I just received a large order from a local company – should I take it?

This is what I call the ‘ship and hope” syndrome. In other words, fulfill an order; ship the product and ‘HOPE” to get paid.

In today’s economy, not knowing the credit (payment history) of your clients is a recipe for disaster.  Unfortunately, I would estimate that over 90% of the businesses  we work with failed to have the proper credit review procedures in place before funding invoices with us.  

As a factor, we are constantly monitoring the credit strength of what we call the debtor (the entity making payments on the invoices). Due to the large volume of invoice payments received, we use a number of credit reporting agencies as well as credit insurance companies to help us in making funding decisions.

By virtue of being a Millennium client, our clients have access to highly sophisticated credit reports, information that would be unattainable on their own.   Whenever a client is in receipt of an order from a ‘new” customer, they simply fax over a copy of the purchase order (or like) to their account executive and within a short period of time, a complete credit history will be provided along with an approved funding limit (or declination) from Millennium.

‘It is better to have never shipped at all than to have shipped and never been paid!”

Please be sure to inform your prospects that factoring is not only a solution to their working capital and cash flow needs, but also a way to make solid credit decisions in the future.

Timothy J. Sardinia  - Mr. Sardinia is currently a Partner with Canfield Capital Management, LLC, a Member of Steelkilt, LLC, a Member of Millennium Automotive Group, a Member of Millennium Legal Funding.  Tim can be reached at  tim@millenniumfunding.com or by calling  716-204-4800.

First, let’s define the differences between Factoring and PO Funding.

Factoring: The purchase of business to business INVOICES (or ACCOUNTS RECEIVABLE) at a discount for services rendered or products delivered

PO Funding: The advance of cash against a PURCHASE ORDER or CONTRACT so the client can source the product or the raw materials needed to create a product, in an effort to deliver to the end user. In some cases, PO Funding is needed to hire employees or source equipment needed to fulfill a contract.

As you can see from the definitions, Factoring involves funding AFTER performance of an obligation and PO Funding requires funding PRIOR to performance.

Ok, so, now put your funding hat on  – would you advance money to a client and HOPE they end up performing so you can get paid back? Or, would you prefer to fund them after they have performed? Ask yourself these questions:

• If I advance my client the money and the very next day they go out of business, will I get paid?
• How can I be assured that they will perform?
• Does the client have enough money to pay me back in the event that they are unable to perform?
• What happens if the end user (debtor) cancels the order after I have advanced the money?

Certainly, there are more questions to ask, but, I think you get the point.

So, with that said, why do funding sources offer PO Funding? Well, we offer this in certain situations. First, we would never provide PO Funding for a service contract, nor, would we provide PO Funding when the money is needed to purchase raw materials. We do provide PO Funding when the transaction involves the purchasing of finished goods. Let me give you an example:

Our client is in the Apparel business. The client receives a Purchase Order from a large retail outfit (lets say Macy’s) for 1,000 Silk Shirts. Our client needs to source the shirts from a manufacturer in China. China refuses to ship the product until they receive a Letter of Credit or Cash.  Millennium is approached with this opportunity. Millennium provides the letter of credit needed and China ships the shirts directly to Macy’s. Our client creates an invoice to Macy’s and Millennium now factors the invoice.

To summarize, when you are approached with a potential PO Funding opportunity, ask the client the following questions:

• Is the funding needed to source finished goods? -  if the answer is no, no deal
• Do you have a history of managing these types of transactions -  again, ask yourself if you would fund someone that is doing this for the first time?
• Do you have any current outstanding Accounts Receivables (Invoices) that my funding source could finance against as extra security -  if they don’t, most funding sources will run away.

In conclusion, many times prospects feel they need PO Funding when all they really need to do is factor their current invoices to free up the cash needed to pay suppliers. Ask the right questions and you will save a great deal of time and energy in the future.

Timothy J. Sardinia – Mr. Sardinia is currently a Partner with Canfield Capital Management, LLC, a Member of Steelkilt, LLC, a Member of Millennium Automotive Group, a Member of Millennium Legal Funding. Tim can be reached at tim@millenniumfunding.com or by calling 716-204-4800.

Did you then wonder why a factor would ever consider funding a company that a bank would decline? If you have, believe me, you are not alone (I get asked this all the time). Let me see if I can help clear this up.

Let me begin by defining a strong banking prospect:

• Prospect has been in business for a minimum of 2 years
• Prospect has audited financial statements reveal solid profit margins in the previous 12 month accounting period
• Prospect has steady revenue growth with no “Peaks or Valleys”
• Prospect’s management team is strong with a proven track record of success in the industry
• Prospect has absolutely no bankruptcies or judgments in the past
• Prospect’s business collateral specifically, liquid assets (Accounts Receivable and Inventory) are sufficient enough to cover any risk of default

Now, let’s move on to defining a strong factoring prospect:

• Debtors (clients) of prospect have a positive credit history
• Debtors are multiple – no concentration with any one client
• Debtors will verify that product or service has been received and there will be no setoffs against payments

Can you see the distinction?

While banks make their credit decisions by focusing on the PROSPECT, factors make their credit decisions by focusing on the DEBTOR(S).

Although the comparison seems simple in nature, the impact of this difference is monumental. For example – Will a bank fund a new start up company (No – see point #1), will a factor (Yes); Will a bank fund a company that had loses in the past 12 months (No – see point #2), will a factor (Yes); Will a bank fund a company that is growing rapidly and needs a steady flow of cash to manage its growth (No- see point #3), will a factor (Yes).

The next time a prospect tells you to “not waste your time, I am not bankable”, tell them “I know, we have been waiting for you!”

Timothy J. Sardinia – Mr. Sardinia is currently a Partner with Canfield Capital Management, LLC, a Member of Steelkilt, LLC, a Member of Millennium Automotive Group, a Member of Millennium Legal Funding. Tim can be reached at tim@millenniumfunding.com or by calling 716-204-4800.

Below, you will find those areas of the reports that you can concentrate on and how you can best use this information to improve your chances of closing the deal!

Understanding the Balance Sheet from a Selling Perspective:

• Factoring simply turns one asset (Accounts Receivable) into another asset (Cash) – said another way. Factoring is “Off Balance Sheet” financing as you don’t incur any liabilities when financing this way (nothing to balance).
• By reducing your potential liabilities, you will increase your equity in your business “remember the equation” -  Assets = Liabilities + Owners Equity, therefore, if you decrease your liabilities, you increase your Equity!

Reviewing the Income Statement from a Selling Perspective:

• Turning the Non Performing Assets -  on the balance sheet “Accounts Receivable” into cash -  can free up the working capital to:
  • Take advantage of supplier discounts
  • Meet payroll and other expenses
  • Provide the cash needed for expansion and growth
• Millennium Funding will provide ancillary services, such as, credit, collection, invoicing and payroll which will reduce administrative expenses significantly.

Reviewing the Aging report from a selling perspective

• Can the client take on more debtors as a result of now having the cash flow to buy more supplies or hire more people?
• Can the client create more business from existing customers by allowing them to extend payment terms?
• Can the client start to bid on government contracts now that they will have the cash flow to cover the delayed payments that are inherent when working with the government?

Timothy J. Sardinia

Tim’s day to day responsibilities as a Partner with Canfield Capital Management LLC, a multi-million dollar commercial finance firm, include; Investor relations, Sales/Marketing, Initial file Underwriting and Portfolio Management. Tim holds a Bachelor of Science Degree in Business from Miami University.

Previously, Tim held positions in Sales and Sales Management with Cintas Corporation and Eagle International, Inc. Tim Currently resides in the Buffalo, NY area where he and his wife Margaret are the proud parents of four boys (Timmy, Jack, Benjamin and Harrison).

Tim can be reached at tim@millenniumfunding.com or by calling 716-204-4800.