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The Basic of Invoice Factoring

The Basic of Invoice Factoring
Most sales to commercial clients usually carry 30 to 60 day payment terms. This means that as a supplier, you must deliver your products or services now. However, your client has between 30 to 60 days to pay you. 

This creates a significant challenge for owners of small and midsize businesses. The problem is simple. Your clients want to pay you in 30 to 60 days, but you must pay rent, payroll and your suppliers now. As you can see, the math does not work. Unless you have a substantial bank account, this leads to an almost impossible situation.

If you are in this situation, it is also very likely that the bank will not be able to help you. As you well know, banks only lend to businesses that have three years of profitable operations and significant hard collateral. If you do not qualify for bank financing, your best bet may be to consider factoring. 

Factoring is a business financing tool that helps business owners who cannot afford to wait 30 to 60 days to get paid by their commercial customers. Factoring provides you with the necessary funds to meet payroll, make rent and pay your suppliers on time.

As opposed to bank financing, factoring is easy to qualify for. The main requirements are that you have a profitable business with a strong roster of commercial clients. For the factoring company, your best collateral is the invoices from your strong customers.

Factoring is also easy to use. It enables you receive a substantial portion of your billings within a day of invoicing. It reduces the time you wait to get paid from 60 days to 2 days. The transaction is usually structured as a two installment sale of an invoice. The first installment, called the advance, is paid to you immediately. The advance can be anywhere between 70% and 90% of the gross value of the invoice. The remaining portion (10% – 30%) is held as a reserve to cover disputes and charge backs. The reserve is rebated as soon as the invoice is paid in full. The factoring company will charge a small fee for this service. 

Factoring financing is an ideal tool for companies that are growing and that cannot afford to wait to get paid by the clients. It helps you to stabilize your financial situation and positions you for growth. The Basic of Invoice Factoring

 

December 16, 2013 Today's Business, , , 0 Read more >

Financing Your Business with Invoice Financing

Financing Your Business with Invoice FinancingFinancing Your Business with Invoice Financing

Financing Your Business with Invoice Financing. Do you do business with commercial or government customers? If you answered yes to that question, that means that you are also used to waiting up to 60 days to get your invoices paid. One of the most challenging facts of doing business with big companies is that they pay slowly. Sure, they pay all right – they just take their own sweet time to do it.

But you have expenses that you have to pay now. Suppliers need to be paid. Payroll must be met. This creates a big challenge for small and medium sized businesses.

Is the solution a business loan? It seldom is. They are hard to get. And when you get them, your hands are tied until the loan is paid off. With loans, you can only get one at a time. So if your business grows and you need more money, you are out of luck.

If your biggest headache is slow paying customers, a better solution is to factor your receivables. Invoice financing provides you the necessary financing to pay employees, suppliers and taxes. Above all, it provides you with peace of mind by eliminating (or at least minimizing) your financial worries.

Receivables factoring works on a simple premise. Your invoices are valuable assets that can be financed. Basically, the factoring company advances you money for your slow paying invoices and waits until your customer pays. Of course, they charge a small fee for this service. This is how it works:

1. You do your work, as usual. You bill your customer but then submit a copy of the invoice to the factoring company for financing

2. The factoring company provides you an immediate advance on 70% to 90% of the invoice (there is a 10% to 30% reserve). You can use that money to meet payroll and pay expenses

3. The factoring company waits to get paid by your customer

4. Once they are paid, the transaction is settled and the factoring company rebates any reserves

As you can see, factoring gives you immediate money for your slow paying invoices, enabling you to run and grow your business. Qualifying for factoring is really easy. The biggest requirement is to do business with credit worthy customers. So, if your customers are good (but slow paying), you can finance them. Financing Your Business with Invoice Financing

Receivables factoring is a great tool to finance your business and grow it to the next level. Financing Your Business with Invoice Financing

December 3, 2013 Today's Business, , , , 0 Read more >

Working Capital Financing with Factoring

Working Capital Financing with Factoring

Working Capital Financing with Factoring Ideal Candidates for Accounts Receivable Factoring:

Any business that provides a product or service to other creditworthy businesses and is constrained by their day-to-day cash flow situation. Working Capital Financing with Factoring

Does your business need:

• Cash to Cover Payroll?

• Working CapitalWorking Capital Financing with Factoring to Fuel Growth?

• Help with Cash Flow Problems?

• Help because of Bank Turn Downs or refusal to extend current lines?

• New Equipment to Grow?

What is factoring?

In a traditional factoring arrangement, a company actually sells its receivables to another company (a “factor”) at a discount. After the sale, the receivables balances are carried on the factor’s balance sheet since title has passed. Because the factor then owns the receivables, it generally provides all the required credit, collection and accounting services necessary to collect the receivables, including assumption of the ultimate loss exposure from the client debtor. The important difference between factoring and asset-based lending is ownership. In factoring, the receivables are purchased and owned by the factor. In asset-based lending arrangements, accounts receivable are pledged to the lender as security for the loan, but the borrower retains ownership and complete control of the receivables and the value of the receivables remains on the borrower’s financial statement. Working Capital Financing with Factoring

Keeping the cash flowing is a challenge for all businesses. Does your company face cash flow challenges because of slow paying customers? Have you been forced to decline new opportunities because of cash flow issues?

As every business owner knows, sales alone do not measure the profitability of a company. For example, sales may be increasing, but a company may have to wait weeks or even months for payment. During that time, your company cannot purchase materials for more orders, meet payroll, or other basic operating expenses. The solutions may be Accounts Receivable Funding provided through Diversified Funding Services, Inc. Accounts Receivable Funding is quickly becoming a popular choice for its flexibility and rapid injection of needed capital. 

Why Accounts Receivable Funding is a Popular Choice in Today’s Business World

Accounts Receivable Funding or “factoring” has been in existence for several decades. Today, virtually any-sized business that extends credit to other businesses for goods or services can enjoy the many benefits of Accounts Receivable Funding. 

Simply stated, Account Receivable Funding is the exchange of creditworthy commercial accounts receivable for an immediate injection of working capital. When an invoice is generated, it may be purchased with an advance of anywhere between 75 to 90% of the net invoice amount. When your customer pays the invoice, you will receive the reserve portion minus a nominal servicing fee. Working Capital Financing with Factoring

Why Accounts Receivable Funding Makes Financial Sense

Accounts Receivable Funding offers many Advantages:

• Initial funding is typically available between 5-7 business days upon receipt of completed formal agreements, and then all future advances are funded within 24 hours.

• Accounts Receivable Funding does not create a financial liability on your company’s balance sheet and generally no other collateral (outside of the receivables) is required.

• The amount of funding available to you is only limited by the creditworthiness of your customers.

• Accounts Receivable Funding focus on the creditworthiness of your clients instead of your financial history.

• Accounts Receivable Funding allows quick access to working capital, instead of waiting 30, 60 or 90 days to receive payment from your customers, money is immediately available on demand.

Accounts Receivable Funding Programs have been “generally” designed with the following criteria in mind.

• Your company must be providing a product or service to other credit worthy businesses (no consumer sales)

• Your company must be selling on terms

• Your company must be billing in arrears (no pre-billing)

• Your company must have minimum monthly sales of at least $10,000 or annual sales of $120,000

• Your company is not required to be in business for any length of time

• Your company should have the capability to generate financial reports (A/R and A/P aging reports, etc.)

• Your company may have current and/or historical losses or a deficit net worth position

Ideal Candidates

• Start-ups
• Companies suffering financial setbacks
• Service Companies
• Companies with seasonal orders
• Mature companies seeking cash flow support
• Companies seeking credit assistance
• Businesses experiencing rapid growth
• Non-bankable businesses

An example of the application process:

1. Complete the application
2. Provide your most recent and detailed accounts receivable aging report
3. Provide your most recent and detailed accounts payable aging report
4. Provide an actual sample invoice
5. Provide a copy of your Articles of Incorporation/d.b.a. filing
6. Provide a copy of your customer list
7. Some factoring companies require financial statements, others do not.

Preferred Industries

• Service
• Temporary Staffing
• Security companies
• Manufacturing
• Transportation
• Textile/Apparel
• Computer Consulting
• Distribution Companies
• Printers
• Sub-Contractors
• All other Industries
• Any company that provides a business to business product or service to another credit worthy business!

Thanks for reading! Working Capital Financing with Factoring

 

November 10, 2013 Today's Business, , , , , 3 Read more >

Invoice Factoring & How It Works

Invoice Factoring & How It Works

Invoice Factoring & How It WorksInvoice Factoring & How It Works. Factoring, also known as accounts receivable factoring, is a business term used to describe a method in which companies sell their outstanding receivable invoices in order to gain immediate cash for their business. When a company sells a product or service, an invoice is created stating the amount due and the number of days in which the invoice must be paid. This invoice instantly becomes a part of accounts receivable, which is money that is owed to a business. After the invoice is generated, it must be sent to the customer and the business must wait for the specified amount of time before that invoice is paid. Often times, for reasons of misfortune or lack of attention, a debt may go unpaid and extend past the due date. This presents a problem for the business, which is awaiting payment, in that it interferes with the cash flow when a debt is not collected. This is especially true of new, or struggling, businesses.

The process of factoring works when an institution purchases the invoice for an amount that is somewhat less than the face value of the debt. This amount can be anywhere between 70-90%. The factoring company then proceeds to collect the full amount due for the invoice, which is then delivered to the original business less a factoring fee.

If a business offers credit terms as part of their sales, factoring is one way of eliminating cash flow problems. Many businesses who use factoring receive their money, from the sale of their invoices, within 24 to 48 hours. This unique approach also offers a company with the ability to extend competitive credit terms to their best customers and not have to worry about waiting for the credit payments. By offering attractive credit terms, more customers will be drawn to a business. Most businesses compete in pricing, but a company is much more appealing if they offer financing options direct to their buyers. Many consumers do not have the funds to pay for items upfront, especially if a business markets more expensive sales, but a customer may be able to agree on delayed payments. Therefore, a business offering such a deal would sell more inventory than a company who requires total payment upfront.

It’s important to realize that factoring is not a loan or a debt. In addition, unlike bank loans, collateral is not required. It’s simply the sale of invoices, on which people owe money, to another business for a slightly smaller percentage than the total due. The original business gets immediate cash and, for a fee, the factoring company collects the face value of the debt.

Many businesses, who extend credit, opt for factoring in order to avoid the hassle of trying to collect money. In addition, it costs more to have a billing department who is responsible for creating invoices every month. By factoring, a business eliminates their need for a billing department and saves money on the hassle of attempting to collect debts. Invoice Factoring & How It Works

The cash generated from factoring will allow a business to purchase new equipment, pay existing debts, increase marketing efforts, improve planning, process new credit approvals, improve customer relations and save money on accounting procedures.

February 5, 2013 Today's Business, , , , , , 0 Read more >

Working Capital Solutions Consider Factoring by Tim Jacquet

Working Capital Solutions Consider Factoring by Tim Jacquet.

Ideal Candidates for Accounts Receivable Factoring:

Any business that provides a product or service to other creditworthy businesses and is constrained by their day-to-day cash flow situation.

Does your business need:

• Cash to Cover Payroll?

• Working Capital to Fuel Growth?

• Help with Cash Flow Problems?

• Help because of Bank Turn Downs or refusal to extend current lines?

• New Equipment to Grow?

What is factoring?

In a traditional factoring arrangement, a company actually sells its receivables to another company (a “factor”) at a discount. After the sale, the receivables balances are carried on the factor’s balance sheet since title has passed. Because the factor then owns the receivables, it generally provides all the required credit, collection and accounting services necessary to collect the receivables, including assumption of the ultimate loss exposure from the client debtor. The important difference between factoring and asset-based lending is ownership. In factoring, the receivables are purchased and owned by the factor. In asset-based lending arrangements, accounts receivable are pledged to the lender as security for the loan, but the borrower retains ownership and complete control of the receivables and the value of the receivables remains on the borrower’s financial statement.

Keeping the cash flowing is a challenge for all businesses. Does your company face cash flow challenges because of slow paying customers? Have you been forced to decline new opportunities because of cash flow issues?

As every business owner knows, sales alone do not measure the profitability of a company. For example, sales may be increasing, but a company may have to wait weeks or even months for payment. During that time, your company cannot purchase materials for more orders, meet payroll, or other basic operating expenses. The solutions may be Accounts Receivable Funding provided through Diversified Funding Services, Inc. Accounts Receivable Funding is quickly becoming a popular choice for its flexibility and rapid injection of needed capital.

Why Accounts Receivable Funding is a Popular Choice in Today’s Business World

Accounts Receivable Funding or “factoring” has been in existence for several decades. Today, virtually any-sized business that extends credit to other businesses for goods or services can enjoy the many benefits of Accounts Receivable Funding.

Simply stated, Account Receivable Funding is the exchange of creditworthy commercial accounts receivable for an immediate injection of working capital. When an invoice is generated, it may be purchased with an advance of anywhere between 75 to 90% of the net invoice amount. When your customer pays the invoice, you will receive the reserve portion minus a nominal servicing fee.

Why Accounts Receivable Funding Makes Financial Sense

Accounts Receivable Funding offers many Advantages:

• Initial funding is typically available between 5-7 business days upon receipt of completed formal agreements, and then all future advances are funded within 24 hours.

• Accounts Receivable Funding does not create a financial liability on your company’s balance sheet and generally no other collateral (outside of the receivables) is required.

• The amount of funding available to you is only limited by the creditworthiness of your customers.

• Accounts Receivable Funding focus on the creditworthiness of your clients instead of your financial history.

• Accounts Receivable Funding allows quick access to working capital, instead of waiting 30, 60 or 90 days to receive payment from your customers, money is immediately available on demand.

Accounts Receivable Funding Programs have been “generally” designed with the following criteria in mind.

• Your company must be providing a product or service to other credit worthy businesses (no consumer sales)

• Your company must be selling on terms

• Your company must be billing in arrears (no pre-billing)

• Your company must have minimum monthly sales of at least $10,000 or annual sales of $120,000

• Your company is not required to be in business for any length of time

• Your company should have the capability to generate financial reports (A/R and A/P aging reports, etc.)

• Your company may have current and/or historical losses or a deficit net worth position

Ideal Candidates

• Start-ups
• Companies suffering financial setbacks
• Service Companies
• Companies with seasonal orders
• Mature companies seeking cash flow support
• Companies seeking credit assistance
• Businesses experiencing rapid growth
• Non-bankable businesses

An example of the application process:

1. Complete the application
2. Provide your most recent and detailed accounts receivable aging report
3. Provide your most recent and detailed accounts payable aging report
4. Provide an actual sample invoice
5. Provide a copy of your Articles of Incorporation/d.b.a. filing
6. Provide a copy of your customer list
7. Some factoring companies require financial statements, others do not.

Preferred Industries

• Service
• Temporary Staffing
• Security companies
• Manufacturing
• Transportation
• Textile/Apparel
• Computer Consulting
• Distribution Companies
• Printers
• Sub-Contractors
• All other Industries
• Any company that provides a business to business product or service to another credit worthy business!

Thanks for reading!

December 22, 2012 Today's Business, , , , , 0 Read more >