What is the Buyout Process When Switching Factoring Companies?

Switching factoring companies can help your business run more efficiently and allow you to choose a provider that is more in line with your current goals and needs. Understanding what happens when you make the switch and how the process works can help you plan for the change; when you know what to expect you can be better prepared.

Time Matters

The process can be swift, but not immediate; in some cases, it can take several weeks to complete. During this time, your existing factoring company will be applying payments received by your customers to close out paid invoices, they can continue to fund new invoices, but a cutoff time will need to be determined so the takeover can happen, while your new provider will be getting ready to cover your organization.

Since two distinctly different businesses need to coordinate to successfully transfer your factoring, time is needed to organize the switch and settle your accounts.

 

Buying Out Invoices

As the transition continues, your new factoring company will need to buyout your remaining invoices from your old factoring company. When this happens, your new provider will pay the old provider the amount advanced, along with any fees accrued.

 

Take a look at how the buyout process worked for one of our current clients when they transitioned to working with UC Factors.

 

This action is referred to as the buyout process and is a necessary part of the transfer to your new factoring company. A few of the most common questions we receive about this process are below, along with their answers:

What is a buyout and do I need one?

The buyout is part of the transition process; basically, your new factoring company will purchase any existing accounts from the original company, allowing for the transfer the rights and security interest of these items to the new brand.

How long does it take?

The timing of your buyout will depend on the size of the buyout, the experience and capabilities of the factor in question and any issues that arise during the process.

What actually happens during the buyout process?

The buyout process includes a variety of steps; the old factor will work to with the new factor on terms of the buyout agreement and provide the buyout figure as of a given date.

The new factor will research the validity of those invoices and accounts, check credits, review and negotiate buyout terms. You will need to most likely provide copies of all invoices involved in the buyout along with any necessary back up documents needed by the new factor.

What do the factors do during the buyout process?

The original factor works to close out the account:

  • Stop buying activity, as a given date
  • List out any accounts that are currently active or live (called Buyout Aging)
  • Calculate charges up to the day of transfer
  • Calculate fees, including cancellation fees
  • Calculate fees for transferring the account
  • Prepare Buyout Agreement (either party can prepare this agreement)
  • Provide a Release Letter to new Factor

The new factor will:

  • Verify invoices and accounts are accurate before purchase
  • Review debtors and credit with existing invoices
  • Review buyout figures and agreement from existing factor
  • Prepare Buyout Agreement (either party can prepare this agreement)
  • Wire old factor funds required to take over account

 

What does my company need to do while in the process of a buyout?

In most cases, you need to be aware of the steps and available if there are any clarifications needed, but you won’t have to do much of the direct, hands-on work.

You might need to provide your new factor with copies of all invoices and back up documents on the Buyout aging. You will also need to notify your old factor that you will be terminating your agreement with them and transitioning into a new factoring arrangement.

There will be a short period where you are paying factoring to one company or both as the transition occurs. This is because you can’t create a final buyout figure while accounts are still being factored.

 

Buyouts and Customer Service

You’ve chosen to switch factoring companies because the new one will serve your company and goals more efficiently and offers a more advantageous system. Ideally, the buyout and transition will not have a great impact on your ability to run your business and serve your customers. Timing is everything.

When you initiate a buyout, the process has very little effect on your own ability to perform for and serve your customers. The only thing that changes is the name of the company that payments should be made to and the address used for payments.

We recommend reminding your customers of the switch and providing them with the new details to help everyone remember and direct payments to the correct place from the start. If customers do make an error, your old company will forward payments to the new one as part of the buyout agreement.

One thing to carefully consider as you are looking into a factor switch is factor hopping is not recommended. Look carefully at the company you will be moving forward with and make sure the move is right.

Many factors will provide you with Client References. Call them and make sure this factor will be a good fit for you.

Make sure they will provide your business with what the sales person sold you on. You don’t want to be sold on services and rates by a sales person to find out Underwriting is unwilling to commit them.

 

Prepare for a Time Without Factoring

When your factoring company stops funding your invoices and the other is not yet accepting them, there is a short delay for your business. This is inevitable and happens any time you make a switch.

In most cases, factoring can swiftly resume, but you should be aware of the potential delay. There is simply no way to facilitate the buyout and complete the process while there is also ongoing factoring in place.

 

Conclusion

The goal for all parties is smooth and easy transitioning from one factor to another. A full understanding of the process is essential for you - you'll be better able to identify what is going on and know what to expect as you switch brands.

At UC Factors, we work hard to ensure that transitions are smooth and hassle-free and that you can get up and running as swiftly as possible. Since so many brands make the switch to UC Factors, we have a successful process in place and are here to assist every step of the way.

Contact us today to learn more or to make the switch to a better, more efficient way of factoring for your brand.

 


Switching factoring companies is not something that you should do often, so make sure your new factor will be a good fit before you make the switch. Download our free checklist to ensure you choose the right factor and have a smooth transition here:

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