How It Works

Cash Advance Against your Receivables

Factoring is an easy way of turning your receivables into instant cash.  Of course there are costs associated with the process but for those that are in need during non-peak times the factoring solution helps to make your payment obligations. And, the risk/reward ‘factor’ is always on your side.  Here is how it works.

There are 3 participants in factoring.

  • Client – the party selling their accounts receivable.
  • Customer – the party responsible for payment of the invoices for services rendered.
  • Factor – the party purchasing and collecting the receivables.

5 Things You Need to Know About Recourse Factoring

  1. New companies that are still finding their feet or established companies that are focused on growing their business sometimes find a need to increase their operating capital.  A factoring company such as K-1, will purchase the receivables and immediately inject a high percentage of the receivables in cash to the client.
  2. Credit checks of the client/seller are NOT part of the process.  However, we do execute credit checks on the businesses to whom your invoices have been generated.  Most results are acceptable but for those who may be questionable, it allows us to plan the best strategy to collect the outstandings.
  3. If K-1 is unable to collect the outstanding debt under recourse factoring, the collection process reverts to the client.  Clients can access our on-line portal to view the invoices that remain outstanding and we are happy to show you our efforts and potential hurdles in collecting.
  4. Once we collect the outstanding invoice amounts, we remit them back to the client.  K-1 assumes the cost of collection saving the ‘client’ administrative expenses in their receivables department.  The amount that we return to the client is based on the amount advanced and the agreed upon fee for performing the service.  There is an example below that illustrates the process.
  5. K-1 offers a one-year agreement that solves the cash flow problem for companies that are on the move.  However, under special circumstances we are flexible in the length of time where companies just need to get over the hump.

Example of Freight Factoring

LMN Trucking has several customers with ongoing business.  Their receivables for one month is normally around $100,000.00.  As they expand their customer base they find the need to add 2 more power units in order to properly service all of their customers.  But the outstanding amount of receivables for freight services already rendered are preventing the finance of the new units. Based on their monthly receivables of $100,000.00, the factoring services of K-1 Financing are enlisted.  These are the possible results.

  • Ninety percent or $90,000.00 is advanced by K1.
  • An agreed monthly fee for K-1 to carry the outstandings is 2.0%.
  • Based on payment terms of 30 days, K-1 will return the receivable amount less the advance of $90,000.00 and the $2,000.00 fee for 30 days.

The result is that the ‘client’ has instant operating capital of 90K and in 30 days will receive another $8000.00 from K-1 (as long as the customer pays).  The client is able to obtain leasing or purchase finances to attain the two power units that they need to continue their growth.

Very few financial institutions will entertain this type of financing.  And it is not unusual for companies to employ the factoring solution.  All you need to do is contact us for more information and keep your business on the upward swing.