The key to quick access to cash begins with understanding factoring application terms. Small businesses can face cash flow struggles and factoring can provide the immediate relief that allows them to meet payroll, capture significant discounts from suppliers and allow the business operator to concentrate on those aspects of operations that make their businesses grow and succeed. For those reasons, factoring is among the most popular cash flow solutions for many small businesses.
Businesses choose to factor because of the speed at which they can get their funds, especially when compared to traditional bank applications and loan processes.
Factoring cuts down on the time between finishing a job and getting paid for it, and it provides a debt-free alternative that is not determined by a business’s credit score or worthiness.
By understanding factoring application terms, the owner will better understand how factoring works, and why factoring has become so popular with small businesses.
Six Components of a Factoring Application
Factoring applications are typically divided into six components:
- General Company Information
- Ownership Details
- Accounts Receivable Information
- Tax Information
- Company Banking Information
- Professional Services Information
Typically, at the end of the factoring application, the small business owner will be asked to attest to the accuracy of the information on the application and to authorize the factoring provider to perform their due diligence. In most cases, the due diligence can be achieved in a matter of hours and the applicant can be on their way to solving their cash flow issues within 24-48 hours.
General Company Information
In the General Information section, the application will be dated and information such as the legal name of the company is provided.
The applicant will also identify the legal form of the business and the state where the business was organized. Trade names and all other DBA’s will also be listed here.
Other general information required on the factoring application are:
- Area of operations
- Years in business
- Mailing address
- Physical business address
- Primary contact information
- Business phone numbers
- A brief description of products or services
The small business will be asked if it has ever filed bankruptcy and to briefly describe the circumstances as well as all names under which the company has operated in the last five years.
The factoring application will also require accurate details concerning the ownership of the company. Under this section, all principles who own at least 25% of the company’s shares will be listed along with the percentage of shares each individual owns.
Personal information may include the name of the principal’s spouse and social security numbers for both parties as well as addresses, dates of birth and contact information.
The factoring application may also request information about any personal bankruptcies as well as past or current litigation and any liens or judgments that are currently pending. This part of the application is very straightforward.
Accounts Receivable Information
The Accounts Receivable portion of the factoring application form is extremely important. Make sure to spend more time on this section to ensure accuracy.
The factoring provider wants to know about the receivables they will be asked to factor. Required information for this section includes:
- Total accounts receivable outstanding
- Amount of average monthly financing requested
- The total amount of financing requested
- A breakdown of how current accounts receivables are aging
- Total number of customers
- Average days to collect
- Annual accounts receivable write off
The owner will also be asked to identify customers who have extended terms or special agreements. The company will also be required to identify all previous attempts at factoring and whether invoices are issued at stages or upon services rendered. The small business owner will also be asked the intended use of the funds provided by the factoring provider.
The business owner will have to identify the Federal Tax ID or FEIN and the number of employees on the payroll as well as the name of the payroll processor if an outside provider is used.
The factoring company will also inquire about the status of current tax liabilities if any. The factoring provider will also ask if the company has ever been audited and if there are any tax liens or judgments currently outstanding.
A breakdown of current state and federal tax liabilities and the existence of any monthly installment plans will also be requested.
Company Banking Information
The Company Banking Information is very straightforward. The company will be asked to provide the name of the primary financial institutions, the branch, and name of the branch manager as well as relevant contact information, including email address.
The factoring company may ask general information about the banking relationship such as the number of years the bank and the company have been working together. The factoring provider will also look to see if there are outstanding loans and when they were initiated.
This section will also ask the owner to identify the key accounts receivables, the contact persons at each account, the payment terms of these accounts and their current balances.
Professional Services Information
The Professional Services Information component of the factoring application pertains to important information that can expedite the application. The company will be asked to provide the name of their attorney and contact information. Articles of incorporation can be attached as well as the Articles of Organization such as the Operating Agreement or by-laws.
Submitting documents such as Profit and Loss Statements, a Balance Sheet and cash flow analysis for the last two years will greatly expedite processing of the factoring application. Business tax returns and bank statements are also helpful. Proof of insurance and a sample invoice can resolve potential issues before they begin.
Bear in mind that the business owner’s preparation can greatly ease the factoring application process. If you have any questions regarding your factoring Application, you can get in touch with one of the factoring specialists at Interstate Capital. Contact us for an instant factoring rate quote today.