Even if you find that these specific issues are dealt with satisfactorily in your treaty, there may be other areas of concern. For example, will you be held liable if your customers don`t use their invoices? If so, you can apply for a non-recourse option that frees you from liability in this case. Another question may be about the number of invoices you need to consider each month. If your contract requires you to meet a certain billing threshold, make sure your business generates enough sales to meet these conditions. Sometimes companies may experience cash shortfalls when their short-term debts or bills exceed their sales revenues. When an entity has realized a significant portion of its revenue through receivables, the money recovered by the receivables may not be paid on time to meet its short-term liabilities. This will allow companies to sell their receivables to a financial services provider (a “factor”) and obtain cash. While factoring is a relatively expensive form of financing, it can help a company improve its cash flow. Companies that are active in sectors where it takes a long time to convert receivables into cash – and companies that grow rapidly and need cash to take advantage of new business opportunities are a valuable service. Factoring provides a company with a convenient way to insure and recover its debts and obtain financing for the business. Be sure to carefully check all the provisions of the factoring agreement, first on your own, then with experienced clothing advisors. Suppose a postman agreed to purchase a $1 million invoice from Clothing Manufacturers Inc., which represents Behemoth Co`s unpaid debts. The factor is negotiating to reduce the bill by 4% and will be $720,000 at Clothing Manufacturers Inc.
The balance of $240,000 will be transferred by the postman to Clothing Manufacturers Inc. after receiving the $1 million invoice for Behemoth Co. The commissions and commissions of the factor in this factor are $40,000. This is the solvency of the part charged Behemoth Co. as the company to which it acquired the receivables. Each factoring contract covers the invoices you charge the factoring company, if not all, (also called sales). If there are certain requests that you don`t want to consider, discuss them with the factoring company beforehand. First, your company will probably receive a letter of proposal (it`s not a contract) from the postman that contains some, but not all, terms and conditions, which can be included in the factoring agreement. This letter of proposal usually requires your signature and a down payment. The postman will then send you the proposed factoring documents, including the factoring agreement, personal guarantees (if the factor makes advances), a secretariat or management certificate (depending on whether your company is a limited liability company or company), a proposed communication to your clients that your company`s claims have been assigned to the factor, as well as various related documents and agreements.