Understanding Factoring: A Quick Overview
Invoice factoring is a financial arrangement in which a business sells its accounts receivable to a third-party factoring company at a discounted rate. This enables companies to quickly access cash, which can be used to cover operating expenses, expand their operations, or invest in new opportunities. Invoice factoring is an excellent solution for businesses experiencing cash flow challenges or wanting to take advantage of growth prospects without taking on additional debt.
Simple and Easy Application Process
Universal Funding’s application process is designed to be straightforward and convenient, taking only a few minutes of your time to complete. Once you’ve submitted your application to Universal Funding, we will promptly provide you with an initial proposal that outlines your factoring and advance rates. It’s important to note that signing the application and proposal does not commit your business to utilize Universal Funding’s services. Rest assured, we prioritize privacy and are fully dedicated to maintaining the confidentiality of all information shared with us.
Efficient Underwriting Process
Once you accept the proposed factoring rates, your application will undergo a thorough evaluation by our underwriting department. Our team will assess the creditworthiness and overall viability of your customers. Throughout this process, your assigned underwriter may reach out to 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 making 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 play a crucial role in determining which invoices qualify for purchase and the specific terms of the transaction. These guidelines are carefully crafted to ensure that factoring companies manage risk while offering financing solutions to businesses.
1. Creditworthiness of Your Customers
One crucial aspect of underwriting guidelines involves 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 creditworthiness of your customers directly impacts the advance rate you can anticipate.
2. Invoice Quality
The quality of your invoices plays a significant role in the underwriting process. Universal Funding carefully evaluates factors such as invoice accuracy, completeness, and clarity. Incomplete or disputed invoices may lead to delayed funding or make them ineligible for consideration.
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 encounter 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 vital for a successful factoring relationship. It’s crucial to work with a reputable factor with a proven track record of assisting businesses in their growth. At Universal Funding Corporation, we offer customized factoring solutions, transparent terms, and exceptional customer service to support your financial needs.
The Bottom Line
Invoice 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!