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

Receivables Factoring - How To Finance Your Business Using Your Invoices as Collateral

Obtaining business financing has always been challenging for small and mid size company owners. Traditional sources of financing, such as venture capital companies, angel investors or banks, provide financing that is hard to obtain and usually takes weeks - or months - to set up.

Angel investors and venture capitalists, although more generous than banks, only provide capital if you are willing to give them an ownership stake in your company. Usually a big one too. Banks don't demand an ownership stake. Instead, they will only lend you money if your company can show a three-year track record of profitability and if your personal credit record is spotless.

But, what if you don't want to give up ownership and if you don't meet banking requirements?

There is an option that is growing in popularity - and it provides you with easy to obtain financing. It's called accounts receivable factoring. Factoring is an ideal tool for companies whose biggest challenge is that they cannot afford to wait 30 to 60 days to get paid by customers. By factoring your receivables, you can get paid in as little as two days. This helps business owners to easily meet ongoing obligations such as payroll and rent, and allows them to grow the business. In effect it eliminates the uncertainty of when you'll be paid and allows you to streamline your cash flow.

Receivables factoring is very different than a business loan or line of credit. Rather than focusing on physical collateral (real estate, equipment, etc.) like banks do, factoring companies focus on your invoices. Are they from good credit worthy clients? Do they pay reliably on 30, 60 or 90 days? If they do, you have a good change of qualifying for invoice factoring.

Accounts receivable factoring is very easy to implement and works as follows:

1. Your company delivers the goods or services to the client

2. You invoice your client and send a copy of the invoice to the factoring company

3. The factoring company advances you between 70% and 90% of the invoice as the first installment

4. Once the invoice is actually paid, the factoring company advances you the remaining 10% to 30% as a second installment, less a small fee

Factoring financing is a great alternative to bank financing and venture capital that is easily available to small and medium sized businesses.

About Commercial Capital LLC We are a leading factoring company and can provide you with factoring financing and accounts receivable factoring financing. For a quote, please call (866) 730 1922

Is Your Freight Company Stuck In Neutral? Finance It With Factoring

Growth in the trucking industry is all about freight volume. The more freight you move, the faster your company will grow. But big volume comes with a catch ? slow paying customers. Unfortunately, waiting 30 to 45 days to get paid is very common in the industry.

But what if you cannot afford to wait 45 days to get paid by your clients? What if you need to buy fuel, pay drivers or pay for repairs? Employees and suppliers seldom like to wait to get paid.

Needless to say, going to the bank for financing is not an option. They usually do not like to finance small and mid sized businesses. Unless, of course, you have tons of assets, three years worth of financial statements and you have great credit.

So, now what? What are your options?

If you own a trucking company, there is a solution that will provide you with plenty of financing. And as opposed to bank loans, this financing is tied to your freight bills. The more you invoice, the more financing you qualify for.

This solution can provide you with the necessary funds to buy fuel, pay drivers and pay for repairs. And it is available to freight companies of any size. The solution is called freight bill factoring (or freight factoring for short).

Freight bill factoring works as follows:

1. You deliver the freight and invoice your customer
2. You send a copy of the freight bill to the factoring company
3. The factoring company advances you up to 90% of your invoice (10% held in reserve)
4. Once the factoring company gets paid, they rebate you the remaining 10% less their fees

As opposed to bank loans, factoring has no arbitrary high limits. You can factor as many freight bills as you can generate. So, as your company grows, so does your financing.

Factoring is a great tool to finance growing trucking companies that need money to grow. It allows you to take on new opportunities to drive your company to the next level.

About Commercial Capital LLC We specialize in business financing. We can provide you with a free freight bill factoring, freight factoring or invoice factoring quote. For an immediate consultation, call Marco Terry at (866) 730 1922 or http://www.ccapital.net/html/freight_factoring.html or http://www.ccapital.net/html/business_financing.html

Why Try Factoring?

When you engage in factoring or selling your accounts receivable, you're accepting less money for an asset than you might expect to get for it. But there are great reasons for factoring and here are 10 of them:

1. The ready cash you'll get by factoring will help your company to grow. If you have $2000 ready cash in the bank, but you've invoiced for $100,000 down the line this will lead to $75,000. Think about it: the ability to hire more necessary staff, buy needed equipment, and have stock on hand could make a real difference to your business.

2. Ready cash can help you pay your suppliers sooner, helping you negotiate discounts and have a larger credit line than you had before.

3. Factoring your current invoices gives you the capital to take on large, deadline-oriented contracts and orders that you'd otherwise have to pass up because of slow cash flow.

4. Those large accounts are worth money. Having cash on hand now allows you to offer longer payment terms to the new large accounts.

5. Out of marketing comes business. With ready cash you can get from factoring, you can buy billboards, newspaper and radio ads, and even have direct mail campaigns for those timely marketing campaigns.

6. If you've invoiced too much and now are finding yourself in a cash crunch, factoring will help you to meet your current expenses right away, reducing the chance of not being able to pay your bills. Nothing is worse for your company than not meeting payroll; you lose your best employees, and the ones who stay are probably going to be seeking other employment.

7. You can improve your balance sheet with working capital without incurring debt.

8. Pay off limited lines of credit, or lines of credit that are costing you too much in interest and fees.

9. Factoring out slow debts allows you to skip the unpleasantness of making payment collection calls; instead, the factoring company does this for you.

10. If you factor out part of your accounts receivable, the factoring company will give you a free analysis and comparison of what payment terms and credit amounts your customers really qualify for. This is invaluable information for conducting business in the future.

In addition to these ten great reasons to try factoring your accounts, there are a few reasons never to factor your accounts. If you're concerned about late and slow payments without a good reason such as; you've given a thirty-day due date to someone and they take forty days to pay, then factoring is not a good idea. Instead, you should change your business practices to give a shorter due date. If you think your customer won't pay, factoring their invoice out is dishonest, and will win you no points with a factoring company. Do you really want to ensure you have a bad reputation with people who trust you with a large amount of their capital?

If you're in a dispute with a customer and you decide factoring out your invoice is a way out, you're wrong. The customer could simply refuse to pay the factoring company and then sue you, or worse, tell everyone else what a horrible company you run. Face your disputes head on. If you are dissatisfied with the customer, don't do business with them again.

Factoring to sustain a non-profitable business without some hope of profitability in the future is a sure way to drive your self into bankruptcy. Instead, you should let your business die a dignified death. Factoring so that you can remove cash from your business is a bad idea, akin to taking out a dozen credit cards so you'll have money now. When you engage in factoring, you're essentially agreeing to a profit loss; you should only do this if you stand to make more money in the long run.Henry Byers, Factoring advisor - focusing on Receivable Factoring and Invoice Discounting

Truck Invoice Factoring

 

Truck invoice factoring is the outright buying of the invoices of business establishments by truck invoice factoring companies. This helps companies to maintain smooth cash flow. Most truck invoice factoring companies are commercial establishments and deals in the purchase of invoices and some offer other financial supports. Truck invoice factoring used to be exclusively the realm of big business houses, but now it is available for small business establishments, as well. The industry is worth 100 billion dollars today. Cash to be received often hampers the smooth functioning of small and large companies and truck invoice factoring is a welcome relief from this.

Most companies for the purchase of invoices use certain criteria. The service fees vary from company to company. Credit history of the customer, amount in the invoice and total business volume are some the criteria used while purchasing an invoice and in determining the service fee. Before engaging in business with a company, truck invoice factoring companies check accounts receivable aging report, the credit limits of existing customers, and the company’s track record. Not satisfied with merely the company’s report on customer’s credit history, most truck invoice factoring companies engage in an independent enquiry about the customer’s credit history. Companies can also negotiate with truck invoice factoring companies once they meet all the qualities.

Through truck invoice and factoring, companies can save time and money and use work force spend on retrieving money from customers for other purposes. Almost all types of industries make use of truck invoice factoring. Truck invoice factoring is ideal for those companies that are on the path of expansion and those that needs to meet loan deadlines. Some factoring companies provide finance to start-up companies.

The service fees of truck invoice companies are sometimes more than the traditional finance companies. The greatest advantage with it is that companies will not be falling into debt trap. Companies can also do away with discounts that they used to offer for earlier payment to customers.

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.