Posts Tagged ‘factoring agreement sample’

Mary Thomson asked:

The concept of equipment leasing financing is just like advancing a loan, except here the object will be some sort of equipment which the lender owns and leases to a borrower for a stipulated amount of time. At the end of the said period, the business has the option to buy the equipment leased for the prevailing market price, or extend the lease agreement or return it to the lender.

Computers, machinery and other expensive infrastructure required for the functioning of a business can be acquired via a rental agreement which constitutes the leasing. Thus the borrower gets to use the items on lease without the responsibility of ownership. This is by far a better option than investing large amounts in machinery, so that funds can be diverted to more demanding areas like marketing and operations.

Companies specializing in equipment lease are not bound by strict regulations like banks so they are in a position to advance leases at competitive rates. There are no complicated procedures to be complied with in getting an equipment lease. Online applications are processed much faster.

A major advantage with equipment leasing is that you can upgrade equipment from time to time provided of course; such a clause is included in the agreement. So there is no need to stick with outdated machinery. Equipment leasing also involves financing of soft costs like installation and training costs.

The business is not liable to pay taxes on these leased items, so again a large amount of funds remain free which can again be absorbed into the business. Make sure all the clauses of the agreement are clear, for e.g. in case you intend to pay off the lease early, find out whether there are any prepayments for early payoff.
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About Wade Henderson

Wade Henderson: Domestic and International Business Finance since 1995 specializing in challenge situations. "We prefer to find a way to get your loan done as opposed to finding a reason to turn it down.” Connect with me on Google+

Stephan Teak asked:

Factoring is a godsend for many businesses, particularly when there is a credit freeze going on like the current on. The key to making factoring really work for you is to deduce how the fee structure works and whether it will work well for you.

Factoring is simply the sale of some or all of the outstanding invoices you have for customers. Why would someone sell their invoices? The primary reason has to do with cash flow. Many businesses are profitable, but still have problems making payments on bills because they have to wait for invoices to be paid. Consider a quick example that many businesses run into.

I own a company making locks for briefcases. I sell them to one of the dominant briefcase brands, which means I have steady work. The only problem is the company pays net 30 on the invoices. This is an issue because I have to pay my employees every two weeks and I often do not have enough money on hand to meet payroll obligations regardless of the fact that I am profitable.

To address this situation, I would simply factor these invoices. The factoring company would evaluate whether my customer is a good risk. Since they are a leading brand, the factoring company would approve my application and give me a large percentage of the invoice. The exact amount would have to wait to be determined because of a staggered fee structure.

Time is money. The factoring company is going to charge you based on the time it takes to collect the money from your customer. Here’s how it works. The factoring company will pay you roughly 70 percent of the invoice amount. It will hold the remaining 30 percent in escrow. It will issue you a staggered percentage fee rate that goes up as certain deadlines are passed. Don’t worry. You get to approve it before hand. Let’s look at our example above again.

I decide to sell my briefcase invoices to a factoring company. The company agrees to buy them in exchange for the following staggered fee agreement. The company will give me 70 percent immediately. It will then charge a 1.5 percent fee if the customer pays on or before 30 days. The percent will go up to 2.5 percent if the customer pays between 31 and 45 days out. The percent then goes up to 4 percent if the client takes 46 to 60 days. The percentage will continue to go up in this staggered manner until a final date.

As you are undoubtedly thinking, the key to using factoring effectively is to know the payment habits of the customer in question and then match them to a fee structure that is acceptable to you. Fee structures are not set in stone, so feel free to try to negotiate a better deal. The factoring company will often refuse, but it can’t hurt.
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Selling Accounts Receivables

About Wade Henderson

Wade Henderson: Domestic and International Business Finance since 1995 specializing in challenge situations. "We prefer to find a way to get your loan done as opposed to finding a reason to turn it down.” Connect with me on Google+


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