Assignment
ORIGINAL QUESTION:
Many firms offer factoring services whereby firms can liquefy their accounts receivable, essentially selling them for cash.
TO DO
Point your browser to https://www.winfin.com, the home page of Winston Financial Group, Inc. Your assignment is to explore this Web site and to answer the question: How does the process of factoring work?
PLEASE RESPOND TO THESE 2 STUDENTS' RESPONSE
STUDENT 1:
• Victoria b.
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In browsing the Winston Financial Group, Inc. website, I feel that factoring services for businesses are very similar to structured settlement payment firms (i.e. Peachtree). From what I read, basically a business that wants to bring in some quick cash to pay bills or have free cash flow, they sell their accounts receivables to the Winston Group, who in turn gives the business cash for a fee. This process is good for small businesses who do not have a steady flow of cash coming in. They do this so they are able to have the cash they need on hand, but they couldn't get bank financing. The Winston Group will buy out the business' accounts receivables (whichever ones the business wants to sell- they can pick and choose or sell them all). The Winston Group will do a credit check on the customer to ensure they will be able to get their money back from the customers. The better the customers account, the less of a fee that will be charged to the business selling it. The Winston Group will give cash to the company selling the receivables within 24 hours of buying the account out. This is a widely used process across all business sizes. It allows the small business to be able to expand their business and attract new customers. The Winston Group offers to do in house collections from those customers who do not pay, and keep it on a professional basis as not to discredit the company the customer purchased from. The Winston Group keeps the business as involved in possible with all the dealings. The Winston Group provides the business selling accounts with reports on when the customer pays their debt to the Winston Group, who has outstanding accounts, and let the business know how much money they have tied up in their debt. This allows the Winston Group to track which of their customers are paying and which are not, so that they can better select accounts with the Winston Group to know they receive their payment and keep the fees low for the business.
• STUDENT 2:
• Stacy Ben.
In the business world, it is important to keep a significant amount of cash on hand to provide flexibility to the firm. If extra costs, or prime opportunities for investment, suddenly crop up, this cash will allow the firm to pay for such expenses. On the other hand, when assets are buried in accounts receivable, and may not be paid off for another 30 days or longer, the company has no such flexibility. Into the breach has stepped Winston Financial Group, which offers companies cash today for their accounts receivable that will pay off tomorrow.
According to the company's website, a firm may select any accounts or customers whose receivables they would like to exchange for cash, and only factor these ("Home," 2017). Winston Financial does not attempt to look over all of a company's books and cherry-pick the best accounts. It also claims to offer low factoring rates and reasonable fees (none up-front or hidden). Winston Financial provides a valuable service, because in the past only companies with over $20 million could factor their receivables ("FAQ," 2017).
The way the procedure works is that a firm submits accounts receivable to Winston Financial, and the company checks these accounts for credit-worthiness and performance. The firm who is making the exchange does not have its own credit checked, but rather just that of its customers ("FAQ," 2017). After checking the accounts receivable, and determining how likely they are to be paid back, Winston makes an offer on the factoring fee for these accounts.
Winston makes this a quite rapid procedure, which often can outpace bank financing efforts. The company alleges that cash for accounts is usually deposited within 24 hours. According to Winston, if an application is complete and detailed accounts receivable aging is provided, the proposal for the fee can be in customers' hands right away ("FAQ," 2017), with the cash soon to follow. The company makes the process of factoring sound fairly simple, and the website enforces this theme with short, pithy answers to everything.
References
FAQ. (2017). Winston Financial Group, Inc. Retrieved from https://www.winfin.com/
Home. (2017). Winston Financial Group, Inc. Retrieved from https://www.winfin.com