What is Factoring?
Factoring is working capital financing provided through the discounted purchase of qualified accounts receivable, typically offered to rapidly growing companies or businesses in financial transition. The factor purchases eligible invoices from a completed service or accepted product and essentially transfers the credit risk from the client to the client's customer.
Typical industries served:
- Service Companies
- Wholesalers / Distributors
- Government Contractors
At NB|AZ®, we recognize that business challenges sometimes create non-traditional banking needs. In these situations, a more aggressive source of working capital financing may be the answer but also may be difficult to find. We look at challenges as opportunities to explore creative funding solutions for our customers and prospects.
- Newly formed, early stage
- New large orders
- Owners with limited net worth and/or damaged credit
- High debt or inadequate company net worth
- Leveraged or management buyouts
- Turnaround or restructure
- Unhappy with existing factoring or asset-based lending relationship
- Payroll tax issues or liens
- Bankruptcy (DIP)
- Non-compliance with required loan covenants
- Inadequate existing revolving loan facility
- Loan facilities anticipating decline
- Inadequate advance rate
- Invoice issued by client to customer
- Invoice is sold to Bank
- Cash is used by client for growth, payroll, and/or other expenses
- Invoice pays through client's lockbox
- Bank receives payment
- Client receives reserve amount less fees
Great, so you understand the product and basic process. Would you be interested in hearing how we may be able to offer you a better structure and price with a bank managed factoring facility?
It certainly can be more expensive than traditional bank financing but for the additional flexibility, frequently it is a trade-off that many companies are willing to make. Plus, it is viewed as bridge financing, a 6-36 month solution on average.
Much of our contact is transparent to the customer. We will need to have invoice payments sent to a NB|AZ lockbox and notification is made to the customer, usually the AP department, regarding the payment redirect. We also verify a certain percentage of outstanding invoices. This can be done via portal, email, or phone call. Every situation is different. Plus, having a Bank managed working capital facility gives a business credibility with its customers.
If you have an existing line of credit and you are happy with the structure and line amount, you should not look at making a change.
Our customers actually prefer using our lockbox as we handle their invoice collection paperwork and all the information is available online wherever/whenever they need to see it.