"You simply do what you say you will. Your expertise and flexibility have taken my cash flow woes away."
Louisa-Owner IT staffing firm
DFR Factoring Company
- Up to 97% Advance Rates
- Providing factoring services nationwide
- Over 70 years of factoring company experience
Switching Factoring Companies
need to know about
changing factoring companies.
Looking for a new factoring company?
Unhappy with your current factor?
Thinking of leaving your factoring company?
What do I need to know if I want
to change factoring companies?
Here are the answers to these questions and more:
What is a UCC and how does it apply
to me wanting to change factoring companies?
It is standard industry practice for a factoring company to file a blanket Uniform Commercial Code (UCC) to secure the factor’s first position security interest on the invoices funded.
The UCC is a way for factoring companies, banks and commercial lenders to keep straight who is lending on what assets. Because receivables change on daily basis as new invoices collect and old invoices are paid, factors must file what is called a “blanket” UCC filing collateralizing all of your receivables even though you may only be factoring a portion of your sales.
It’s simply impossible for factors to file a new UCC for each invoice funded. The UCC is simply a flag for other lenders who chose to run a search indicating a Security Agreement exists between your company and the factoring company.
The details of your particular factoring arrangement, such as rates and which accounts are factored, are outlined in the Security Agreement itself which is not public not.
A UCC is similar to a first mortgage on your business.
The lender with the oldest dated UCC filing is said to be in “First Position” on the pledged collateral. For example, a factor has first rights to collect payments on your invoices and all the related surrounding instruments.
Factoring companies do not take a second position because the lender in first position could legally take the check right out of the hands of the second position factor
at any time and have every legal right to do so.
It’s a similar concept to ensuring you get the pink slip when purchasing a vehicle. You wouldn’t want to have someone come along one day, unannounced and take the vehicle you thought you owned and have every legal right to do so!
To change factoring companies the old factor
must be paid off by the new factor.
Simultaneously the old factor’s lien is released
and the factor’s lien is filed which is
similar to refinancing your home.
A “buyout” is the practice where the new factoring company pays off the old factoring company using proceeds from your first funding.
The Buyout Agreement outlines the transition process and is a three party agreement signed by the old factoring company, new factoring company and your company.
In the Buyout Agreement you approve the “buyout figure” provided by the old factoring company.
How is the Buyout Figure Calculated:
The buyout figure is generally calculated by taking the Gross Receivables Outstanding subtracting any reserves and then adding in fees due to the old factoring company. If not automatically provided, it’s best to ask for a breakdown as to how your figure was calculated. This way you can be sure you understand if any early termination fees or other fees on top of your usual factoring charges have been included.
It’s important to understand the buyout figure because once you authorize that amount the old factor is paid off you have released any recourse to old factor. From that point forward you are only dealing with the new factor.
If you are going from a factoring agreement with an 80% advance rate to a 90% advance rate it’s possible there will be enough proceeds to payoff the old factor without your having to come up with additional invoices.
How much does the buyout cost?
If you are able to submit brand new invoices to the new factoring company which they can use to payoff the outstanding invoices at your old factor then there would be no additional cost to you to make the change. Then, as the payments come in on the old invoices outstanding from the old factor, as part of the buyout agreement, those payments are forwarded to the new factor who would turn around and forward those to you as non-factored at no cost.
That is an ideal situation however, to come up with the payoff figure most companies need to resubmit at least a portion of invoices already factored with the old factor to the new factor. If that is the case, the invoices part of the “overlap” will incur factoring fees from both factors.
Therefore, depending on your fee structure your factoring fees the first month of the change could be higher than normal. If you’ll be getting a lower rate from your new factoring company you can calculate how many months it will take you to recoup that expense and run a cost benefit analysis.
Depending on the size of the transaction, some factoring companies offer reduced fees on invoices part of a buyout. You also want to make sure you give the proper notice of intent to terminate to your old factor (if required) to avoid any early termination fees to leave their contract early (refer to the Security Agreement Section titled “termination or early termination.”
How long does a buyout take?
When you are changing factoring companies it’s best to plan on the first funding taking a two to three more days than the normal factoring application setup process. The added days will be needed at the time of invoice verification and just before funding as buyout figures are calculated and sent to you for your approval.
It’s not uncommon for buyout figures to change because fees continue to accrue and invoices collect so it’s sometimes necessary to get updated buyout figure at the very last minute. By aligning yourself with a factoring company familiar with the buyout process they can guide you through timing to minimize any delays in your funding as a result of the transition. This is especially critical if you have weekly payroll to meet and cannot spare a few days delay in funding.
What if my situation is not that easy?
Although it is not common industry practice, it’s possible the old factoring company and the new factoring company can work together via an Intercreditor or Subordination Agreement until the old factor is paid off.
Depending on the circumstances, factors have been able to “draw a line in the sand” where the old factor has rights to invoices up to a certain date and the new factor has rights to all invoices after that date.
Questions you wish you had asked
before you signed up with your current factor:
How many factoring companies can I use at one time? By the way, the universal answer is one (per the Uniform Commercial Code/UCC).
If I decide I want to change factoring companies how much notice will I need to give?
What is the
penalty if I want to leave without giving the required notice and please provide
an example of how the fees would be calculated. Caution: be on the look out for
12 month factoring contracts where requiring a certain factoring volume per
For example, a 12 month contract where you’ve agreed to factor $100,000 per month at a rate of 2% means you promise to pay them $2,000 per month in factoring fees or $24,000 in total factoring fees over the next year.
If you want to leave after 6 months they will charge you the fees you would owe them for the remaining 6 months in the contract which in this example equals $12,000. That is cost prohibitive for most companies especially trucking companies working on very low profit margins. You’re stuck!
Even worse, the trucking industry in specific is very volatile and it’s hard to know how many trucks you will have running for you over the course of the next year. Can you imagine committing to factor $100,000 per month and then having some unexpected circumstance require you to let go half of your owner operators yet you still have to pay the factor $2,000 per month regardless of how many trucks you are running?
Do you use a bank lock box to post my customer payments? If so, how many days does it take for one of my customer’s payments to post to my account from the date the bank receives my customers check? This process has been known to artificially inflate the invoice turn and therefore increase your factoring fees.
How many days do you hold my original invoices before mailing them out to my customers? The answer should be same day. Invoices are cash and should not be left sitting around. Not to mention, this is another way to artificially inflate the invoice turn and increase the factors fees.
different people will I work with at your company? Some factoring companies
have either a lot of turnover or operate call centers where you start with a new
representative every time you call in. Other factors offer dedicated account
administrators to be your point of contact.
Do I need to pay for postage for you to mail my invoices? That should be included in the factoring fees.
Do you charge me every time I have a new customer to credit check?
Do you charge me every time I setup a new customer?
Do you “batch” my invoices and make me pay fees on all the invoices submitted in a particular batch until the very last invoice in that batch has collected?
start holding reserves once a customer hits 60 days even though I have 90 day
What We Can Do, That The Others Can't,
To Help You Boost Your Profits and Growth
For Starters, Our program includes
the following features:
• Same Day funding on approved invoices
• We do not require a long term contract.
• 97% advance rates; tops in the industry
• Credit analysis on new and existing customers
• Continuous collection management and
follow up on factored invoices
• Invoice and statement mailing (postage included)
• Account status inquiries anytime;
24/7 online account access.
Up to 97% Advance Rates:
Advance rates are based on overall risk
associated with a particular industry as
well as experience and track record.
We hold reserve accounts to accommodate
industries which typically experience dilution
and that we would otherwise not be able
to service. Advance rates range from
80% to 97% of the gross invoice amount.
Our flexibility allows you to maintain control:
• You select accounts you prefer to factor
on an invoice by invoice basis.
• You control total factoring costs by only
, factoring on an "as needed" basis.
Fees are determined based on your industry,
the credit worthiness of your customers,
how quickly your invoices turn, and
monthly factoring volume.
We provide individualized customer service,
by tailoring our flexible programs to fit the individual
needs of each of our clients. We strive to
be responsive, handling receivables
with speed, efficiency, and a personal touch.
As a client you are assigned one account
administrator who will personally handle
all of your account activity and inquiries.
This gives us the ability to buy your r
receivables and get the money to
you within 12 to 24 hours.
Having one person look after your account
also makes it easy for you to decide
which invoices you are going to sell and
when you want to sell those invoices.
Our funding is primarily done by
direct deposit or wire.
We have more than 70 years of successful
cash flow and credit management experience we would love to put to work for you.
To talk with a member of our sales team,
please contact us at:
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