Factoring is a type of financing. A factoring company purchases accounts receivable at a discount, providing the seller access to immediate funds. Qualifying for invoice factoring is faster and easier than going through a traditional loan process. Here’s how it works:
- You submit invoices for purchasing
- The factoring company sends you an advance (usually 70%-95% of the total amount of the invoices sold)
- Your client pays (often 30 to 90 days later)
- The factoring company sends you the rebate (the remaining amount minus their fee)
Find a Factoring Company
Begin the process by looking for factoring companies in Tuscaloosa, AL, with experience in your industry. Evaluate your options and select the one that’s best for your business.
Set up an Account
Setting up an account with a factoring broker in Tuscaloosa, AL, is relatively simple. There are, of course, legal documents to sign and due diligence to be completed. Companies usually submit a schedule of accounts listing the invoices they want to sell.
A Uniform Commercial Code (UCC) form is filed. This is a legal form that gives notice that the factoring company has, or may have an interest in the personal property of a debtor. Then notices of assignment are sent. A notice of assignment is a letter that informs customers that payments should be sent to the factoring company at a new remittance address.
Once your account is set up, the factor verifies invoices and sends you an advance. This first installment typically ranges from 70% to 95% of the gross value. The transaction is usually handled through an ACH, which can take one to two business days to clear the bank.
The second installment of the transaction is the rebate. It can be for 5% to 30%, depending on the size of your initial advance. Each factoring companies has its own way of handling this step. Some distribute the rebate as soon as your customer pays in full. Others “batch” rebates and provide them on a schedule, often weekly.
Many companies factor invoices regularly. You may want to consider factoring services in Tuscaloosa, AL, on an ongoing basis to assure predictable cash flow.
If you’re certain your clients will pay, but they’re taking their time while your business needs operating funds now, consider selling your accounts receivable to a financially stable, trustworthy factoring agency.