FACTORING PROCESS :

The steps involved in factoring are listed below:

– The seller interacts with the funding specialist/broker and explains the funding needs.

– The broker prepares a preliminary client profile form and submits to the appropriate funder for consideration.

– Once both parties agree that factoring is possible, the broker puts the seller in direct contact with the funder to ask/answer any additional questions and to negotiate a customized factoring agreement, which will meet the needs of all concerned.

– At this point, the seller may be asked to remit a fee with formal application to cover the legal research costs, which will be incurred during “due diligence”. This is the process by which the buyer’s credit worthiness is evaluated through background checks, using national database services.

– During the next several days, the funder completes the “due diligence” process on the seller, further verifies invoices and acknowledges any liens, UCC filings, judgments or other recorded encumbrances on the seller’s accounts receivables.

– The seller is advised of the facility and is asked to advise the buyers of the Factor by letter and submit an acknowledged copy of the same to the Factor for records.

– A detailed sanction letter is given to the seller and their acceptance on the same taken, with the required signatories. (Authorized signatories would be mentioned in the “Signing Authorities” section of the Proposal presented by seller).

– Sanction terms must contain the following.

• All Facilities covered under the sanction.

• The period for which the sanction is valid

• When the Facility comes into effect e.g. (if Facility is dated 1/12/13, it can state that invoices raised from or after 15/12/13 only would be Factored).

• Who the authorized signatories are for signing invoices for factoring.

• The limits.

• The seller has to advise the buyer of the Factoring agreement.

• Copy of such advice acknowledged by the buyer should be submitted to the Factor. Buyer’s consent is not required to decide on the Factor.

– The discounting rates, charges fixed.

– In case of discounts given by the seller to the buyer, which value would be financed by the factor (since the factored amount should never exceed the amount actually payable by buyer).

– Usually within 7 to 10 days of the initial contact with the factor, agreements are signed, customers are notified, UCC forms filed and the first advance is forwarded to the company. This advance can varybbetween 70 – 80% of the face value of the invoices being factored. In the construction industry, thebadvances may be in the range of 60 – 70%. The remaining amount is called the “reserve” which is held by the factor until the invoices are paid. The factor then deducts his fee and returns the remaining funds to the seller.

– The seller performs services or delivers products, thus creating an invoice.

– The seller sends or faxes a copy of the invoice directly to the factor.

– The funder verifies the invoice and the advance is sent to the seller as per the agreement with the factor. In certain cases, the funder wires the funds to the seller’s account for an additional fee.

– The buyer pays the factor. The factor then returns any remaining reserve, minus the fee, which has been predetermined in the negotiated agreement.