Factoring Questions - Factoring, Factoring Companies

Do I have to factor all my invoices?

No. You are free to factor as many invoices and as many accounts as you desire for any period of time, all within the framework of our service agreement. There are no minimum quantities to meet and no minimum fees to pay.

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Do I need to sign a long-term agreement?

No. The term of our agreement is negotiable, subject to your needs. If we cannot identify a need of at least six months, we are likely to be unwilling to sign an agreement.

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How long does it take to get started?

In most cases, Interstate Capital can provide funds within three business days. Contact our closing specialist for details.

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Is there a limit on how much I can factor?

Interstate Capital establishes limits based on the financial strength of your customers. We will check their credit and approve limits based on your customers’ financial strength and how well they pay their bills. Most of our clients sell us between $20,000 and $5 million worth of invoices per month.

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Can I factor invoices that I have already mailed to my customers before I found out about Interstate Capital?

In most cases, Interstate Capital can accommodate a request to purchase invoices that predate our service agreement, even if they have already been mailed to your customer. We will evaluate your open invoices and determine which are eligible to be funded.

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Do I have to maintain a reserve?

No. Interstate Capital has a “zero reserve requirement." This means that within one banking day of our receipt of payment from your customer on an invoice you factored, we will deposit the unadvanced portion (the difference between the amount we collected and the amount we initially advanced), minus our fee, into your reserve account. You will treat your reserve account in much the same way you would a savings account at a bank. If there is a positive balance, it is your money and you may withdraw funds Tuesday through Friday in the form of a check, ACH or wire transfer. Unless you are in default of the service agreement, there is no hold or restriction placed on funds in your reserve account.

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What happens if I sell you an invoice that my customer fails to pay?

If your customer fails to pay a factored invoice within a prescribed number of days, typically 60 to 90 days, you are responsible to “repurchase” the invoice.

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How do I keep track of invoices I have factored, payments you receive from my customers, and whether or not I have funds in my reserve account available for withdrawal?

We provide you with a secure user ID and password with which you may access all of your factoring reports at www.interstatecapital.com. Our reports may be viewed as of any date or range of dates you select. To view payments we have received from your customers, select the Collection Report. To view your reserve account balance and transactions affecting its balance, view the Reserve Account Report. To view invoices you have sold to us, select the Purchases and Advances Report or Invoice Aging Report. All reports are available in PDF format for easy portability, viewing and printing.

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What happens if you receive a payment from my customer that relates to an invoice I did not factor, or one that I initially factored but later repurchased?

Subject to conditions contained in our service agreement, if we receive a payment relating to an invoice that, on that date, is not factored, we deposit that non-factored payment into your reserve account. Unlike the rest of your reserve funds, we will automatically withdraw, disburse and mail those non-factored funds to you in the form of a check. Unless otherwise agreed, there is no fee associated with processing non-factored funds.

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How do I know if my accounts are eligible to factor?

We have developed a proprietary system called the Credit Inquiry System (CIS) that you may access at www.interstatecapital.com. You simply log into the CIS using your secure user ID and password, then tell us the name and phone number of your customer and the amount of credit you wish for us to approve. We will confirm your request and assign it a tracking number. In as few as five minutes, you will receive an e-mail with a link to your tracking number in the CIS. At any time, you may log into the CIS and view your past inquires and the credit limits approved by Interstate Capital.

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How will my customers know that they are supposed to remit my payments to you?

One of our standard documents is an assignment letter signed by you and us. We mail that letter to the Accounts Payable personnel in charge of your account at your customer’s office. The letter instructs your customer to remit payments on your account to Interstate Capital.

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Do I need to tell my customers I'm factoring? And what will they think when they find out?

Your customers probably have many vendors/suppliers that have assigned their payments to factoring companies, so factoring is likely not a new concept for them. Factoring has become so common in almost every industry that most companies recognize its place as a respected means of financing accounts receivable. The truth is, your customers will be much less concerned about your choice of financing vehicle than with your providing them with superior pricing, product and service. It is not necessary for you to inform your customer that you are factoring, because the assignment letter takes care of that. If you feel you must personally make a call to your purchasing agent, you are free to do so. In either event, your Interstate Capital account manager will make sure that accounts payable personnel at your customer’s office receives the assignment letter and will confirm that their payable system reflects Interstate Capital’s remittance instructions.

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I have some uncollectible accounts. Will Interstate Capital buy them?

Factoring companies do not buy bad debt. Interstate Capital assists its clients by advancing immediate cash against their good accounts (that pay in 90 days or less with predictable regularity). A good factoring company should help you to come up with a credit policy that minimizes the chances you will give credit to customer that cannot pay your invoices when due.

Author: Tony Furman
Copyright 2009
Interstate Capital Corp.

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My company imports and distributes giftware. How can factoring help my company?

Interstate Capital may be able to assist you in several ways. First, we may be able to provide a letter of credit or vendor guaranty to your overseas vendor. Next, we can screen the credit of your customers and advance funds against your invoices, using the amounts advanced first to reduce our liability under the letter of credit or vendor guaranty. You receive what’s left over from the advance PLUS any un-advanced amount (minus our fee) after we receive payment from your customer.

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What if my bank has a security interest in my accounts receivable? Am I still eligible to factor?

Factoring companies are often able to fund against your existing accounts receivable and pay off your line of credit at the bank in order to obtain a termination of the bank’s UCC Financing Statement. If you don’t have enough eligible receivables, Interstate Capital is often able to obtain a consent from the bank that will allow you to factor your accounts receivable with Interstate Capital, provided you agree that the proceeds are deposited into your bank account at the same bank.

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What is a subordination Agreement

A Subordination Agreement is typically an inter-creditor agreement in which your bank will agree to subordinate to your factoring company the bank’s security interest in your accounts receivable in order for you to be able to factor your accounts receivable. Factoring companies are often able to obtain a Subordination Agreement from banks in situations when the factoring company’s client has a bank line of credit that is secured by accounts receivable. It becomes necessary in these instances for the factoring company to obtain a first lien security interest in the accounts receivable. A Subordination Agreement is just one document that can accomplish this task.

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My company has a federal tax lien. Am I eligible to factor my accounts receivable?

Factoring companies are primarily concerned about their ability to collect payments from your customers on your factored accounts. If your company has a federal tax lien, the IRS’s claim against your company’s accounts receivable is superior to your factoring company’s. Factoring companies therefore must either set aside a reserve from your fundings to protect themselves against the possibility that the IRS may levy your customers or obtain an agreement with the IRS that will allow you to factor your accounts receivable with the IRS’s consent and agreement to take no collection action against your accounts receivable that may jeopardize the factoring company’s ability to collect on your factored accounts.

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My company has negotiated an installment agreement with the IRS on unpaid back payroll taxes. How does this affect my eligibility to factor my accounts receivable?

Provided no lien has been filed by the IRS, factoring companies are able to monitor the status of your installment payments, while at the same time, confirm you remain current on your current payroll taxes. Monitoring your status on your installment payments is necessary because the factoring company must protect its security interest in your accounts receivable. Should your company fall behind in its payments the IRS, they may place a lien against your company’s assets and enforce their lien by levying your customers. This collection action makes it impossible for factoring companies to continue to factor your accounts receivable until the taxes are paid or the lien is released.

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I have a trucking company with just one truck. Is my company too small to factor its freight bills.

Small trucking fleets are eligible to factor their accounts receivable with Interstate Capital. We have a program designed especially for small fleets of one, two or three power units. This program features relaxed underwriting, no application or set up fees, no minimums, 100% advance against freight bills, free electronic funds transfers, fuel cards, free credit checks on freight brokers. Best of all, we prepare and send the invoice to your freight broker along with a copy of the rate confirmation and bill of lading.

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Do you factor federal contracts, federal contractors, and vendors to various U.S. government agencies and departments?

Yes. There is specific law that allows you to assign the proceeds and factor your federal government contracts and purchase orders known as the Assignment of Claims Act. Interstate Capital has 16 years of experience factoring federal government contractors throughout the U.S.

Factoring your federal government contract or purchase order requires the approval of your contracting officer or purchasing agent. They may withhold approval of the assignment in which case the factoring company will probably not consider factoring your contract without additional collateral or security. Please refer “Factoring Articles” and see the article entitled, “Factoring Companies and the Assignment of Claims Act” for more information.

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