Changing Your Invoice Factoring Company
All you need to understand when you want to change your invoice factoring company:
If you're thinking of moving to a different invoice factoring company or if you're unsatisfied with your current one, this guide has got you covered.
Key Points to Consider:
- Understanding UCC: The Uniform Commercial Code (UCC) is a way factoring companies secure their rights over invoices. It acts as an alert to other lenders, indicating an official partnership between your business and the factoring company.
- Switching Process: To move to a new factoring company, the old company's dues need to be cleared by the new one. It resembles the refinancing of a home.
- What's a 'Buyout'?: A buyout occurs when the new factoring company pays the old one using money from your initial funding. This transition is defined in a 'Buyout Agreement'.
- Calculating Buyout Costs: The buyout amount comes from subtracting reserves from the total pending receivables and then adding any fees owed to the old factoring company.
- Costs Involved: If you provide new invoices to the new factoring company, which they use to clear the outstanding invoices at your previous company, you won't face additional costs during the transition.
- Duration of a Buyout: The initial funding could take a bit longer, typically two to three days more, when you're switching companies, due to invoice verification and finalizing the buyout sum.
- Complex Situations: Sometimes, both factoring companies can cooperate until the older one's dues are settled. Dividing invoices based on their issue dates might be a feasible approach.
- Before Signing: Always ask vital questions before committing to a factoring company. For instance, inquire about the possibility of working with multiple factoring companies simultaneously, or the penalties and notice periods for switching.
Additional Queries to Consider:
It's crucial to be informed and understand potential obligations. Ask about post-payment processes, the time taken to update your account after a customer's payment, the duration they hold your original invoices, the number of personnel you'll be interacting with, and any possible hidden charges.
