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Account Receivable Factoring Versus Fast Business Funding

If you have ever sweated out the fear of missing payroll for your business, you are aware that time is of the essence. There are not many funding options available to choose from,  other than using credit cards or funding money from a rich relative. However, if you have ever turned to a factor , you will quickly realize that you’ll be digging yourself into a deeper hole. The reason is that factors are typically owned or funded by banks that have extensive regulatory processes.  Here is a sample of the type of due diligence that a factor would go through:

Typical Investigation, Setup, and Review:

  • Business Credit Application
  • Company Accounts Receivable Aging
  • Accounts Credit Check
  • Ongoing Account Monitoring
  • Accounts Receivables Credit Insurance Checks
  • Business Organizational Structure Standing/Status
  • DBA Documentation
  • Business Credit Report Check/Investigation of Problem Items
  • Personal Credit Report/Investigation of Problem Items
  • Individual Background Search /Investigation of Problem Items
  • Internet Search, Local, National Publications Media and News Articles
  • Identity Theft Issues
  • UCC Searches of Prior Records
  • Balance Sheet/Income Statement/Analysis & Investigation of Problem Items
  • Articles of Incorporation/Partnership Agreements
  • IRS Tax Check / State Tax Liability Liens/ Current and Past
  • 2nd Level Tax Details, Lien Releases
  • Review/Redesign Invoices
  • Time Cards Form and Legal Verbiage
  • Review Staffing Agency Contract with Debtors/Staffing Vendor Agreement
  • Contract Verbiage Additions/Changes to help secure payment
  • VMS Vendor Agreements
  • Subcontracting Agreements
  • Assignments/Payment Terms/Partial Pays/Billing Procedures
  • Regional and niche consideration (ex. In some markets, the combination of Industrial Temps, Small Markups, Intense Competition & Under-capitalization means agency can easily slip into distressed situations)
  • UCC-1 Filings to Secretary of State to secure collateral position
  • UCC Confirmation
  • Post Confirmation UCC Searches to Reflect Proper position
  • Multi-State UCC Filing Exceptions
  • AR Finance/Factoring Contracts, Security Agreement, Service Agreements (Addendums, Negotiation of Modifications)
  • Personal Guarantees, Certificate Copy of Resolutions
  • Personal Financial Statements
  • File IRS 8821 for Tracking Past, Current, and Future Tax Items
  • Non Compete and Trade Secret Issues
  • Inter-creditor Agreements with other lenders such as Small Business Administration (SBA Lenders), Banks, etc.
  • Subordination Agreements with Staffing Agency Investors
  • Determine Staffing Agency Owner’s Degrees of Separation between Business, Family, Personal Lives (ex. Do they have side businesses?)
  • Knowledge of Accounting/Front Office/Staffing Industry
  • Business Plans
  • Judgment Investigation
  • Internal Database and ACH/Funds Wiring Setup
  • Electronic Interface with Clients
  • Contact Management (Bank Contacts, Business Associates, Accountants, Lawyers, Silent Principals, Guarantors, Trade References)
  • Software Balance Sheet/Income Statement Integration or Conversions

Funding

  • Fund Documentation/Fund Reports – Tracking of Account Receivables, Reserves, Eligible Fund Amounts, Fund Fees, Interest Calculations
  • Pre-Funding Reconciliation & Crosschecks before funds release
  • Special Circumstances Over Advances
  • Determination of Ineligible Accounts
  • Late Payments Over 45 days, 60 days , 90 days ineligibility
  • Cross-aging ineligibility (if required)
  • Customer accounts over concentration limits of 20% ineligibility (if required)
  • Affiliated or Inter-company Accounts Ineligibility
  • Credit Insurance Effect on Eligibility of Accounts
  • Management of ACH/Funds Wiring Network
  • Returns/ Adjustment/ Correction and Acknowledgment of Entries
  • Recalls, Stop Payments
  • ACH Security/Firewalls/Disaster Recovery
  • Cash Management for Excess and Deficiencies/Bank Account Sweeps
  • Record Retention

Ongoing Monitoring & Remedial Action

  • Invoice Form/Detail Changes
  • Illegal Check Diversion
  • Continuous Monitoring for Liens (At Difficult County Levels, as well as Fed and State Levels, Out of State Monitoring)
  • Tax Liability Liens for Prior Years – IRS Negotiation/Resolution
  • UCC Continuations
  • Changes in Corporate Status – Suspended, Expired, Dissolved, etc.
  • Re-filings of 8821’s for tax tracking
  • Debtor Investigation & Setup, for Added or New Shareholders & Partners
  • Bankruptcy/Receiver/Trustee Communications & Strategy
  • Fraudulent UCC-3 Terminations
  • Client Agreements with Junior Debtors
  • Client Becomes new Judgment Debtor
  • Article 9 UCC Code Changes
  • Account Debtor Notification Letters to Accounts (if required)
  • Miscellaneous Threats to Security Interests
  • Red Flag Items that may threaten the health of a company and the money funded to it (Business Partner Disagreement, Divorce Marital Problems, Family Succession Problems, Health Problems, New Local Competitors, Employee Fraud, Lawsuit Resources Drain, IRS Issues, Outside Investment of Owner Collapses, Better Business Opportunity Outside of Staffing, Unfavorable Legislation, etc.)

Lockbox – Personnel / Procedures /Problems Management

  • Collection reports to borrowers
  • Customer/Debtor Names and Invoice Mismatch
  • No Invoice Numbers or No Invoice Match
  • Skipped Invoice
  • Partial Pays
  • Customer Name Changes—Sales, Mergers, New DBA
  • Multiple invoice payments/check
  • Permanent Placement Invoices Tracking and Refunds
  • Endorsement problems
  • Stub/Check Copy Management and Daily Detail Lookups
  • Manage Stop Payments/Bounced Check /NSF/Redeposit, Lost, Stolen, Forged, Counterfeit, Checks and customer/debtor follow up
  • Incoming EDI electronic payments processing
  • Time Card and Invoice Copy Storage & Retrieval

Credit Information, Problem Accounts/Collections, Bad Debt Protection

  • Customer Credit Applications
  • Procedures for Credit Check Requests
  • Proper Debtor Entity Determination – Affiliates, Subsidiaries, Sale-Merger, (Who owes and why won’t they pay?)
  • Interpretation of Credit Reports
  • Credit Limits
  • Negotiation of Terms with Higher Risk Customers – Advisory
  • Demand Letters
  • Workout Agreements With Account Debtors
  • Broken Payment Promises Follow Up
  • Collection Strategy Advisory & Time lines for Actions
  • Collection Communications to inform multiple parties (Lender/3rd Party Collection Assistance Groups/Staffing Agency/Debtors) of progress and problems, to coordinate strategy and avoid redundant collection efforts and communications.
  • Large Account Debtor Approval
  • Unwarranted Deductions, Credit Memos and Disputes
  • Invoice Verification (when required)

Management of Distressed Staffing Companies and Accounts

  • Counsel on Business Practices/Staffing Agency Break-even Analysis
  • Legal/Timely Customer Notifications to All or Selected Accounts & Follow Up
  • Skip Tracing-People Finding
  • Close of Business /Voluntary or Forced Sale
  • Negotiating for Voluntary /Legal Workouts
  • Continuing Business with Workout/Payment Plan in Place
  • Continue Business until Sale Can be Effected–Help facilitate Sale/Merger
  • Continue Financing Staffing Agency until New Lender can be brought in
  • Ongoing Management of Collection Agencies & Case Detail
  • Management of Collection Attorneys & Case Detail
  • Management of Private Investigators
  • Special Searches & Case Detail, (ex. Bank account locators, Credit card activity, Phone bills and phone traces, Litigation Search, Asset Searches, etc.)
  • Managing Problem-Fund Workout Defaults
  • Adverse Lender Direct Communications (ex. Primary or secondary lenders)
  • Management of Credit Insurance Claims
  • Bankruptcy Issues/Strategy/Legal
  • Management of Secured Lending Attorneys (ex. Adverse Lender problems)
  • Promissory Notes
  • Credit Card Captures

Lender & Equity Investor Buyouts

  • Buyout Agreements/Negotiation of Fine Points With Old or New Payroll Funding Company, Factor, Bank, Lender, etc.
  • UCC Assignments & Termination Filing and Follow Up
  • Determination of Correct Fund-A/R Buyout Amounts
  • Check Interception by Prior Lender/Factoring Co. or Subsequent Lender
  • Funding Contract Early Termination Fee Issues
  • Subsequent Complications & New Entities (ex. Business Alter Egos)
  • Staffing Agency Sale/Merger Buyouts
  • Illegal UCC’s filed by Funding Companies When Customer Price Shops Market

Asset Based Lending or Factoring Software and Systems

  • Client/Customer Service On-Line Website (Programming, Updating, & Customer Training and Support)
  • Imaging, Digital Copies, Import
  • Integration with External Business Entities
  • Extensive Search Capabilities
  • Managing Out-of-Formula Situations
  • Daily and Monthly Activity Reports
  • Exception Tracking
  • Customer Requests for Custom Transaction Reports
  • Bank Audit Compliance

A payroll funding company is specifically designed to make quicker decisions based on hearing what your business is really like and why you need to the money. Owners of payroll funding companies often come from an extensive entrepreneurial background, not from a banking background, and quickly understand that good companies may experience a crisis and are in need of a fund that can be paid back over time.

Financing Solutions (www.payrollfinancingsolutions.com) provides fast business funds of $5,000-$75,000 to good small businesses with sales of $350,000-$7 million that can be used for working capital.

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