing needs are and be transparent. A good factoring company wants to fit you into a financing program that makes sense for your business, not one that will shut your doors if you don’t meet business volume. A factoring company that wants a successful partnership with you wants you to be open about what your business needs are. Perhaps in the discussion you might find out that there is a better fit somewhere else.

Lastly, when you are researching factoring companies, take a look at their online presence and find out what their customers are saying in reviews and ratings. It could help you to learn more about the services and experience.

Benefits of Factoring with TCI Business Capital

At TCI Business Capital, we pride ourselves on distinguishing from the competition through our superior service and support. Here are just a few of the benefits of partnering with TCI Business Capital for your business finance needs.

• Quick Approvals: We can approve your company for factoring in as little as 15 minutes.
• Fast Funding: We provide same-day funding, eliminating your cash-flow gap.
• Online Reporting: Have access to reports anytime. See live status of payments and save time by accessing whenever you need to.
• Competitive Rates: Our rates are low and include many value-added services.
• Growth Opportunities: With lines ranging from $50K to $20MM, we grow with you.
• Customer Service: A top-notch experience through our dedicated relationship managers and funding teams allow you to focus on other areas of your business that need your attention
• Industry Expertise: With over two decades experience, we’ve funded businesses from scores of industries.
• Accounts Receivable Management: We can aid with your accounts receivable management by providing integration with billing software, image archiving and payment postings.
• Credit Analysis & Risk Management: We check their credit before you start work to ensure you’ll get paid.
• Collections: A team of dedicated collectors ensures your invoices are paid in a timely manner, and the relationship with your customer stays strong.

TCI Business Capital – the Right Choice Among Factoring Companies

Since 1994, TCI Business Capital has provided cash to successful and growing businesses across the United States and Canada. Get the cash you need today, instead of waiting 30, 60 or even 90 days for customer payments. TCI Business Capital offers same-day advances and competitive factoring rates. TCI Business Capital has more than 20 years of experience serving companies in a variety of situations. Our flexibility, experience and get-it-done culture allow us to help almost any business.