Frequently Asked Invoice Factoring Questions

Invoice factoring is the selling of invoices or accounts receivable at a discount. Businesses that may not qualify for traditional bank loans or an increase in their line of credit can access working capital immediately without adding debt or giving up equity.

To further explain, invoice factoring is the process of selling invoices to a factoring company, like Tacoma Capital, who then pays you, the invoice seller, up to 90% of the invoiced amount. The factoring company then acts as the accounts receivable for the factored invoices. Once the factored invoices are paid in full, the factoring company pays the remaining 10% of the factored invoice back to the invoice seller, less any factoring fees.

Factoring provides you cash for working capital. You don’t have to wait the normal 30 to 90 days to convert your receivables to cash. Also, you can focus on operating your business without worrying about the collection of receivables.

Companies like the flexibility. Invoice factoring offers companies the ability to receive a cash flow injection when they need it. Your company may like factoring for the same reasons:

• Less stress – late payment of invoices may cause cash flow stress.
• Fast cash – no more waiting on slow paying clients.
• No loan liability – using your own receivables as collateral means factoring will not show up on your balance sheet.
• High financing limits – unlike traditional loans, the limits are high.
• Expert management – a professional A/R team manages the receivables you factor, saving time and A/R management expenses.
• Credit reconditions for new and existing customer to help you grow more profitably.
• Ability to take on bigger, but slower paying customers.

Factoring is the purchase of receivables and not a loan. This enables your business to access working capital without incurring debt obligations. A bank approves loans based on your financials, credit history, and assets while Factoring Companies look to the credit worthiness of your customers paying on the invoices.

The amount varies and may be determined by the:

• Projected dollar volume you intend to factor each month
• Creditworthiness of your customers
• Average invoice amount
• Average time it takes your customers to pay

Tacoma Capital will help you ensure that invoice factoring is a cost-effective cash flow solution for your business.

No, you decide which invoices or customers you want to factor.

Tacoma Capital will only contact customers whose invoices you are factoring.

Many businesses, including Fortune 500 companies, take advantage of the benefits associated with invoice factoring.  Chances are, your customers are already familiar with factoring.

No. Customer payments are mailed or deposited directly to Tacoma Capital’s payment center in keeping with our notice of assignment.

Mistakes can occur, especially in the beginning. If you receive a payment for a factored invoice, send us the check immediately so we can mark the invoice paid and release your reserve. Please also make sure that your customer has made the proper changes in their system, so the mistake doesn’t happen again.

Your invoice will direct your customers to send payments to the Tacoma Capital’s Payment Center. We help you notify your customers in advance of this change to ensure that everyone is informed and comfortable with the process.

We will make every effort to work through you and with your customer to collect on the invoices we purchase. If the invoice remains unpaid after 90 days, it will be charged back to you and debited from your reserve account.

Factoring invoices on a “recourse” basis means that the client is ultimately responsible for payment if a customer doesn’t pay. Factoring invoices on a “non-recourse” basis means that the factoring company assumes the credit risk of the customer (usually at higher rates), thereby protecting the client from possible credit loss. In order to keep your fees lower, we normally provide recourse factoring. However, we also provide non-recourse factoring if necessary.

Yes, we purchase your invoices and become the first position lien holder on all your invoices while you are a client.

Our success is directly related to your success. We are not a collection agency. We make routine courtesy collection calls, but we do not harm your customer relationship. Maintaining your customers’ goodwill and confidence are extremely important to everyone at Tacoma Capital.

When your customer invoices exceed the net payment terms for the invoice, we perform soft collections to customers. These calls are courtesy reminders only to the Accounts Payable department. We also send weekly past due statements to customers. If a customer requests a replacement invoice, we will provide that to them. We are not a collection agency, nor do we hire collection agencies.

When you become a client, we assign you an account manager. The manager will keep you informed of your invoices, customer status, and other pertinent details. You will also receive daily, weekly and monthly activity reports.

You sell your invoices to us and we advance you funds for the invoices less a fee and reserve. When we collect the payments from your customers, we remit the reserve amount to you.

The reserve is the portion of the invoice that we hold until the invoice pays. Reserve amounts range from 10% to 25% of the invoice amount. The reserve protects us if the customer short pays, disputes, discounts, or doesn’t pay the full amount of the invoice for any reason.

You can send your invoices to us daily, weekly, monthly or as often as you choose without penalty or added fees.

We handle tax problems on a case-by-case basis. Please let us know immediately if you owe taxes, so that we can discuss the situation.

Yes, we still consider your application even if you have had credit problems or a past bankruptcy.

No. we specialize in helping growing businesses and new startup companies.

Yes, we can factor invoices for small businesses and startups.