How Accounts Receivable Factoring Works
Federal National's accounts receivable factoring lines function as revolving facilities. They are easier to use and more flexible than many bank lines of credit.
Case Study: XYZ Company, a service provider to large corporations and government entities
XYZ and Federal National notify XYZ's customers that Federal National is its new financing provider and that XYZ has assigned its accounts receivable to Federal National, requesting that the receivables be paid directly to Federal National. Accounts receivable factoring is a commonplace form of financing that does not trouble XYZ's customers.
XYZ performs its services and bills its customers specifying payment in care of Federal National on the invoices. Federal National is copied, typically by e-mail or fax.
Federal National's staff verifies that XYZ's customers received their invoices and that service has been rendered. In most cases, this is accomplished with a telephone call, e-mail, and/or online payment system inquiry. XYZ's customers are usually not asked to sign any forms or agreements with Federal National.
Using ACH or wire transfer, Federal National advances up to 85% of XYZ's invoice (90% for its invoices to federal government customers) within one business day after verification.
Invoices are paid by XYZ's customers directly to Federal National. Federal National applies these customer payments daily, recovering the amount advanced to XYZ and deducting the financing fees incurred. The balance is sent to XYZ's bank account within one business day following receipt.
Unlike many accounts receivable factoring companies, Federal National allows XYZ to choose which of its invoices to finance and when to finance them. Customer payments received by Federal National for invoices not financed by XYZ are remitted the next business day to XYZ and are not subject to financing charges.
Federal National makes available to XYZ, via Federal National's Online Client Portal, daily advance and settlement reports and complete reports of daily, monthly and other period activity. The reports in the Online Client Portal reflect all transactions as of the close of the prior business day.