Overcoming the Myths of Receivables Factoring

Although factoring volume exceeded $112 billion in volume in 2005, which represented a 9.3% increase over the prior year, many decision makers tend to either employ other methods or choose not to go after additional financing to grow their business. If a company is either in a high-growth mode or is experiencing serious cash flow issues and is not able to establish a working line of credit with a bank, why wouldn?t they turn to factoring? There are three main concerns and objections that many decision makers have that can be overcome with educating the customer about the product.

Concern #1: Cost

The reality is that the cost of factoring is expensive compared to other types of financing (typically bank loans or lines of credit). If a company has the credit standing to get a bank line of credit that offers flexible terms, they should do so. If they have overextended their line or don?t qualify altogether and need additional capital to expand the business, the CFO should at least crunch the numbers to see if factoring is a viable option. There are some industries that experience low margins and slow payers. In general, factoring probably isn?t a good option for those types of companies. If, however, the margins are higher (over 12%), factoring may be a good way to take advantage of new sales opportunities and increase profits. Factoring fees can range anywhere from 2% to 4% per month depending upon several variables, including average dollar amount per invoice, credit standing of the debtors, and the average time it takes to collect the receivables. If a company enjoys the size of margin that can easily cover the factoring fees, it makes perfect sense to employ this type of financing, rather than forgo incremental profits and lose market share to a competitor.

Concern #2: Customer Perceptions

This is a concern with most prospects that are unfamiliar with factoring. The issue centers around notification and collection. At the inception of a factoring relationship, each account debtor is notified that a secured party (the factor) has taken title to invoices in which they owe payment. The letter also states that all present and future invoices due must be paid directly to the factoring company until otherwise notified by the factor. This is necessary to do this because if protects the factors collateral and to be protected by the UCC. Many business owners worry that they will be perceived in a negative light when the customers get these notices. There is no reason to worry. Factoring is hardly a new form of financing. Many industries (manufacturers, distributors, apparel & textile, trucking, and temporary staffing) rely on the services a factor provides. Factors only interact with customers on a random basis, mainly at the inception of the relationship.

Several large companies such as Walmart, Costco, and Target, have internal divisions within their accounts payable department to work with those vendors who factor their receivables. Should a customer who is unfamiliar with factoring question the notice and ask what is going on, the owner or manager only needs to tell them they have chosen to use a company to manage and finance their accounts receivable.

Concern #3: Losing Control over Receivables

Some people feel that allowing a factor to collect their receivables takes control away from them. A prospect should consider that a factor has provided an advance on a piece of paper and until they collect from the customers, they have nothing. However, it would be counterproductive for a factor to be overly aggressive in collecting receivables and risk alienating the customer base. Factors typically work hand in hand with the client to collect receivables and oftentimes allow the company to make collection calls. When payment is substantially late, the factor?s staff will likely make collection calls, but normally in a professional and courteous manner. A good factoring company will provide the client with comprehensive aging and performance reports, as well as credit screening for new customers. In effect, the client will not lose control of their receivables. They will actually be more on top of things because of the enhanced services the factor offers.

If more decision makers were educated about the benefits of receivables factoring, they would likely take a look at how it could help expand their business. Traditional lenders can?t always provide the solutions, so it makes sense to keep an open mind to alternative forms of financing.

Kent Harlan has been a CPA since 1984 and has provided consulting, accounting and financial services to several industries. He is the owner of Ozarks Capital Funding, LLC, a Springfield, MO based company offering financing in the areas of accounts receivable factoring, equipment leasing, asset based lending, and healthcare provider. He is an active member in the Missouri Society for Certified Public Accountants and has written several articles for the Springfield Business Journal. Website: http://www.ocflink.com email: kenth@ocflink.com

Factoring Software

Factoring software can be defined as an interacting, continuing, future-oriented structure of equipment and procedure, designed to generate and process information flow that can aid business executives in the management of their programs.

Factoring software involves broader and more inclusive activity then, say, research. It includes determining and specifying the data needed, the generation of this information by means of research then the processing of this data. While this is a system concept, research usually deals with fragmented, unrelated research projects, done to solve an existing problem identified by some executive.

Software is used on a continuing basis, serving as both a prognosis and a diagnosis. It is preventive as well as curative medicine for factoring companies. Defining the information needs is the most important step in the development of factoring software. The efficacy of the system as a whole depends on this basic step. When clarity is lacking with regard to information needs, the software as a whole gets misdirected and handicapped. Good software recognizes that different executive levels in the company require different types/ segments of information and it ensures that information needs of various executive positions in the company are defined by the concerned executive themselves.

Good software should fulfill the following requirements. It must be unified. It must be conceived and used as a decision support system. It must be compatible with the company and with the overall level of sophistication of the firm. It must be user oriented and it must secure the involvement of users. It must also involve and motivate the suppliers of the information. It must be economical. The cost value ratio of the information processed by the software should be favorable to the firm. It must be capable of absorbing smoothly any changes that may become necessary in the system.

Factoring provides detailed information on factoring, credit card factoring, loan factoring, invoice factoring and more. Factoring is affliated with Invoice Factoring Discounting

Can Medical Factoring Help Boost You Healthcare Business Finances?

There are few bigger pains for healthcare industry professionals than having to wait 30, 60 or even 120 days to collect payments from insurance companies, HMOs and Medicare/Medicaid. The healthcare industry is riddled with complex billing, coding and processing rules that create very long payment cycles. This can be very difficult for medical offices, testing and diagnostic centers, medical supply companies, or any healthcare related business, for that matter. There are always many ongoing expenses that can't wait. There is rent that needs to be paid, offices expenses that need to be covered, and payroll that must be met.

This situation creates a problem for most healthcare businesses. On paper, the business may look very profitable and seem to be doing well. But in reality, most of the money is tied up in slow paying invoices (also known as accounts receivable) with little cash to show for it in the bank.

When faced with tight cash flow, most healthcare professionals turn to their bankers. Medical doctors can usually qualify for signature loans or lines of credit. Other business professionals are not so lucky. In reality, a loan or line of credit may help you in the short term, but will not solve the main problem. Why? Well, loans are good for buying equipment or large capital expenditures, but not for covering recurring and ongoing expenses. A line of credit is a better solution, but they usually have fixed limits. What happens if the business grows past the limits of the line of credit? Many healthcare professionals usually find out, the hard way, that the bankers that were quite happy to extend the first loan or line of credit will not be so helpful at increasing it. Unfortunately, bankers absolutely hate it when businesses came back to the well for more money.

If you look at the problem at hand, you will soon realize that the perfect solution should have the following characteristics. First, it should be able to accelerate your insurance payments so that you can get them quickly rather than slowly. Second, the solution should be able to grow with your business. So, if your business grows its billings, the solution should be able to adapt the financing it delivers, seamlessly. Third, the solution should allow you to finance significant growth. Maybe three to five times your current revenues - or more.

There is a solution that meets these criteria and is available to the healthcare industry. The solution is to factor your medical receivables using a financing tool called medical factoring. Medical factoring allows you to accelerate your payments from insurance companies, HMO's or Medicare/Medicaid. It enables you to receive a substantial amount of your net collectables within days of billing, streamlining your cash flow dramatically.

Medical factoring, a specialty form of general factoring, allows you to sell your claims and receivables to a factoring financing company. The factoring company buys them - at a small discount - and pays you with immediate funds. The factoring company waits to be paid while you get to use the funds to meet business expenses. As opposed to traditional banking financial products, medical factoring has no arbitrary limits. You can factor or sell as much revenue as you can generate, making it the ideal financing tool for growth.

However, factoring is not the best solution for every situation. It works best in instances where your main challenge is that you cannot afford to wait to get paid in 60 to 120 days. It helps you meet ongoing and recurring expenses such as rent, payroll and lease payments. Medical factoring is an ideal solution for medical offices, rehabilitation centers, medical testing and diagnostic centers, medical supply companies and small to mid sized hospitals.

Invoice Factoring Group

Invoice Factoring Group can provide you with a medical factoring and medical receivables factoring quote for free. Marco Terry, the president, can be reached at (866) 730 1922

Invoice Factoring As A Short-Term Cash Flow Solution

Invoice factoring refers to the practice where smaller companies sell invoices in order to receive money today. IN this case they do not have to wait for a credit period of 30, 60, or 90 days. Thus by selling invoices smaller companies do not create debt. This practice of invoice factoring is basically used as a finance management tool.

This practice of invoice factoring is usually adopted to avoid any loans or giving any collateral against availing any loan. The fee for invoice factoring is paid in terms of discount. This discount can ranger anywhere between 2.5% to 7%. As a result of invoice factoring the smaller companies avoid exhibiting any loans on their balance sheets plus they also do not have to pay any interest for the money taken. This results in better profit figures.

Various agencies also help small companies in invoice factoring. These agencies set up the company with the right factor for a particular factoring situation. If someone has an invoice or any receivable to be factored then these agencies come out to help in the same.

These agencies help the manufacturers, distributors, importers, exporters, wholesalers, contractors, suppliers etc equivocally. They also help truckers in construction invoice factoring. These agencies help to locate best factor for a particular situation within the area or can also help to choose from nationwide factoring companies to avail the best rates. They usually customized solution as per the clients need. To avail the services of such companies firstly a form needs to be filled out stating the type of receivables and other details required for invoice factoring. Then these companies approach the probable paying parties that avail invoice factoring. Some of these agencies assume the risk in the deal for non-recourse factoring where the client is not required to pay back.

There are different types of companies with different types of rates for factoring. Any invoices or receivables to the amount of $100,000 can be factored immediately. The average rate payable for discount in such cases is 2-5%.

Some agencies specialize for a certain category of invoice factoring. For example, some agencies indulge only in invoice factoring for medical industry. Some agencies, which cater to small and medium businesses for invoice factoring, create invoices online and receive immediate funding. They usually give a 24 hours turnaround. Other types of agencies also give funds to small businesses for their day to day operations against collateral of their invoice or purchase order. These kinds of agencies also buy mortgage notes, structured settlement annuity or medical receivables.

Henry Byers, Receivable Factoring advisor - focusing on Invoice Discounting and Invoice Factoring

Invoice Factoring - How To Finance Business Growth Without Debts

One of the biggest challenges that the owners of small and mid size businesses have is waiting 30 to 60 days to get paid on their invoices. Although large businesses can usually afford to wait, smaller businesses usually can?t. As a matter of fact, waiting to get paid on their invoices, usually affects the owners ability to meet payroll or pay the company?s bills. This problem can even be more frustrating if the business has a number of orders that it cannot fulfill because its cash is tied in unpaid invoices.

How can invoice factoring help you?

Invoice factoring, also known as accounts receivable factoring, is a financial tool that allows small business owners to capitalize on the power of their slow paying invoices. It allows you to turn your invoices into immediate cash, enabling you to fund your business operations. Although it is not a well-known fact, invoices from strong credit worthy commercial clients are excellent collateral, especially for factors. Although most banks won?t take it ? invoice factoring companies are more than willing to provide you with financing based on them. This makes factoring an ideal financing vehicle for small and mid size companies, as well as knowledge-based businesses and employee intensive businesses.

How does invoice factoring work?

As opposed to most banks than lend you money against collateral, invoice factoring companies buy your invoices outright. The factoring company buys your invoices and provides you with funds immediately, while they wait to get paid by your customers. Let me describe the transaction with an example:

1. Let?s say that you sell services to Company A and Company B. As soon as you provide them with services, you issue invoices.
2. At the same time, you send copies of the invoices to the factoring company, who buys them and provides you with an advance payment for them.
3. The factoring company waits to get paid by your customers. Once paid, any remaining funds, are sent back to your company.

The invoice factoring process can be repeated for every invoice that you issue, providing you with a flexible line of financing that grows with your business.

How much will an invoice factor advance my business?

The factoring transaction is commonly done as a two-installment sale. The first installment is called the advance and is paid to you as soon as you submit the invoices. Advances can range anywhere from 60% on the low end up to 90% of the gross value of the invoices. The average advance is about 75% (for the industry) The remaining installment, called the rebate, is remitted to you once the invoices are paid.

The cost of invoice factoring

The actual cost of an invoice factoring tramsaction is determined by three criteria. First, the credit worthiness of your customers. Second, the length of time your invoices take to get paid. Third, the monthly factored volume. Your cost, actually called a discount in the industry, can be as low as 1.5% or as high as 12%, per transaction.

How can I determine if invoice factoring will help me?

Generally speaking, invoice factoring will help you if you have a business that has reasonable profit margins or is growing quickly. Mid size companies with 20% or more of profit margins or large companies with 15% profit margins can usually do well with accounts receivable factoring.

 Invoice Factoring Group - http://factoring.qlfs.com - can provide you with factoring quotes at no cost to you. Marco Terry, its president, can be reached at (786) 206 4722

Factoring is Good for Business

It seems you can never have enough money, and factoring is just one more way to meet that goal. The basic premise behind the business idea of factoring is that an owner sells his accounts receivable to get a quick influx of cash. The buyer gets the accounts receivable at less than their actual value. The pay off comes when the accounts are paid in full.

Factoring can be good for the business owner. The sell gives the owner some immediate working capital that would have trickled in otherwise. It also takes the hassle of collecting outstanding accounts out of the hands of the owner. The down side to factoring is that the owner will get less money for the accounts than they show on paper.

Most owners who look to factoring are trying to find a way to smooth out the cash flow and free up time. It basically comes down to a need for having the money now instead of later. The money is guaranteed at the sell of the accounts, and the business owner doesn’t have to spend time and resources trying to collect on accounts. Factoring also relieves the owner of concerns about bad debts. Collection is strictly in the hands of the buyer.

The buyer side of the factoring benefits because the accounts are purchased as much as 25% below their face value. This is a nice profit on a short term investment. It is also likely that a company interested in factoring has streamlined the collection process – making the process much more cost effective.

Factoring is not for every company, nor every investor. The best route for factoring is to find a company that specializes in this investment process and develop a relationship with it. It would also be wise to consult with an accountant to see if the process of factoring could be a money saving tool for your business.

Kathryn is a freelance journalist covering business and finance issues, specializing in subjects such as factoring and ecommerce.

Invoice Factoring Rates

Invoice factoring rates are the rates charged by invoice factoring companies for the services offered and cash advanced to businesses. Invoice factoring, otherwise called invoice discounting, is a business strategy by which a company’s invoices or receivables can be signed off to an outside company, thereby securing immediate cash. Invoice factoring provides ready cash, which otherwise would be available only after a stipulated period.

The service charge is usually a certain percentage of the sales factored and the service charge is calculated depending on the annual turnover of the company, the number of invoices and the number of customers. The interest charges are along the lines of normal secured bank overdraft rates. Invoice factoring rates are time-sensitive and are usually a fixed percentage of the total invoice, usually calculated in 30-day increments.

The best plan for factoring fees is that based on a per day basis. The average per day factoring fee may be between 0.095% and 0.085%, and continues to be so as long as the invoice is with the factor. Some companies charge fees on a per 30 day basis; this is not a very agreeable arrangement because there is minimum flexibility. If the customer pays after 31 days, one will be charged for 60 days. However, the interest per day scheme is advantageous because one has to pay only per day.

Invoice factoring rates vary widely from lender to lender, with commissions and incentives to lure customers. Most companies make invoice factoring quotes available within 24 hours. Alternately there are invoice factoring services which aid in locating the quotes most ideal for a particular company. It is worthwhile to avail of the services of these organizations since they can minimize the effort of hunting for an ideal invoice factoring rate.

Invoice Factoring provides detailed information on Invoice Factoring, Invoice Factoring Companies, Invoice Factoring Discounting, Invoice Factoring Rates and more. Invoice Factoring is affiliated with Loan Factoring.