Frequently Asked Questions(FAQ)

Your financing services questions, answered.

We welcome questions and are always happy to address them. In over two and a half decades of asking and answering questions, we have found that about 95% of inquiries are centered around the same prevailing questions and misconceptions—which is why we have addressed them below.

It is very likely that your questions or concerns will all be addressed in our questions and answers section. However, if after you have carefully reviewed the questions and answers you still have unanswered factoring questions, please feel free to reach out to us during our normal business hours from 8:30 a.m. to 5:00 p.m. Central Standard Time, Monday–Friday. Or, send us an email, fax, or letter any time.

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Please click on the specific area of your question to review the various responses. For definitions of terms, please see our glossary.

Visit Our Finance Glossary

Please click on the specific area of your question to review the various responses. For definitions of terms, please see our glossary.

Factoring Questions

FAQs about Business Factoring

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What is factoring?

Factoring is the sale and purchase of accounts receivable at a discount. It’s a financing method used by businesses to generate capital.

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How does factoring work?

You set up an account with Factor to sell invoices for goods or services sold and delivered and you’ll receive immediate cash advance rather than wait on your customer to pay. When your customer makes a payment, they’ll send it to the factor (in this case, us). Factor will then deduct the initial advance you received and applicable fees, and rebate the balance to you.

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Will I continue to bill my customers as usual?

Yes. However, you must change the payment address to Factor’s. In some cases, Factor will send out invoices directly.

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How would a customer know to send or redirect payment to Factor?

Your customer will be sent an official but friendly notice of where to send the payment and your invoice will also include Factor Funding’s address.

Continue on for further factoring questions and answers.

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Will you contact all my customers?

No, only the customers whose invoices you factor will be contacted.

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Am I required to factor all my customer’s invoices?

No, you can pick and choose which customer’s invoice to factor, however, acceptance shall be governed by guidelines as established in the factoring agreement.

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What if I don’t want my customers to know that I am factoring?

That would require a non-notification factoring which is hardly available anymore. A non-notification factoring happens almost exclusively through major banks and subsidiaries, but often with much more stringent qualifying criteria and extra scrutiny—making such a request can even arouse questions about your client relations, you, and your organization.

But why wouldn’t you want them to know? Over recent decades, factoring has evolved to become a very fine financing strategy that is used by many astute managers in diverse industries—often in conjunction with or as a substitute for other financing methods. You might be surprised; your customer is already familiar and comfortable with the idea of factoring.

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Is there a required minimum or maximum factoring volume?

No, but the more the better—higher volume can translate to lower fees.

Continue on for further factoring questions and answers.

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What does factoring cost?

There are many factors—such as industry, volume, payment terms, etc.—that may influence the rates. Generally, rates are between 1% and 3% per 30 days.

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What amount or percentage of invoice will you advance?

Advances are between 70% and 95% of the face value of eligible invoices and are established at the time an account is opened. Established advances will, for the most part, depend on risk factors such as industry, terms of sales and delivery, volume, lien priority, time outstanding, client relations, and experience.

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When, how, and how often are advances paid?

The time and frequency of advances often depend on when and how frequently you submit invoices for funding, whether it is early or late, and how frequently you are paid (daily, weekly, bi-weekly, or monthly). Advances can be paid in any number of ways, but the typical way is by wire transfer. The other payment options are by automatic clearing house (ACH), teller deposit, check by mail, and payment on location.

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When will any balance amounts be released?

Typically, reserves (balances) are released twice a month on the 15th and 30th, but they can be released more frequently as needed.

Continue on for further factoring questions and answers.

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Will I be required to sign a long-term contract?

A long-term contract is not usually required. But, it may be necessary in order to be viable and induce Factor to underwrite your funding and extend more favorable rates and terms to you.

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How do I qualify for factoring?

You qualify if you are a legally registered business selling goods or services on terms to other credit-worthy and reputable businesses and you have full, unencumbered rights to receive payments from those reputable businesses.

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What if I have some credit issues, a prior bankruptcy, an existing loan, or line of credit?

One of the unique benefits of factoring is that eligibility is largely based on the credit-worthiness of your customers (the individual or organization who will be paying for the goods or services sold). There’s very little if any consideration at all on your credit. You may be eligible to factor even if you have some credit issues, an ongoing bankruptcy, loans, or other lines of credit.

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Do you work with small businesses and startups?

Yes, the majority of factoring clients are small businesses and startups.

Continue on for further factoring questions and answers.

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How long will it take to set up an account?

Depending on your situation, it may take anywhere from 1–10 days to set up an account. A typical account can be set up in as little as 3 days. Funding can start within 24–48 hours of setting up your account.

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How do I get started?

To get started, you can submit an application along with some basic support documents. If approved, final documents will be completed for funding.

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Is there an application fee?

Typically, there are no application fees. However, many factors do charge due diligence fees in order to investigate and qualify your accounts for funding after initial review and acceptance.

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What specific documents do you require?

The initial documents required to open an account typically include proof of business registration, photo identification of principals, customer lists, invoices, and copy of accounts receivable aging.

Continue on for further factoring questions and answers.

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Who does the collections, you or us?

Once you start factoring, Factor Funding will be responsible for doing all collections on funded invoices unless exceptions are made.

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Do you have any geographical restrictions, industries, or areas you won’t factor?

No—as long as you are located within the U.S., its territories, and Canada, there are no other geographic or territorial restrictions. We are also able to provide some international factoring.

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How can I keep track of invoices and payments?

You’ll receive regular reports. In most cases, you will have direct online access 24/7 to your reports using your very own unique access code. You can also request reports by fax, email, or phone.

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What if a customer doesn’t pay an invoice?

It depends on how your account is set up. An account will be set up in one of two ways: recourse or non-recourse. A recourse account requires a guarantee that you will either buy back unpaid invoices, swap it out, or deduct the amount from your reserve funds in full or progressively until paid in full. With a non-recourse account, the loss will be absorbed under certain conditions.

Continue on for further factoring questions and answers.

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Do I have to sign a personal guarantee?

Yes, some form of guarantee will be required to affirm your integrity, representations, and warranties; the validity of your statements and documents; and attest that you will perform as per the terms and conditions of the agreement and not commit fraud.

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What happens if I stop factoring?

To stop factoring, you should send notice of termination as per your agreement. After all accounts are paid in full and all obligations under the terms and conditions of the agreement have been satisfied, your remaining reserves and future receipts will be paid to you and a general release will be completed.

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I have heard very serious caution against factoring, why?

Perhaps it is because they do not have sufficient information. Or, they believe some of the misconceptions about factoring such as—it’s very expensive, like loan sharks, as it involves unscrupulous collection tactics and should not be used by small businesses except as a last resort to avoid liquidation. These are all false.

Factoring Questions

FAQs about Purchase Order Funding

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What is purchase order (PO) funding

Purchase order funding is short-term financing, payment, or payment assurance made to a supplier on behalf of a buyer to procure or produce and deliver goods that have been presold.

Continue on for further factoring questions and answers.

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How does PO Funding work?

If you have an order from a customer but lack the financial resources to fulfill it, you can request and receive advance funding on the order and repay with proceeds from the sale after completion or delivery.

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What do you charge for PO funding?

Every transaction is unique. Therefore, the real cost of PO funding will depend on the specific and associated terms and conditions of the PO. The average cost of purchase order funding is about 5% of funds used, not including ancillary costs.

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What is the minimum and maximum amount you will fund?

We will consider purchase order funding requests between $100K and $10 million.

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How will you fund by cash, check, credit, Letter of Credit, or other?

All of the above, depending on the situation. Our preference is by letter of credit (LC).

Continue on for further factoring questions and answers.

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Will you fund an entire project or only a portion?

We will fund 100% of the costs of goods, or up to 70% value of PO toward the production of goods only. We will not fund soft costs such as labor except in rare cases.

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Will you advance the funds to us to pay our suppliers?

No, funds or payment assurance will be issued directly to benefit your supplier.

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Will you pay multiple suppliers?

Yes, in situations where there are multiple suppliers involved, we will issue payments to different suppliers within reason.

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How do I qualify for PO funding?

Easy! First, see that you meet the minimum criteria. Next, your product needs to be presold—but not on consignment—with a reasonable profit margin. The PO must be from a legally registered, credit-worthy business and noncancelable. It is essential that the product can be resold in the marketplace in case of recovery and payment, assurance, or guarantees can be made directly to your supplier.

Continue on for further factoring questions and answers.

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What initial documents do you require?

A completed application, a copy of your purchase order, the agreement between buyer and seller (where applicable), an invoice to the buyer, a supplier’s invoice, accounts receivable aging and accounts payable reports, and business financials.

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Do you fund start-ups?

In many cases, yes.

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Is there an application fee?

No. There is no application fee.

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How long will it take to get funded?

A purchase order funding timeline will vary anywhere 1–90 days or more depending on any number of factors, such as if it is the first funding, types of goods, production capacity, quantities ordered, value, funding criteria, and terms and conditions of sales and delivery. The average timeline is 7–10 days.

Continue on for further factoring questions and answers.

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How long will I have to repay the loan?

Purchase order funding is provided as a discounted funding advance rather than as a loan. Since it is short-term financing provided to facilitate the fulfillment of orders, it is expected that it should be repaid immediately from the proceeds of the sale after delivery or thereabout. Therefore, the allowable time to repay purchase order advance will greatly depend on the terms and conditions of sales, production, delivery, and payment as accommodated by the lender. However, ideally, it will be paid in less than 45 days.

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Do you fund Purchase Orders in all industries?

Yes, provided it is for the purchase of finished goods for direct delivery to the buyer.

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Do you require a term commitment?

No. You can fund one or as many transactions as you like. Each transaction is deemed independent of the other unless otherwise indicated.

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Do I have to sign a personal guarantee?

Yes, some form of guarantee will be required to affirm your integrity, representations, and warranties; the validity of your statements and documents; and attest that you will perform as per the terms and conditions of the agreement and not commit fraud.

Continue on for further factoring questions and answers.

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What is the difference between P.O. and Invoice Funding?

Purchase order (PO) funding is made before goods or services are delivered to the buyer. Invoice funding is done after goods or services are delivered. They’re both short-term funding, but PO funding provides funds to facilitate the production, acquisition, and delivery of pre-sold goods while invoice funding provides expedited access to funds after delivery.

Factoring Questions

FAQs about Asset Based Loans

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What is an asset-based loan?

An asset-based loan is a loan that is secured by tangible and/or intangible assets—such as accounts receivable, inventory, equipment, real estate, and intellectual property. The loan is often a fractional value of the underlying asset. Ideally, the asset can be quickly and easily converted into cash if need be.

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What types of assets will you lend against?

We will consider funding against virtually all manners of business assets—including accounts receivable, inventory, rolling stock, machinery, and real estate.

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What is the minimum and maximum loan I can get?

We will consider funding requests between $10K and $10 million, or higher in certain situations where we will advance at 50% value of the underlying assets.

Continue on for further factoring questions and answers.

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Is there an application fee?

No. There is no application fee.

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What’s the interest rate?

Each transaction is different. The costs of funds are determined based on several factors—including amount, duration, and level of risk.

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How long will it take to be approved?

Generally, most requests are evaluated upon receipt and initial determination rendered within 24–48 hours, typically closing in 2–4 weeks.

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How long will I have to repay the loan?

It varies. Typical short-term requirement is a 90-day minimum and maximum of 3 years. In some situations, companies have up to 60 months to repay.

Continue on for further factoring questions and answers.

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Will approval be based on my personal credit?

While we will look at the principal’s credit, approval will largely be based on the value of the underlying asset—and often in spite of cash flow, financial condition, sales history, or other conventional lending criteria.

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How can I qualify?

To determine if you are eligible, please complete and submit our asset evaluation profile or call 866-245-0020. After review, a representative will contact you.

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Do you fund start-ups?

In many cases, yes.

Factoring Questions

FAQs about Equipment Finance and Lease Buyback

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What is a lease?

A lease is a written agreement for temporary use of property for a specified period with an agreed-upon payment.

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