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Posts Tagged ‘Accounts Receivable Factoring’

Perhaps one of the few good things that have come from our recession is the dropping of lending fees. The cost of borrowing has gone down for many Commercial Lenders and a great place for you to trim some fat off your Profit and Loss statement is in reducing your Working Capital Lending costs.

Whether you are using a traditional Business Line of Credit or Discount Factoring, with the reduction in rates across North America, should your business be looking at renegotiating your Working Capital Line?

Absolutely Many companies are locked into an agreement and even with termination fees that may arise; the net result will often be to switch from your current provider to a new Low Cost Factoring facility.

There are many places to find AR Factoring, but the best place is the internet. You will be able to research the Best Factoring Company for your business.

One word of caution though the shear number of Commercial lenders out there will seem like a myriad of options for you and which one to choose is very difficult to determine unless you are up on all the newest trends and you know which Commercial Factoring Company specializes in what. Many businesses are turning to Commercial Finance Brokers to assist in this task of screening through the various lenders.

Your best bet is to not deal directly with Factoring lenders for the simple reason that unless you are up on who does what type of Factoring and which ones they specialize in, you are setting yourself up for many applications and several hours going through the various lenders out there. The Professional Finance Broker will know which Funder will be best for your company. To find these Commercial Finance Brokers it is as easy as going to your computer and search ?AR Factor Quote? in Google and you will find several great sources.

Your business may not even be using Factoring right now, but it would not be a bad idea to take a look. Many banks are calling their Operating Lines of Credit now forcing companies to look into other options very quickly. Perhaps it is not a bad idea to take a look at your options. After all, Commercial Factoring has taken on a whole new look since President Obama is now heading up a Factoring division in the US Government by buying up all the outstanding Invoices from the auto suppliers to the Auto Manufacturers in the Detroit area. Factoring is now more accepted and accessible than ever.

Recently I had a client contact me looking to take out a Factoring Loan. It has been some time since I had heard it referred to as this, but what he was referring to was Accounts Receivable Factoring.

Technically, Factoring is not a real loan; it is an advance on money that your company is already owned. While the accounting guidelines can be argued one way or another, the fact is, when a Factoring Loan is done, the Receivables are verified with the party that owes the money and further verifies that they are going to pay the invoices.

Like this, the company that raised the invoice has confirmed the money is owed by the end customer and the Factor merely advances the payment to bridge the gap.

Some of the other terms Accounts Receivable Factoring is referred to as are Invoice Factoring, Receivables Factoring or Invoice Discounting amount many others. Likely the most common term to substitute for Accounts Receivable Factoring is Accounts Receivable Financing.

On big plus for the Factoring Industry is the fact that the US Government has decided that it is going to start Factoring the Invoices issued to the Auto maker by the Automotive Suppliers in Detroit Michigan. Not that Invoice Discounting was an unheard of financing method before, but now that President Obama is now endorsing it, many companies that may have passed on this finance opportunity will now take advantage of it.

It has been a long hard road for many manufacturing companies over the last few years and the cash flow which is available to them to make payroll, pay suppliers and cover other operating expenses does not come too soon.

Unfortunately several companies in the manufacturing industry have not been able to make it through our recession, many of which were generational family businesses and they suffered to the point of closing down. I know of one such company that was started in 1937 by the Great Great Grandfather of the owner that had to close the doors of the family business due to cashflow problems.

You can call it a Factor Loan, Invoice Discounting, Invoice Factoring what ever you like. It is a method to help with you cashflow. Be sure to speak with a Commercial Lending Broker in regards to your Business Financing needs as they have the expertise to know where to go with your application to get you the best deal in the best time frame and it will not cost you a thing for the Broker as they are generally paid by the lender so put one to work for you it truly is the best way to find the best program for you.

Can you imagine working really hard to make ends meet and cutting costs everywhere to make yourself profitable and your get a registered letter in the mail from your bank demanding their Line of Credit to be paid off within 14 days?

Trucking Company in Texas USA; Bank recently called their Line of Credit due to tightening restrictions. As a result they had to pay off the bank their 1.0mm LOC within 2 weeks of being notified. An internet based Commercial Finance Broker set up the deal and not only paid off the bank within the time period required but also increased the availability of the Line of Credit up to $1.75mm using Accounts Receivable Factoring.

I can not tell you how many times I have seen this situation happen to companies over the last 2 years. Most people are very eager to see what the new programs that the US Government is rolling out, but banks are still calling their loans, and denying even more applications.

If your company has a need of liquidity, and not debt, do your self a favor and speak with a Professional Commercial Finance Broker as they will have the answers your bank will not, and odds are they will not even tell you about the other options that are out there.

Commercial Finance is extremely specialized. It is not like going into the nearest lender to you and asking for a generic flavor-of-the-day Commercial Loan and having it fit exactly what you need it to. Some lenders do Commercial Mortgages with a side of Equipment Lending while others will be really good at getting Equipment Deals done for Trucking companies, but also offer Equipment Financing on restaurant equipment, but are really lacking in regards to their termsThe Commercial Finance Broker will know about this and will be able to package your deal for the best lender for you.

Commercial Finance Brokers are up to date with the latest changes and options available. Many Commercial Finance Brokers can handle Financing options ranging from Accounts Receivable Factoring, Purchase Order Finance, Export Finance, Commercial Equipment Loans or Commercial Mortgage.

In another bold move to assist the economy the US Government released its intention to start Factoring US Auto suppliers invoices to the automotive sector.

NY Times (03/19/2009):

DETROIT ” The Obama administration moved on Thursday to stabilize the American auto industry by creating a $5 billion fund to support troubled parts suppliers.

The program will provide supply companies with much-needed access to liquidity to assist them in meeting payrolls and covering their expenses, while giving the domestic auto companies reliable access to the parts they need, the Treasury announcement said.

It is too early to say exactly what the details of this latest new is but President Obama has shown time and again that he is going to push through this recession and nothing is going to hold him back.

A few days ago I stated that Accounts Receivable Factoring is going to be a major part of the new economy and this turns out to be right on track, but a little sooner than I expected.

Not everyone has heard of Accounts Receivable Factoring before so I will give you a brief outline of what it is. Accounts Receivable Factoring or Accounts Receivable Financing is a Line of Credit that uses your outstanding Invoices as security.

Most Factoring facilities will advance from 80% up to 90% of the outstanding invoice face value. The cash injection can be used for what ever the company needs the money for ” payroll, supplies, inventory whatever. Once the end customer pays the invoice then the reserve will be paid to the company that factored the invoice less the finance fee.

Most Factoring facilities will charge from 2% to 4% per month depending on the industry, credit rating of the customer and the advance rate,

What is often used with Accounts Receivable Factoring is Purchase Order Finance. If you do get Purchase Order Finance you will need an Accounts Receivable Factoring line to go along with it in 99% of the cases I have seen.

There are many different sources of this type of funding but who is best for your company? This is a job best left to a Commercial Finance Broker as they are in the know of who does what and who has the best program and the best rates for you particular circumstance.

Generally speaking, the service of the Professional Commercial Finance Broker will not cost you anything as they are paid by the lender.

Export documents facilitate the easy access of goods from other countries and enable exporter to trade their own. Exporters need to know all the features of their products and importers must also be sure of what they are buying. Export documents are used to avoid misunderstandings between these two parties.

Some of export documents are used for commercial purposes like bills, notes and weight packing. There are also documents to guarantee the quality of what is being exported. Insurance documents certify what is covered by insurance. Bills of lading are examples of transport documents.

Let us now talk about some benefits and purposes of export documents.

Documentary credit forms are export documents that permit the seller to deliver the merchandise with the guarantee that the importer will give the payment at the arrival port, meeting certain criteria.

Export documents are generally irrevocable and confirmed, which means that they cannot be modified but with the consent of the parts involved. Additionally, these documents relieve the exporter from any worry about nonpayment.

We are now going to mention some information for you to get familiar with the different kinds of export documents: revocable, irrevocable, notified and confirmed.

Revocable. The banker may revoke its appointment before shipment of goods. The exporter retains a risk until it has shipped its goods.

Irrevocable on the other hand, are the opposite from revocable documents. The exporter is guaranteed the transfer of the funds and any modifications to the contract must be approved by all parties.

Notified: the banker of the importer is the only one to be held responsible. The exporter is then hedged against the risk, but it is not protected in the event of political risk, catastrophic or non-transfer.

Confirmed, where the commitment of the banker of the importer is supported by a banker in the country of the exporter. The exporter must fully respect its obligations and it is guaranteed to be paid.

Some of the risks that exporters face are related to three issues: commerce, countries, and exchange rates. Most exporters are vulnerable to importers no paying. Additionally, when they go into another country they do not know the situation of that country is a risk in the political and natural areas. An exporter may also lose its money due to the changes in currency. Export documents provide tools for this not to happen.

Recently an Importer in Ontario Canada contacted my office after having exhausted its efforts in seeking a Business Loan from its local banks in Toronto, Ontario, Canada.

Their customers are all across Canada and they have plans to expand into the US market and due to growing orders they had been maxing out their Operating Line of Credit consistently. Their bank had then capped at $50,000 and would not increase it.

As you may know, the typical terms when dealing with China are 30% payment with the order and the 70% balance before they are shipped.

Their days to collect on their invoices was quite typical, it is 45 days. With average Accounts Receivables outstanding is $200,000 you can see why the $50,000 Credit Line was pretty useless to them.

In their industry, it is expected that the goods that are ordered by their customers are to be shipped within 7 days which required the Importer to carry inventory as their source of goods was in China.

Against the owners wishes, they had to use personal loans to cover the cash shortage so that they could operate and carry the required inventory.

The solution to this problem was to set up a new Operating Line of Credit for the company using the Invoices for delivered goods as security in an Accounts Receivable Factoring facility.

With an advance rate of 85% against the $200,000 open invoices, the company now has $170,000 available to them which allowed them to order sufficient inventory to support their growth, pay off the bank Line of Credit and pay off the personal loans they had taken to support the business.

To make it even better, the Operating Line of Credit they have now will grow with their outstanding Receivables. So as their sales grow, so does their Line of Credit.

Ever worked on getting that big customer for months, chasing after then, long drives or flights to see them so you can win them over with your service and determination? Then have the worst thing that can happen in a situation like that you get the order and now you have to figure out how you can possibly fill it because the order larger than your total Operating Line of Credit.

That did happen to a Telecommunication Company in New York State, USA. In one order, their sales had increased to over 3 times the size of their entire Line of Credit at their bank. The owner went to the bank to get it increased so they could take on the order but the bank refused to increase their limit.

With this order, the customer had to have terms on the invoice of 30 days, and to make it worse the supplier required payment prior to shipping. The time to deliver the goods from the time it leaves the supplier dock is 10 days. In this case we have a 10 day delivery time plus a 30 day collection time from the customer, so we have a 40 time span of where we do not have the financial capacity to handle the order. So what now? Decline the order?

The owner of the company did talk to a couple Accounts Receivable Factoring Companies but the time lag was the biggest issue because they could not Factor the Invoice until the product was delivered, and he could not deliver the product without being financed.

Through the use of a Commercial Finance Broker, a facility for Purchase Order Finance and Accounts Receivable Factoring was created. The order was able to be accepted which opened the door for future order from this customer and others just like them.

Today getting a small business loan is a daunting task at best ” regardless if you are in the United States or Canada. Many businesses look to Angel Investors for the much needed cash injections the banks had turned them away for. But is this the Best Alternative?

Angel Investors look at deals differently than banks, or most other lenders for that matter. Their focus is to net between 5 and 10 times their initial investment in a period not to exceed 5 years. They do this by carefully plotting their exit strategy to recover their funds within the specific time period they define which can take the form of public offerings of stock, takeover or liquidating the assets of the company. What ever it takes.

Angel Investors have now increased their threshold for their ROI to a minimum of 10 times to as much as 50 times their investment because of the failure rate and the length of time that the investor will be tied into the company. When you consider the bigger picture, the effective return on investment for the Professional Angel Investor is usually around 20% to 30%.

Because of this high return on investment, Angel Financing is very expensive, but the lesser costing funds such as banks and credit unions are rarely available for new business start-ups. This is because the traditional financiers have a high threshold for accepting young companies for Business Loans.

So you are declined at the bank and you can not afford Angel Investors now what?

It is irrelevant if you are in Canada or the United States, the story is the same but there are options. This is a real life deal that I just completed recently. It is a Distribution company in Alberta Canada that had a unique product that it wanted to market throughout North America. The owner went to the usual banking institutions and was denied the loan. He then spoke to a few Angel Investors who gave him proposals which he did ponder over but shortly after continued to search for options. When I spoke with him I suggested a combination Accounts Receivable Factoring and Purchase Order Finance facility.

At the time when we had initially spoken, he had just shipped out nearly 70% of his stock and had an order to fill the following week that would exhaust his inventory. At this point he would have to wait until the customers paid for the orders prior to ordering more inventory. Biggest problem with that is that he had other orders to fill, but no stock and no money to get more stock.

After I received the application from him it was about a week when he received his first advance on his new Line of Credit using Accounts Receivable Factoring and now he has the cash to make his business run more smoothly.

The moral of the story is quite simply, even if you are turned down by your bank, and you are not interested in giving your company away, there may be options to be had. Do your homework and seek alternative Commercial Finance options.

No one has to tell a business owner that getting access to much needed cash flow is a difficult task today. It matter not if you are in Canada or the United States, if you have gone to the bank to inquire about financing, there is a good chance you were turned away. For this reason many companies turned to Angel Investors for that all important cash injection.

Be aware that Angel Investors typically look for a ROI of 5 ” 10 times their investment in under 5 years. This is accomplished by looking at many aspects including the salvage value of your company. They will create an exit strategy to recover the funds from your company in the predetermined time frame regardless of consequences to your company.

Angel Investors have now increased their threshold for their ROI to a minimum of 10 times to as much as 50 times their investment because of the failure rate and the length of time that the investor will be tied into the company. When you consider the bigger picture, the effective return on investment for the Professional Angel Investor is usually around 20% to 30%.

Because of this high return on investment, Angel Financing is very expensive, but the lesser costing funds such as banks and credit unions are rarely available for new business start-ups. This is because the traditional financiers have a high threshold for accepting young companies for Business Loans.

So if you can not get a loan at the bank and Angel Investors are too expensive, what is the answer?

It is irrelevant if you are in Canada or the United States, the story is the same but there are options. This is a real life deal that I just completed recently. It is a Distribution company in Alberta Canada that had a unique product that it wanted to market throughout North America. The owner went to the usual banking institutions and was denied the loan. He then spoke to a few Angel Investors who gave him proposals which he did ponder over but shortly after continued to search for options. When I spoke with him I suggested a combination Accounts Receivable Factoring and Purchase Order Finance facility.

At the time when we had initially spoken, he had just shipped out nearly 70% of his stock and had an order to fill the following week that would exhaust his inventory. At this point he would have to wait until the customers paid for the orders prior to ordering more inventory. Biggest problem with that is that he had other orders to fill, but no stock and no money to get more stock.

Within a week of his initial application the company was funded and he now had the operational funds needed to operate his business smoothly.

The moral of the story is quite simply, even if you are turned down by your bank, and you are not interested in giving your company away, there may be options to be had. Do your homework and seek alternative Commercial Finance options.

Another term for Accounts Receivable Factoring is Invoice Factoring, the terms are essentially interchangeable.

When you evaluate the statistics of the number of days your invoices are waiting to be paid and how many are over due. This is simply data about the likelihood of collections. It has nothing to do with sales and how to increase sales.

Do you consider a large Accounts Receivable as a bad thing? Most people do. To determine if this is a bad thing, or good, it will depend on how the Accounts Receivable is made up. Here is an example.

If you have an abundance of Inventory and you are nearing the end of your season for a particular type of goods. You will have to pay for warehouse space for the next several months until the season comes back. You can have an opportunity to sell a large portion of your goods at a discount and clear out your warehouse. What would you do?

If it is a new customer and you have never dealt with them before, you will review their credit. You come to the expectation that it will take a few months to collect your invoice. Will you accept the order from the client?

If you look at the opportunity strictly from a credit perspective, you would likely not take the order.

However if you consider the cost of the goods sitting until next year, you may think otherwise. To make the deal even better, use Invoice Factoring so you can clean out your warehouse and collect on the payment within 48 hours. True the financing will cost you a few points, but in the end, what would you have otherwise? Either goods sitting in the warehouse costing money or cash in your hand using Invoice FactoringWhich do you prefer?

This is just some brief comments based on an Invoice Factoring System. In many ways it is considered the latest revolution in the management of credit and collection and would certainly assist many companies that are facing Working Capital constraints.

Besides the facts that this can stimulate new sales, you can also help out your current customer base to grow this opportunity. As you are aware, it is much more costly to originate new clients than it is to keep existing relationships in tact. Not only will Invoice Factoring help you with this, but it will off set Cashflow constraints when invoices do get a bit extended. Speak to your Commercial Finance Broker about the programs that best fit your business.