Factoring For Small To Medium Sized Businesses
Factoring: How Factoring Can Help Your New York City Business
For years invoice factoring has been one of the most trusted lending solutions for small to medium sized businesses — and for good reason too. Invoice factoring is a flexible lending solution that can help businesses of varying sizes, talents, strengths, and weaknesses secure the working capital that they need to grow sustainably.
At the Hedaya Capital Group, we have been helping small to medium sized businesses in the New York City and Tri-State areas secure funding for their business ventures for years. Why? Well, we understand how hard it can be to grow your new business when you are focused on getting it up and running in the first place.
When you own a business you automatically sign on to managing countless moving parts and actions — one of which is securing the funding needed to grow your business. Now, when you are focused on a million other things, doing so can be incredibly difficult. Where do you look for funding? Who do you ask for financial support? At what point do you put your foot down and settle for a commercial loan or a line of credit?
Rather than going to the bank to secure the funds needed to operate and grow your business, we urge you to get in contact with our team, here at the Hedaya Capital Group. After all, there is money that you can use to grow your business without going into debt at the hands of your bank or credit union — you might just not know where to look for it. Contact us today if you have any questions about our factoring services.
Factoring: A Financial Solution For Smaller Businesses
At the Hedaya Capital Group, we have one goal — to help you solve your financial woes in the simplest, most equitable way possible for both you and your business. Factoring just so happens to be one of our most used lending solutions.
As a small business owner, you will likely face many challenges when you are starting your business. For most small business owners, the leading “speed bump” on the road to success is securing the funding that they need to both efficiently run their day-to-day operations while also being able to work towards future growth and future financial stability. While most people think of banking as the immediate solution, working with a bank or credit union towards a commercial loan is not always an option. Most banks and financial institutions approach small to medium with skepticism as they see them as a risky investment. When these smaller businesses are seen as “non-bankable” by the financial institution, they either get their commercial loan application denied or the financial institution will approve the loan and implement stringent payment plans that have harsh penalties for the business owner if they are unable to meet the requirements of the loan.
At the Hedaya Capital Group, we are very familiar with the struggles that small to medium sized businesses in the New York City and Tri-State areas go through as they try to secure the necessary funding for success. Because of this, we offer our invoice factoring services as an equitable solution for both our company and yours.
What Is Factoring?
Factoring, sometimes known as invoice discounting or invoice factoring, is a commonly used financing tool for small to medium sized businesses. As a small business owner, it is more than likely that you offer payment terms to your customers for the good or service that you provide them with. The only way that you might not be offering payment terms is if your business charges payment at the time of the sale or the completion of the services.
When you allow your customers to pay you within a 30-day, 60-day, or 90-day payment term, you are doing so knowing very well that it could be the full time of the payment term before you are compensated for the good or service that you had provided to your customer. And while you wait for the payment to be made, it simply leaves you with an account receivable until the customer pays the bill. This is often why small to medium sized businesses find themselves short on working capital during the early stages of their businesses.
Factoring is a way that you can get paid immediately, regardless of if your customer takes the full payment term to compensate you or not. But how can you be compensated for your accounts receivable before the customer pays their bill? That’s where we come in as a factoring company.
Our Job As A Factoring Company
At the Hedaya Capital Group, we offer a wide range of financial services ranging from commercial lending to trade and import finance, credit protection, and working capital loans — but the service that we offer that is best tailored to meet the needs of small to medium sized businesses is our factoring services.
As a factoring company, we offer working capital solutions to businesses that are “non-bankable” in the form of accounts receivable factoring. Essentially, what we do for smaller businesses is we purchase their invoices from credit-worthy customers before their customers’ payment term is up. In doing so, the business that we purchase the invoice from is paid right away — giving them up to 90% of the total invoice and the working capital that they needed — and it falls on our team to collect the payment, after which you will receive the remaining percentage of the invoice. Essentially, when our team, here at the Hedaya Capital Group, purchases an invoice from you, you get the working capital that you need when you need it — not when your customer decided to pay their invoice.
If you own a small to medium sized businesses in the New York City or Tri-State area, working with a factoring company such as ourselves is a great way for you to secure an equitable revenue flow that allows you to access capital when you need it — not after you need it.
How Does Invoice Factoring Work?
In almost every case, a factoring company like ours will structure the agreement with your small to medium sized business in New York City as a sale of assets — with the asset being your invoices. Essentially, you give the factoring company the financial rights to your invoices in exchange for immediate payment of a large percent of the invoice’s worth and the remainder will be rebated to you once your customer has made the payment on the invoice.
Generally speaking, the factoring process has two parts once the factoring company has purchased your invoice. First, the advance, is the primary payment that you will receive from the factoring company. The advance can be anywhere from 70-90% of the total worth of the invoice. The second part of the process is the rebate, or the second installment of the payment — something that occurs when the factoring company receives compensation for the invoice in full.
What About Factoring Rates?
Factoring fees are the reason that factoring companies take risks with their clients. A factoring fee is determined by a few things, with the most important determining factors being the volume of business that you have done, your client concentrations, and the creditworthiness of your clientele. The second influencing factor that determines that factoring rate is the amount of time that the invoices go unpaid from your customers.
Typical factoring rates range between 1.15-4.5% per 30-day period — and the following things all play a role in influencing what your factoring rate will be:
- Your monthly factored volume
- The size of each invoice
- Your industry
- The quality of your clients’ credit
- The stability, or lack thereof, of your business
- And more
If you have any questions about the factoring rate that you could expect to have applied to your accounts receivable, we urge you to get in contact with our team today. All too often, people try to calculate what their factoring rates might be and end up with a much higher percentage — scaring them away from the very financial tool designed to help their business.
Factoring Cost Vs. Factoring Rate
If you are a smaller business that has been contemplating whether or not factoring is right for your business, you have likely run into the terms “factoring cost” and “factoring rate” — two terms that seem eerily similar.
While it might seem like you should seek out a proposal from a factoring company that gives you the lowest factoring rate, it is not always true that a low factoring rate will get you the best deal. Instead, the important measurable to consider is the total cost per dollar of the proposal.
When you choose to work with us here at our New York City factoring company, we will work with you to find a factoring cost and a factoring rate that work towards finding the most equitable cost per dollar for all parties involved. After all, we succeed when you succeed.
Does My Company Qualify For Factoring?
At the Hedaya Capital Group, some of the most common questions that we get about factoring are focused on whether or not their company qualifies for factoring — after all, factoring is a financial tool that is more beneficial for some businesses than others. That being said, there are two main things that we look for in a business that is interested in factoring their accounts receivable:
- The Invoices Must Be From Reputable Clients – When a factoring company like ours is looking for potential red flags that would deter us from doing business with a smaller business, it is usually because we want to make sure that the invoices will be paid within a reasonable amount of time and that your business’s clients are reputable and trustworthy enough to pay their invoices.
- There Must Be No Liens Or Encumbrances – While terms like “liens” and “encumbrances” might seem like complex legal terms, they really mean that there shouldn’t be any formalities, issues, or impediments that strain or delay the invoice payment process — both legally and financially.
Aside from the factors listed above, the rest of the qualifiers that dictate whether or not your business is eligible for factoring are more obvious. For example, a factoring company is not likely to go into business with a company that has major tax and legal issues or inexperienced upper management. Like we said, factoring is all about finding an equitable solution for all parties involved.
What Is The Factoring Application Process Like?
Most small to medium business owners put off looking for alternative financial help — whether it be a bank loan or factoring — simply because they think the process will be long, difficult, and frustrating. Luckily, that is a misconception.
When you apply for a factoring program with our Tri-State and New York City area factoring company, the application process is quick and painless. In fact, if you have the proper documents ready it can happen in as little as a couple of days. Most factoring companies ask for the following documents and actions from potential factoring program applicants.
- A completed application
- Articles of incorporation or other operating agreements
- Receivable aging reports
- Other reports that you feel could bolster your credibility
While most factoring companies look for similar documents and information during the application process, each factoring company might have other alternative requirements, so be sure to contact the factoring company before your initial consultation to make sure that you show up fully prepared.
Looking For A Factoring Company In The New York City Area?
Are you a small to medium-sized business owner in the New York City or Tri-State area that is looking for extra working capital or an optimized cash flow? If so, we urge you to get in touch with our factoring team, here at the Hedaya Capital Group.
It is our goal to help smaller companies and businesses in the area gain access to working capital when they need it — and our factoring services are among the most efficient ways to do so. Contact us today to learn more or set up a factoring consultation.
We look forward to working with you.