Escrow Requirement for Factoring
As added security to ensure payment on all invoices, your factor my require that you maintain an escrow account. The funds held in escrow would be used to pay-off severely aged invoices, invoices involved in trade disputes, or insolvency issues.
Escrow accounts can be managed in a
number of ways.
The amount required to be maintained in escrow may either be a static dollar
amount or a percentage of outstanding, factored invoices. In most cases, the
escrow account is replenished by withholding funds from advances and/or
remittances. Thus, should any adverse events arise concerning invoice payback,
the factor can be compensated by debiting the escrow account.
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Cash tied up in an escrow account is simply not affordable for some businesses. Recognizing this, Hamilton will forfeit the requirement to maintain an escrow account for those clients whose cash is relatively tight. In this case, severely aged invoices are paid directly by the client, rather than from an escrow. For business who can afford to maintain an escrow, Hamilton will impose an escrow requirement and will in turn offer the client a more competitive pricing structure. |
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