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Accounts Receivable Financing FAQ

What kind of companies will ediFN finance?
What is factoring?
Why did DIcentral align itself with more than one financing source?
 
BENEFITS
Will financing my A/R with ediFN provide any other benefits to my company other than accelerating cash flow?
 
ELIGIBILITY
How are “eligible accounts” determined?
 
COST
How much does it cost?
How is the advance rate on receivables determined?
What other fees are incurred other than the discount rate?
Am I required to finance all of my accounts receivable?
Do I incur any extra cost because DIcentral is referring me to a financing source?
What is the smallest amount of monthly invoice submissions that will qualify?
What is the largest amount of monthly invoice submissions that DIcentral’s alliance financing sources can accept?
 
MECHANICS
How will my company be matched to a particular financing source?
If I am a Canadian based company, how will currency conversion be handled?
What kind of information will I have to furnish the Accounts Receivable funding source when I have a batch of invoices to fund?
What kind of information will I have to provide the Accounts Receivable funding source to set up a relationship?
How does the financing source send me the proceeds of a funding batch?
 
TIMING
My business is seasonal, how will financing my accounts receivable help me?
Are there long-term commitments?
How quickly can I begin financing my accounts receivable?
When are my invoices eligible to finance?
 
THE EDI CONNECTION
Will it be easier to finance invoices from my EDI customers than non-EDI customers?
 
MISCELLANEOUS
Is there any funding available for purchase orders?
Will I be able to finance progress billings?
What if I have other loans or obligations that are secured by accounts receivables?
How should I use the sudden increase of cash flow I will have available when I finance my accounts receivable?
Does using factoring to finance my working capital carry a negative connotation to it with my customers?
 

 
What kind of companies will ediFN finance?
Many kinds of companies doing business through EDI are ideal candidates for A/R financing. Companies must be based in either the United States or Canada and have customers who remit payments from either the U.S. or Canada. Eligible invoices must be from business to business. Service sector, product distribution, manufacturing, imported goods, and transportation are examples of industry sectors that are good prospects for A/R financing.
What is factoring?
Factoring describes the process of selling an invoice (or group of invoices) to a bank or private company engaged in commercial finance. There are many flavors and variations of factoring. For many years the garment, light manufacturing, and transportation industries have preferred factoring over other traditional forms of financing. With more businesses providing services instead of goods, factoring has become popular. Why? Because service oriented companies tend to be heavily laden with accounts receivables. They have few collateral assets to offer lenders.
Why did DIcentral align itself with more than one financing source?
Because many of our small business customers face large outstanding accounts receivable balances and slow pay, DIcentral approached the finance market to find options for our customers. We quickly learned that when it comes to banks and finance companies “one size doesn’t fit all.” Thus, we hand picked select sources who we believe can serve the widest range of our customer base.
 
BENEFITS
Will financing my A/R with ediFN provide any other benefits to my company other than accelerating cash flow?
Each ediFN partner carefully screens your client base for credit worthiness and a company’s ability to pay your invoices. The network uses numerous business credit reporting agencies and are experts at evaluating business credit. Though no ediFN partner would restrict your ability to choose who you do business with, our knowledge and experience can be of great value to your company by providing professional credit screening.
 
ELIGIBILITY
How are “eligible accounts” determined?
When beginning a relationship, financing sources will generally accept all outstanding accounts receivable less than 90 days old for qualifying account debtors of DIcentral customers.
 
COST
How much does it cost?
That’s hard to answer without knowing (1) the specific circumstances of a particular business, (2) how much financing is needed on a monthly basis, (3) the type of product or service being provided, (4) how quickly a company’s average collection time is, and (5) the overall financial health of the business being financed. Our financing sources strive to give an interested company a fair estimate of cost range as soon as enough information is obtained to do so. A proposal term sheet can be provided shortly after the financing source has obtained enough information necessary to more accurately estimate cost and other terms of a potential relationship.
How is the advance rate on receivables determined?
An average estimated advance rate of gross receivables is 80 to 85 percent. Occasionally, based on the product or service being offered it is necessary to reduce that advance rate to 75 percent. Conversely, it is not uncommon to be able to have an advance rate of 90 percent for products or services that have a negligible risk of return or offset.
What other fees are incurred other than the discount rate?
Occasionally, depending on specific circumstances, a small due diligence fee, or expedited lien search fee may be required at the time a customer accepts a funding source’s good faith proposal. Each financing source has a small charge for handing wire or ACH transfers.
Am I required to finance all of my accounts receivable?
No, DIcentral has selected financing sources that do not require all invoices to be funded. Subject to credit approval, a customer can pick and choose which accounts and invoices it chooses to finance.
Do I incur any extra cost because DIcentral is referring me to a financing source?
No additional cost is incurred by DIcentral customers, either directly or indirectly. Any fee DIcentral may be paid as a result of referral will be paid out of financing source’s general cost of sales.
What is the smallest amount of monthly invoice submissions that will qualify?
There is no minimum monthly funding requirement, but to initially set up a relationship, the first funding must be at least $5,000. This requirement allows a funding source’s actual costs to be covered from the first funding.
What is the largest amount of monthly invoice submissions that DIcentral’s alliance financing sources can accept?
Without participation with another financing source, the current maximum monthly financing volume is $3 million. In the normal course of business, however, it is not unusual for several financing sources to work together to handle transactions much larger than that.
 
MECHANICS
How will my company be matched to a particular financing source?
With its group of financing sources, DIcentral becomes a central point of contact. After a short phone call with you, we review the circumstances of your company’s needs and where you are geographically located. Next, we match your company with the ediFN lender best matched to the specific needs of your business.
If I am a Canadian based company, how will currency conversion be handled?
If you bill U.S. customers in U.S. dollars, your A/R advance will be in U.S. Dollars. Canadian currency billings will receive advances in Canadian dollars. ediFN has a strong presence in Canada and understands the needs of Canadian companies doing business in Canada and the U.S.
What kind of information will I have to furnish the Accounts Receivable funding source when I have a batch of invoices to fund?
For EDI enabled transactions the process will be assisted by DIcentral providing the financing source the appropriate electronic documents necessary for the financing source to fund. In the case of non-EDI facilitated transactions, the customer will have to provide hard copies of applicable invoices and proof of delivery or acceptance of services.
What kind of information will I have to provide the Accounts Receivable funding source to set up a relationship?
Each of our financing sources has a slightly different list of materials they require. In general, a corporation should be prepared to provide corporate documents, some historical financials, current financial information, a copy of its accounts receivable and payable aging, and detailed information about customers. Slightly different documentation is required of a sole proprietorship.
How does the financing source send me the proceeds of a funding batch?
Several ways exist to receive proceeds of fundings. A customer may elect on a batch by batch basis to receive a check, wire transfer, or ACH transfer. There is a minimal cost associated with wire transfers and ACH transfers, but funds become available either the same day or the following business day and are immediately credited by the customer bank.
 
TIMING
My business is seasonal, how will financing my accounts receivable help me?
Seasonal businesses benefit greatly because the outstanding factored balance will rise and fall with the natural cycle of the business. Often seasonal businesses only need to finance their accounts receivable for a few months of the year. Our financing sources have many customers who only use their accounts receivable facility a few months of the year.
Are there long-term commitments?
DIcentral has negotiated with each of the financing sources to which it is making referrals that no long-term commitments will be necessary for any of its customers. With ediFN, a customer will not incur any termination cost other than a small filing fee for UCC termination. Typically, accounts receivable financing sources require a one year commitment and have substantial penalties for early termination.
How quickly can I begin financing my accounts receivable?
As soon as one of DIcentral’s finance network partners (ediFN) has some basic information from you, the prospective customer, ediFN will make a proposal that will outline terms, cost, and advance rate. If accepted by a customer, the first funding can often occur within a week to 10 days. Occasionally it can happen sooner.
When are my invoices eligible to finance?
An invoice is eligible to factor when the goods or services have been delivered. For an invoice that is handled through EDI, this is at the point that the electronic invoice is generated. For goods that have been shipped, a bill of lading (either electronic or paper) provides proof that the goods have been delivered.
 
THE EDI CONNECTION
Will it be easier to finance invoices from my EDI customers than non-EDI customers?
Yes, though all the details have not been worked out, it is envisioned that with a DIcentral’s customer approval, DIcentral will be able to electronically send the necessary and applicable EDI documentation for financed invoices to the financing source rather than having the customer send paper copies. This will save time and money for all parties and may result in lower financing costs long-term to DIcentral’s customers.
 
MISCELLANEOUS
Is there any funding available for purchase orders?
Purchase order financing can occasionally be made available depending on the product and nature of the purchase order. This type of financing is much harder to arrange than invoice financing, but if one of our customers has a need for purchase order financing, our financing sources will do their best to match our customer’s needs to a good source of financing.
Will I be able to finance progress billings?
In general, a financing source wants to know that the goods and services have been delivered and accepted under the terms of the purchase order or agreement. Occasionally, progress billings can be financed, depending on the nature of the service or product being delivered and the terms of the agreement between customer and supplier.
What if I have other loans or obligations that are secured by accounts receivables?
To begin a financing relationship, a business’ accounts receivable must be free and clear of liens, or there must be an agreement with the first lien holder to subordinate its interest in the accounts receivable. This is often possible to accomplish, though it occasionally adds a minor delay to the process while the first lien holder determines the terms of any subordination.
How should I use the sudden increase of cash flow I will have available when I finance my accounts receivable?
ediFN cautions business owners to match a short-term financing method (i.e. accounts receivable financing) with short term needs such as accounts payable, inventory, payroll, or moderate one time start up costs of beginning a new project. Long-term financing should be used for purchasing equipment, vehicles, or acquiring a new business. When debt and assets are properly matched, a business owner maintains the best balance of flexibility and risk.
Does using factoring to finance my working capital carry a negative connotation to it with my customers?
ediFN cautions business owners to match a short-term financing method (i.e. accounts receivable financing) with short term needs such as accounts payable, inventory, payroll, or moderate one time start up costs of beginning a new project. Long-term financing should be used for purchasing equipment, vehicles, or acquiring a new business. When debt and assets are properly matched, a business owner maintains the best balance of flexibility and risk.
 

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