Frequently Asked Questions
What is Factoring?
Factoring is a form of business cash flow financing – it is a finance facility that allows a business to release the cash owed to it in unpaid invoices/accounts.
Simply, a business sells one of its assets, the unpaid invoices, or accounts receivable, to raise working capital.
This facility allows a business to eliminate the gap between the time your invoice is raised and the time payment is received – effectively converting your term accounts into cash accounts. As a result the cash flow of the business is improved dramatically.
Would my business qualify for factoring?
Most businesses qualify for a factoring facility. The guidelines are simple; transactions must be on credit terms and business to business. Any invoice may be sold/factored, provided that the product has been delivered or the service has been completed.
We factor businesses with a turnover from $250,000 per annum.
How does the factoring process work?
|Step One||Your Company delivers a product and/or provides a service for the client.|
|Step Two||An invoice is raised by your Company. This invoice is then sent to Business Capital Financial Group together with a “proof of delivery” document such as a delivery docket or a consignment note.|
|Step Three||Upon receiving your invoices and “proof of delivery” they are scanned and then posted to your customer.|
|Step Four||The invoices are processed and funds are deposited electronically, as cleared funds, into your nominated bank account within 24 hours of their receipt.|
|Step Five||Your customers then remit payments to Business Capital Financial Group.|
What about new businesses? We have only been trading for six months; will we qualify?
Due to a lack of trading history and in many cases inadequate levels of security to offer, lenders are often unable to help new businesses. However start-up businesses are not excluded from obtaining a factoring facility.
Why? Well, in assessing your application, we look at the consistency of your turnover since start-up and the quality of your customers (debtors).
If your business has been operating for at least six (6) months and can demonstrate consistent turnover with the potential for growth then in most cases your business would certainly qualify for a factoring facility.
I already have an overdraft so why would I consider factoring?
Whilst there is nothing wrong with an overdraft they can be restrictive and may not satisfy a business’s cash flow needs. An overdraft may not facilitate business expansion due its finite nature, whereas a factoring facility is more flexible, is linked to the sales of a business, and thus accommodates business growth – as the sales increase so does the level of funding.
Your company will also benefit from the professional management of your accounts receivable – lets you focus on growing your business.
Is a factoring facility a loan?
No. The good news is that there is no debt incurred – no repayments to make and in most cases no bricks and mortar security required – the family home is safe.
You are simply selling one of your business’s assets. In this case the accounts receivable.
How else will factoring help my business?
The benefits received through factoring vary from business to business, however improved cash flow is guaranteed and as a result you should experience some or all the following:
- Improved bottom line – increased profits.
- Increased sales – able to take on large orders.
- Reduction in overheads – by outsourcing the management of your accounts receivable.
- Increased orders – able to offer clients credit terms with confidence.
- Receive supplier discounts – get discount for cash.
- Increased buying power – bulk purchasers now possible – receive further discounts.
- Competitive edge on your competitors – able to purchase supplies at the right price.
- Enhanced credit rating – able to pay creditors on time.
- Improved confidence to take on new accounts – have required working capital available.
- Improved time management – no need to waste your valuable time chasing account payments.
- Improved relationship with customers – they now know you have the ability to fulfill orders consistently – very useful when working with blue chip companies.
What does it cost and how are the fees calculated?
There are two components that make up the total fee structure; a discount fee and a factoring fee.
Many factoring companies charge additional fees, for such items as postage, photocopying, credit reports, due diligence expenses, telephone calls, draw down fees, general administration fees etc, and etc. These additional charges often get lost in the mix and yet have a large impact on the true cost of factoring.
With Business Capital Financial Group there are no hidden expenses.
Obviously, the actual fees charged vary from business to business. There are many factors which help determine the fees charged to a client, such things as commitment level, size of the facility required, number of debtors, strength of the debtors, the time taken by the debtors to pay their account, and strength of the client business to name just a few.
However, Business Capital Financial Group provides each applicant a Letter of Offer after it has conducted its own due diligence.
This offer provides details of the proposed facility and may be rejected at no expense to the applicant.
Factoring is an affordable option for many businesses but may not be the solution for everyone – it costs you nothing to explore the opportunities that a cash flow facility may provide your business.
All fees are tax deductible expenses.
I’ve heard that factoring is a “last resort finance”. Is this true?
Nothing could be further from the truth. Quite simply, if a business was under severe financial stress, it is most unlikely that they would be approved for a facility. We deal only with sound businesses whose growth is being hindered by lack of adequate cash flow. Factoring should be viewed as a positive – a sign of a business’ strength.
I’m concerned about what my customers will think!
You will still maintain the rapport that you have developed over the years with your customers and Business Capital Financial Group will do nothing to interfere with that relationship.
We simply manage your accounts receivable and in doing so your dedicated account executive will develop a good working relationship with your customers and present them with a very efficient and professional accounts department which will further enhance your businesses reputation.
We follow up payments on behalf of our clients from most government agencies; major retailers like Woolworths, Coles Myer, Harvey Norman, and David Jones; public listed companies such as BHP and Shell and large building companies. This arrangement has not affected the relationship between the supplier and the client.
Factoring is a well accepted financial tool for businesses these days and debtors do not have a problem with a third party involvement, in fact most welcome the professional approach to managing the accounts.
Factoring our debtors sounds good, but do we have to factor all of our invoices?
No. This is one of the main points of difference with our competitors. At Business Capital Financial Group we allow you to determine your own cash flow needs. You make the decision as to which invoices you choose to factor. Factor accounts when you need the cash. Why pay fees on invoices when you do not require the funds? Simply factor the number of invoices at a time when you require working capital.
So far factoring sounds attractive. How do we proceed?
The first step is to contact our office. We will then arrange for a Business Development Manager to visit you at your business premises and he will go through the application process with you.
On receipt of your application we can then assess whether a factoring facility is suitable for your business. Once our underwriting department has evaluated your application, and if approved, a Letter of Offer will be issued and presented for your acceptance.
At this point in time you are free to choose whether to accept or decline our offer.
If you choose to go ahead there will be an establishment fee which is due and payable on acceptance. This helps us to cover the cost of documentation preparation, government registration charges, and costs to set up your facility.
After accepting the proposal, an appointment will be made to execute the facility documents. We are then in a position to commence funding.
Generally, this whole process from application to funding occurs within five to ten working days.