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When the business owner wishes to participate in the invoice factoring relationship, the factoring company performs due diligence to ensure that the potential customer is a good fit. One facet of this process is Lien search, which gives factor satisfactory assurances that they will have the ownership of customer accounts. This is important, as the factoring company will promote substantial funds to the customer
The reason is clear title to the pool of receivables is important is demonstrated by the following example :. Suppose factors The company has advanced 80% of the face amount of bills totaling $ 100,000. Customers typically pay the client within 45 days and payments are made to the lockbox is a factor. To that funds are advanced and payments are made by customers, factoring client has defaulted on a loan agreement with a local bank. Among the assets pledged to secure the loan is the company’s accounts. In other words, the bank, at the time the loan was granted, do UCC filing of all assets used as collateral. This would typically include requirements so that they have secured interest in the property. When a company defaults on the loan, the bank took control of the assets, which include the payment of all accounts on the books. Had factoring company does not make a pledge quest to become the UCC presented by the bank, they would be greatly affected and lost $ 80,000 advanced to the client.
Another example of a lien filed against receivables is when the company has failed to pay federal payroll taxes withheld paychecks employee and their involvement in Fica and Medicare taxes. After several announcements have been submitted to the company, the IRS will eventually “play hardball” and register a mortgage against the property of the company. Needless to say, the same type of exposure would be the factor
How invoice factoring company deal with the mortgage on receivables :.
above scenario come all the time, so it is important that they consider the use of accounts receivable factoring to understand that there are ways to deal with the situation. In the case of collateral submitted by the bank, the factor will often pay a proportionate amount of claims on the collateral value base so they can get an idea of what the bank could accept as payment to release the mortgage on the property in question. Some banks are stubborn and will not take part, but they who realize that account factors will help customers increase the capital base will be willing to work out an agreement. They will often agree to accept the rate of initial progress until the agreed-upon paydown of the loan is made. It reduces their exposure and allow their customers to take advantage of the advantages of invoice factoring has to offer. In addition, the company has less debt load to tackle.
In the case of collateral submitted by the IRS for non-payment of payroll taxes, the same type of contract. Usually, a subordination agreement. With this legal document, the IRS agrees to allow funding to have a senior position in mortgages so they will be ready to continue Factoring relationship. In return, the agreement says that a certain amount of progress will have to pay delinquent payroll taxes.
Whether mortgage on receivables owned bank, private investor, or IRS, the lien holder to be flexible and open-minded in working with clients who want to factor accounts.
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