Receivable Financing Defined
As a business sells services or products to another business, it has two choices for receiving
payment. It can wait the typical 30 to 65 days to receive funds from its customers. In a "tight money" economy,
the wait can be much longer.
Choice of Programs
Factoring is used by fast growing companies, and by those undergoing financial difficulties.
The common ingredient is that a business using factoring typically cannot obtain a suitable banking
relationship on a timely basis.
Factoring has been used by many businesses for hundreds of years. It is estimated that factoring in
the United States involves over $500 billion of invoices annually.
Monetrex offers two different factoring programs depending upon the client's needs.
For a company that needs all funds that its invoices will allow, Monetrex has a regular factoring program.
Cost of Factoring
Refer to the
Example Regular Factoring Situation
Some clients do not need all invoice funds all of the time. They would prefer to draw funds as needed. For
those clients, Monetrex has a modified factoring program which has a different fee schedule.
Refer to the
Example Draw Factoring Situation
The difference between the two programs can be significant. In a regular program (and just like all other factors),
the periodic fees are computed against outstanding invoices. However, under the modified program, Monetrex computes
its fees by referencing the amount of cash outstanding to the client. Thus, the client can control its factoring
costs as it requests funds.
The cost of factoring typically is a function of the industry involved, as well as the credit risk
associated with the company's customers. Factoring costs (including all administrative services)
generally run between 2% to 5.5% of a company's invoices that are factored. This compares with a
typical bank loan that costs 3.0% to 4.5% of a company's total sales (computed as cost of funds plus
the value of the administrative tasks that Monetrex furnishes without charge).
Although factoring appears to be expensive, it really is not. In most cases, a Monetrex client is
able to increase its gross sales by 30% to 100% within 6 months of starting the factoring, because
the funds are now available for growth, and "peace of mind." These extra sales, plus the administrative
tasks no longer performed by the client's staff, usually translate into additional, bottom line profits.
Taking all this into account, it is possible that the factoring has a net cost of zero, which is better
than bank funds!
Monetrex notifies the client's customers of the receivable financing program in a very professional
manner. This is initiated by a suggested communication signed by the client to its customers.
Other Benefits from Factoring
Factoring should help, not hurt your business reputation. Most of your customers know what factoring
is all about, and probably are working with other factored accounts right now. If anything, the presence
of factoring suggests that you have financial and administrative strength behind your operation. With
these credentials, you should be able to obtain more business from the same customers.
Short Time to Close - Monetrex usually can close a transaction within 5 to 7 business days
from receipt of its Preliminary
Application (see "Apply
Here" on this web site's navigation bar). Monetrex intentionally does not perform an
"overnight wonder" because we believe our clients need an opportunity to "think through" the process, rather
than rushing into it.
High Advance Formula - Monetrex advances 80% to 95% of each invoice, with the balance (less fees)
returned to the client when the invoice is paid by the customer. The advance rate is set at the time
the first funds are advanced.
No Ceiling on Funds - Monetrex does not set a ceiling on available funds, thus a company's fast
growth is not stifled.
No Personal Guaranty - Monetrex does not require a full personal guaranty (except for fraud and
misrepresentations). Instead, Monetrex looks to the credit strength of your customers for assuring collection
of the invoices.
Flexibility - Monetrex is not locked into procedures by a Board of Directors or banking
regulations. You deal with an experienced staff that is trained to make fast decisions if our clients
need an understanding approach.
No Financial Pre-Conditions - With factoring, the condition of your business and level of
ownership capital are secondary concerns.
No Lock In Period - Monetrex does not require a minimum period for a client to continue factoring.
The client can cancel at any time. Thus, factoring might be a good stop gap measure while the client is
attempting to secure investor funds or a possible bank loan.
Frequently Asked Questions for more information
Asset Based Lending
Purchase Order Funding
Frequently Asked Questions
© 2000 Monetrex Inc.