Factors design their services around accessibility, so it’s not hard to learn to navigate their systems and get applications approved. That being said, nothing is easy when you don’t know what’s going on, so it helps to check into the process before jumping into accounts receivable financing. There will be a few differences from one factor to another, but most of the steps to approval are consistent.
1. Account Setup
Many companies that rely on factoring services do so consistently. It’s an easy way to make cash flow predictable. As a result, factors set up their processes to streamline successive applications. That means your first application will probably take the longest to approve. You need to be set up with an account, your client histories and other financial information will need to be reviewed, and other information needs to be collected, in addition to the submission of the invoices you’re looking to finance.
2. Application Review
There will be a delay of a few days after sending your invoices before you’ll hear back about accounts receivable financing options. If you’ve chosen to finance all your invoices at once and to finance rather than factor, the costs should be relatively low. There are usually penalties if customers do not pay on time, though, so you need to be sure you read carefully when you get to penalty fees and timetables after receiving an offer. If everything looks good, you’ll get the majority of your invoices’ face values as an advance, then a smaller second payment after the customer pays the factor.
Once you sign the contract with a factor, events really jump into motion. It should not take more than one or two business days to get funds after coming to terms, but that’s not all there is to implementing the accounts receivable financing agreement. Your business also needs to direct payments to the factor. You’ll also be responsible for tracking any payments mistakenly made to you after notifying customers, then forwarding them to be processed. Most customers learn quickly when you use a factor regularly, but you still need to look for stragglers.
Factors also offer advice to help you keep the cost of financing down. Sometimes, they may require customers with payment history issues be dropped in the interest of risk management, and it’s a good idea to go with the advice. After all, how good is a customer who doesn’t like to pay the bill when it arrives?