Understanding Factoring: A Quick Overview
Factoring is a financial arrangement where a business sells its accounts receivable to a third-party factor at a discounted rate. This allows companies to access immediate cash, enabling them to cover operating expenses, expand, or invest in new opportunities. Factoring is an excellent solution for businesses facing cash flow challenges or seeking to capitalize on growth prospects without incurring debt.
Simple and Easy Application Process
Universal Funding’s application process is designed to be simple and hassle-free, requiring just a few minutes of your time to complete. Once you submit your application to Universal Funding, we will promptly provide you with an initial proposal that includes your factoring and advance rates. It’s important to note that signing the application and proposal does not obligate your business to utilize Universal Funding’s services. Rest assured, we understand the importance of privacy, and we are fully committed to maintaining the confidentiality of all information shared with Universal Funding.
Efficient Underwriting Process
Once you accept the proposed factoring rates, your application will undergo a thorough evaluation by our underwriting department. This team will carefully assess the creditworthiness and overall viability of your customers. During this process, your designated underwriter may contact you to seek clarification or request additional information regarding matters such as liens, outstanding loans, judgments, pending lawsuits, bankruptcies, or financial losses. Any insights you provide will greatly assist the Universal Funding board in reaching a final funding decision. Typically, the underwriting and approval process can be completed within one to two business days.
Key Factors in Underwriting Guidelines
Underwriting guidelines determine which invoices are eligible for purchase and the terms of the transaction. These guidelines are meticulously crafted to ensure that factoring companies mitigate risk while providing financing solutions to businesses.
1. Creditworthiness of Your Customers
One crucial aspect of underwriting guidelines is assessing the creditworthiness of your customers. Universal Funding evaluates the reliability and credit history of the businesses or individuals responsible for paying the invoices. The more creditworthy your customers are, the higher the advance rate you can expect.
2. Invoice Quality
The quality of your invoices plays a significant role in underwriting. Universal Funding considers factors such as invoice accuracy, completeness, and clarity. Incomplete or disputed invoices may lead to delayed funding or non-eligibility.
3. Industry and Geography
Underwriting guidelines often take into account the industry and geographical location of your customers. Some industries or regions may be subject to higher risks, which could affect the underwriting terms.
4. Invoice Aging
Universal Funding assesses the aging of your invoices to determine their eligibility. In general, younger invoices are preferred, as they are less likely to have collection issues.
The Factoring Process: Step by Step
Invoice factoring presents a straightforward method for establishing and maintaining healthy cash flow. Here’s a breakdown of what occurs after you send out an invoice:
- You receive and fulfill an order.
- Once you’ve delivered your goods or services, you issue an invoice to your customers. Simultaneously, you forward a copy of the invoice to the factoring company.
- After a quick verification process, funds are promptly transferred directly into your bank account.
- Typically, you’ll receive an advance payment ranging from 80% to 95% of the total invoice amount. The remaining percentage is held in a reserve account.
- The factoring company then collects payment from your customers within the agreed-upon terms (e.g., net 30, 60 days, etc.).
- As your customers make payments, your account is credited accordingly, with the remaining funds deposited into your account minus a small factoring fee. This fee, known as the factoring rate, generally falls within the range of 0.55% to 2% monthly.
- You can conveniently monitor all your transactions through our secure online portal, accessible at any time.
Choosing the Right Factoring Partner
Selecting the right factoring partner is crucial for a successful factoring relationship. It’s essential to work with a reputable factor with a strong track record of helping businesses grow. At Universal Funding Corporation, we provide tailored factoring solutions, transparent terms, and exceptional customer service to support your financial needs.
The Bottom Line
Factoring is a powerful financial tool that can transform your business’s cash flow and help you achieve your growth objectives. Understanding the underwriting guidelines and the factoring process is the key to making factoring work for your company.
If you would like to learn more about our the invoice factoring application process, please call Universal Funding at 800.605.4035 or complete our rate request form to speak with a factoring specialist. We’re happy to answer your questions!