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Advance Rewards Funding

Advance Rewards Funding purchases the invoice and buys the right to collect on that invoice by agreeing to pay you the face value immediately and forwards the remainder (less the discount) when your customer pays. Factoring is the sale of accounts receivable or invoices by a business. The Advance Rewards Funding typically advances between 80% and 90% of the gross invoice amount to the customer, providing immediate and predictable cash flow. Once Advance Rewards Funding receives payment on the factored invoice, the portion not advanced to the customer less the factoring fee is returned to the customer in the form of a reserve return. Reserve is returned to the customer on a daily basis

You can use factoring to:

Factoring is not a loan; it does not create a liability on the balance sheet or encumber assets. It is the sale of an asset--in this case, the invoice. And while factoring is considered one of the most expensive forms of financing, that's not always true. Yes, when you compare the discount rate factors charge against the interest rate banks charge, factoring costs more. But if you can't qualify for a loan, it doesn't matter what the interest rate is. Advance Rewards Funding also provide services banks do not: We typically take over a significant portion of the accounting work for their clients, help with credit checks, and generate financial reports to let you know where you stand.

Examples

Here are some examples of how factoring could help you:

Example: Converting Invoices To Cash
You are owed $5,000 by a company who you expect will pay in 30 days. You sell your invoice to Advance Rewards Funding who advances you a majority of your gross invoice amount immediately. Advance Rewards Funding then receives the payment, closes the invoice and issues a reserve return.

Example: Smoothing Your Cash Flow
You issue invoices of approximately $30,000 each month and have a variety of clients who can take between 1 to 3 months to pay. Although you issue invoices regularly, the money comes in at unpredictable times making it difficult for you to manage your cash flow. You contract out the management of your receivables to Advance Rewards Funding. We advance you immediately for the invoices, collect the debt, and manage your sales ledger for you which cuts down on your administration costs.

Example: Obtain Funding Secured By Your Invoices
You have no assets, but issue invoices of approximately $500,000 each month. With clients paying in approximately two months you have a book debt of $1 million. Needing cash to create another invoice, obtain working capital from Advance Rewards Funding secured against outstanding invoices.

Conclusion
Factoring is a quick and easy way of turning your invoices into cash.

Factoring is a transaction in which a business sells its accounts receivable, or invoices, to a third party commercial financial company, also known as a "factor." This is done so that the business can receive cash more quickly than it would by waiting 30 to 60 days for a customer payment. Factoring is sometimes called "accounts receivable financing."

The terms and nature of factoring can differ among various industries and financial services providers. Most factoring companies will purchase your invoices and advance you money within 24 hours. The advance rate can range from 80% to as much as 95% depending on the industry, your customers' credit histories and other criteria. The factor also provides you back office support. Once it collects from your customers, the factor pays you the reserve balances of the invoices, minus a fee for assuming the collection risk. The benefit of factoring is that, instead of waiting one to two months for a customer payment, you now have that cash in hand to operate and grow your business.

Factoring is not a loan. No debt is assumed by factoring. The funds are unrestricted, providing a company more flexibility than with a traditional bank loan.

Factoring in Five Simple Steps

  1. You perform a service for your customer.
  2. You send your invoice to Advance Rewards Funding.
  3. You receive a cash advance on your invoice from the Advance Rewards Funding.
  4. Advance Rewards Funding collects full payment from your customer.
  5. Advance Rewards Funding pays you the rest of your invoice amount, minus a fee.

What are the Advantages to Factoring?

There are several reasons why factoring is a valuable financial tool for many businesses. The key benefit is that factoring provides a quick boost to your cash flow. Many factoring companies provide cash on your accounts receivable within 24 hours. This can solve short-term cash flow issues and help fuel the growth of your business. Factoring companies handle your customer collections, and may also evaluate your customers' credit and payment histories.

Some other major benefits include:

Is Factoring Something New?

No, it actually goes back several centuries. The origin of factoring lies in overseas trade among nations. It became a part of doing business in England as early as the 1400s, and came to America with the Pilgrims in 1620. Like all financial tools, factoring has evolved over the years. It grew in the United States as an effective way for companies to build more cash flow, due to limitations companies faced securing loans in the nation's fragmented banking system.

Who Factors?

Companies of all sizes, from one-person businesses to Fortune 500 corporations, use factoring as a way to increase their cash flow. Factoring spans all industries, including trucking, transportation, manufacturing and distribution, textiles, oil and gas, and staffing agencies. Companies use the cash generated from factoring to pay for inventory, buy new equipment, add employees, expand operations—basically any expenses related to their business. Factoring allows a company to make quicker decisions and expand at a faster pace.

How Factoring Works

Here's a fictional example to illustrate a common factoring situation:

ABC Transport is a trucking company that wants to double the size of its fleet over the next two years and serve more clients in the West. The company has just landed a new customer on the West Coast who needs freight shipped from Kansas City to Los Angeles. The customer will pay for the service within 30 days, but that won't cover the immediate fuel, payroll and maintenance costs of running the route. The owners of ABC Transport have been in this situation before. They feel that the lack of available cash flow has prevented the company from taking on new business.

ABC Transport turns to aAdvance Rewards Funding, selling the West Coast customer's invoice in exchange for a 90 percent advance on the total amount within a day. The influx of cash replenishes the trucking company's reserves, allowing it to run the Kansas City-Los Angeles route. Factoring also gives ABC Transport the flexibility to take on new customers as well.

How Much Do I Need to Factor?

It depends on your company's unique business needs. Some companies factor all of their invoices, while others factor only invoices for customers that take a longer time to pay. The volume of receivables that a company may factor can range from a few thousand dollars to millions of dollars a month.