Factoring And Invoice Finance Demystified

When faced with a factoring service contract for the first time, you may find it complicated. In fact the concept of invoice finance is quite simple.

Factoring is a financial facility that allows your company to get paid on the invoices almost as soon as they have been issued. The facility effectively allows small or medium sized companies to turn your invoices, to include slow paying invoices into cash. Also known as accounts receivable financing, this is merely a way of helping small businesses capitalise on their future income today. It is a very easy way of improving the cash flow of your company and bridging the cash flow gap created when selling to another business on credit terms.

Factoring is similar to invoice discounting. The key difference is that with factoring, the financier runs the ledger, whilst with invoice discounting there is no credit control element to the facility. The business simply becomes the agent foe collecting in the funds on behalf of the financier. Invoice discounting can be disclosed to the customers or confidential, enabling you to go about your day to day activity without any implications as par as your customer?s perception goes and without any impact on the good relationships you have built.

What exactly can factoring do for your business?

Most businesses trade on credit terms, so when services and or products are delivered and the relevant invoice raised, there is a period of time (usually 30-90 days) before payment is received from your customer. There are a few solutions to assist you in trading and growing your business.

A Bank loan or overdraft is not the ideal way of financing a growing business. Overdrafts can be recalled at anytime and are not often granted at the right level to aloe you to optimize your business. In addition, often personal security is required.

The best cash flow solutions is invoice finance. The factoring/Invoice Discounting company will fund your invoices once the goods/services are delivered and the invoices raised. The rate your financier will advance against your invoices can be up to 90%. Invoices are typically financed for 120 days from the invoice date. Once your customer pays the outstanding balance, you will then receive the percentage you have not been paid against an invoice less your charges.

Charges can vary dependant on the type of facility and the level of service you opt for. The choice of the right solution for your business comes down to what your business?s specific requirements are. If it is particularly important to outsource the sales ledger management aspect of your business, then you may find it useful to opt for a factoring facility. This will free up some time and assist to reduce your debtor days.

An additional service offered by such companies is protection against bad debts, which would typically cover up to 90% of the outstanding balance on any customer, where you have a designated protection limit in place.

You?ve signed up with a factoring company. Now what?

When you invoice a customer, you send an electronic copy of that invoice to your factor.

The factor advances you the agreed percentage of that invoice. The factor is then responsible to collect the money from your customer. When the factoring company receives the amount due from the customer, it will pay you the rest of the money, minus the fees. Fees are usually broken down into two: Service fee, charged for running the ledger, collection activity and monitoring and a Discount Fee, which is charged over base rate, usually on a daily basis on the outstanding borrowed balance.

Who can benefit from using a factoring company?

Factoring is the best solution for any business that relies on a timely payment of outstanding invoices.

The most common indicators that you need a factoring facility are:

- When you are a new, cash flow dependant business.
- When your business doesn?t rely on a small number of major customers.
- When you need to finance the growth of your turnover
- When you foresee an increase in sales and you want to be able to take advantage of it.
- When you simply don?t want to get involved with anything other than what you do best, that is production and sales.

Now you have the basics. All that?s left for you to do is consider the benefits and decide if factoring or Invoice Discounting could be the solution to speed up the growth of your business.

By Iulia Pascanu sponsored by http://www.decision-finance.co.uk/ Decision Finance provides financial solutions such as term loans, stock & factoring: http://www.decision-finance.co.uk/ Please link to this site when using this article.

Factoring Consultants

The ultimate goal of factoring consultants is to maximize the wealth of the shareholders. This is represented by the market value of the shares of the factoring companies. Wealth is defined as the net present worth of the company, i.e., the present value of all future returns. This is determined by capitalizing the net income after taxes, which is achieved by discounting the return expected by the investors - also known as cost of equity.

Though the wealth maximization seems superior to profit maximization objective, it is to be noted that the former is based upon the latter. The market price of shares, which is the indicator of the wealth of the firm, is based on the long-term returns of the firm. The returns that accrue to the investor would be a function of the earnings of the company. In addition to serving the basic of objective of the firm, consultants has some specific objectives like, maximizing profit- both short-term and long-term profit, minimizing risk, maintain control, achieve flexibility, ensure liquidity and maintain financial discipline in the organization.

With the development of finance as a profession and as an important area of management, the role of consultants has undergone drastic changes in recent times. Presently, the consultants are in charge of determining the total amount of capital required (both working capital and fixed capital). This is done by proper forecasting and planning of finance. They also play a pivotal part in investing the funds in assets and projects with the aim of making profit. This is to be done in such a way that the earnings are more than the cost so that there is a positive net return to the concern.

To play his role well, the factoring consultant has different tools, such as cost of capital, which indicates the appropriate source of finance. Normally, the sources with minimum costs are selected so that the weighted average cost of capital can be kept at the minimum. Then there is leverage to decide the proportion between ownership funds and outside funds. Usually, outside financing is adopted to magnify the earnings on ownership funds, provided the outside financing is available at a lower cost and without much additional risk.

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

Credit Card Factoring

Credit policy refers to the combination of decisions pertaining to variables such as credit standards, credit terms and collection. Credit standards constitute the various criteria on the basis of which the customers, to whom credit is to be granted, are evaluated by the firm. Credit terms contain the terms and conditions of extending the credit facility. They include, duration of credit, terms of payment, delivery schedule, discounts etc. Collection efforts comprise the steps taken by the firm in order to collect the book debts from the customers.

There are different types of credit policies being followed by factoring companies. A firm may either follow a tight credit policy or a liberal credit policy. A firm is said to be following a tight credit policy where it sells on credit on a highly selective basis only to those customers with proven credit-worthiness and are financially strong. A firm following a liberal credit policy sells on credit to customers on liberal terms and standards. Credit is granted even for longer periods to those customers whose credit-worthiness and financial soundness are well known.

A tight credit policy means rejection or refusal of certain types of accounts whose credit-worthiness is doubtful. This results in loss of sales and consequently loss of revenues. When the firm loosens its credit policy, two types of administration costs are incurred viz., the cost of credit investigation and supervision and the collection costs. An immediate consequence of liberal credit policy is the accumulation of bad debts, where the firm is unable to collect the debts. This happens because the firm tends to sell even to such customers with relatively less credit standing. In modern days, the credit policy is used as an effective marketing tool capable of boosting the sales volume of the firm. This may be used to maintain the market share, especially in a declining market. Credit policy helps to retain old customers and create new customers by luring them away from competitors.

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

Growing Your Trucking Company With Freight Factoring

Trucking companies are one of the most cash hungry businesses in the transportation industry. There are driver expenses, equipment expenses and fuel expenses. However, trucking companies can also be very profitable, if cash flow is managed properly.

One of the main challenges that trucking company owners face is that freight bills can take as long as 60 days to get paid. This puts them in a tough spot, because unless the company has a significant amount of cash in the bank, it usually cannot afford to wait to get paid.

Usually, the owner will try to go to the bank to obtain financing hoping that a loan or line of credit might solve the problem. Unfortunately, banks will seldom finance businesses that have less than three years of audited financials that show consistent profits. Of course, if the trucking company could provide three years of financials that show profits, it would not need financing.

A better solution is to use freight factoring. Freight bill factoring enables you to convert your slow paying freight bills into cash by selling them to a factoring company. This provides you with immediate financing and allows you to cover all your ongoing business expenses. Also, as opposed to bank lines of finance, freight bill factoring automatically grows as your sales grow, providing you with flexible financing.

The process is simple. The factoring company buys your invoices and pays for them up front. The transaction is typically done in two installments. The first installment is called the advance and the invoice factoring company provides you with up to 90% of the invoiced amount. The remaining 10% is held as a reserve to cover disputes or charge backs. The remaining 10% (less a fee) is rebated as a second installment, once the invoice is actually paid.

The factoring fee is based on how long the invoice is factored for and the monthly volume of factored invoices. Discount rates average between 1.8% and 4% per month based on these parameters.

Most factoring companies buy invoices using a non-recourse factoring. Under a non-recourse agreement, the factoring company bears the risk of non-payment if your client becomes insolvent or goes out of business. This is a nice benefit of factoring and increases the peace of mind of business owners.

Freight bill factoring is an ideal solution for a new and emerging trucking company, and provides you with the necessary financing to operate and grow your business.

About Invoice Factoring Group - http://factoring.qlfs.com We are a factoring company that can provide you with a freight factoring, freight bill factoring and accounts receivable factoring quote at no cost. Marco Terry, the president, can be reached at (866) 730 1922 or at http://factoring.qlfs.com/html/freight_bill_factoring_for_tru.html Commercial Capital LLC.

Tips on Choosing a Factoring Company!

Factoring, what is this financial tool you are looking into that will hopefully fuel your business with the capital it needs to prosper.

Each person and business varies so how do you know which factor is the right choice for your company.

Some things you need to know before you choose a factor!

Term Contracts:

Do they require a term contract?

There are pros and cons to a term contract;

Some Cons:

You are not happy with the factor due to the way they service your account.

They may treat your customers poorly, jeopardizing them as your customer.

They may have poor reporting.

You need to make sure they do not have a hefty termination fee, lets say for what ever reason you may need to terminate the relationship, what will it cost you.

Pros:

You may get a better fee structure due to locking in on a term contract

When choosing a factor here are several questions to ask them before you sign up:

Do they bulk your receivables; in other words, when you sell them your receivables, do they release your reserves as each invoice is paid, or do they wait for all the receivables to collect from a given schedule before they release your reserve.

As an example, you sell a factor 100k in receivables on one schedule which consist of 4 different customers at 25k each, 2 of your customers pay the invoice within 30 days and the other 2 pay in 45 and 60 days. That would mean you would have to wait until the last customer pays at 60 days before you get your reserve, this is not good, try to avoid signing up with a factor that does this.

Ask about additional fees, do they have a service charge or any fees on top of the discount. This is not uncommon if you are set up on a prime plus rate, yet it still needs to be accounted for when choosing between factors. You may get some smoke and mirrors from conversations and proposals. When you receive the contract, that will spell it all out, take the time to add up all fees to accurately and compare proposals, the one that seems to be the highest at 1st may not be that far off.

Ask about up front fees:

Some factors charge a due diligence fee, this can range from $250.00 to $500.00 dollars, even higher for construction. Stay away from application fees, they are not necessary. A due diligence fee is okay and understandable since the factor does have cost associated with opening an account, however some factors do not even charge any up front fees.

Ask how long they have been in business, some factors are larger than others and you want to make sure they are capable of handling your companys growth.

Some factors are small and do not have adequate funding backing them, it has been known of some factors running out of money and were not able to fund their clients.

Working with consultants / brokers

You certainly do not need a broker to get set up with a factor, but it can be to your best advantage. Here are some pros and cons.

Cons:

The broker has not been in business very long and does not really understand factoring to it fullest yet themselves, ask them how long they have been in business and how much business they have done.

The training they received was not adequate and they do not know how to pre qualify and may end up wasting your time filling out an application and sending in documentation when certain questions could have been ask that may point out obvious reasons that would prohibit you from qualifying.

They over shop deals; some brokers will send out your application to as many factors as they can., this can be a bad reflection on you. Just like having too many inquiries on your credit is a red flag to banks, when a factor sees your application from several different brokers it may raise a red flag. Keep this in mind, shopping rates to a certain point is healthy, however rates only go so low, choosing the right factor sometimes means the rate is a touch higher. Customer service is very important.

Some brokers are part time, which means they are not established.

Pros:

Nothing can be better than a in depth consultation, a seasoned consultant / broker can asked you questions and explain things in a way you may not have thought, plus when you are dealing directly with a factor, you are not getting a third person perspective.

An experienced consultant / broker should be dealing with trustworthy and reputable factors. Plus they make sure factoring is the right financial choice for your company.

Shares advice on how to utilize factoring to its fullest. This is a very powerful form of finance that provides many advantages when properly used.

Using a seasoned consultant / broker helps you get prompt attention from the factors they use. Established brokers mean that the factors pay attention to the clients they refer because this is repeat business for them since the broker sends numerous clients for them to fund.

You get straight forward answers, no smoke and mirrors. A Consultant / Broker can help you cut through the decision making process without pressure. You have at times too much information coming at you, especially from the internet.

A Consultant / Broker can let you know what kind of fees and advance to expect, in other words, you see low advertised rates, which most will not qualify for. You can have it explained to you what the factors are looking for and how you qualify. If you already have a written proposal a Consultant / Broker can help you make sure you have a fair deal.

Mark Little is President of Diversified Funding Services, Inc. He can be reached at 888-603-0055. His company website can be found by Clicking Here and the Company blog Click Here.

Structured Settlement Factoring

Have you received a structured settlement recently? A structured settlement can be a good thing if you have been a victim of malfeasance, have been severely injured or can no longer physically work. Structured settlements will help you pay bills. But what do you do if you have a structured settlement, which is coming your way and you really have decided that you might prefer to have the cash instead? Well, if this is the case you are in luck because there are companies, which will buy your structured settlement for a discounted price?

This is similar to factoring which is used in businesses, which need to maintain their cash flows. They can sell accounts receivables to another company as an investment and get the money that is owed to them in advance. For instance let’s say a company, which does janitorial services for a government agency, which are notoriously slow to pay and that government agency owes them $30,000 for services already completed? A factoring company will buy that check which is in the mail so to speak for $25,500 and give the money to the company now. You may say well that is 15% of the $30,000; yes it is, but if a small business does not get the money in time they could go out of business because the government is so slow to pay on their contract. Going out of business is not a good thing and if it happens all the money invested and time to build the business is out the window.

Let us say you have a structured settlement and you cash out of the deal using the same type of company? They will get the structured settlement money each month istead of you, but you will have all the money up front minus a 10-15% discount on the total money you would have received. You can then use this money for whatever you want. Such as investing, buying a house or buying new car, plasma TV and other things humans want to make them happy. You see?

"Lance Winslow" - Online Think Tank forum board. If you have innovative thoughts and unique perspectives, come think with Lance; www.WorldThinkTank.net/. Lance is a guest writer for Our Spokane Magazine in Spokane, Washington