Oil Spill Workers © BP p.l.c

As a staffing company hires, trains, and pays workers they create invoices in need of payment. That can mean more cash going out than coming in, creating a cash flow crunch during a credit crisis.

Staffing companies in need of payroll funding have historically benefited from factoring invoices. The people they hire to send out on jobs are usually paid every week. On the flip side, it can take their business clients an average of 3-8 weeks to remit payment on the staffing invoices.

It’s easy to see how this creates a cash flow deficit, especially when the staffing company grows quickly to meet market demand. One solution is an immediate advance on the invoices, ranging from 80-90% depending on the staffing factoring company.

When the invoices are paid the factor deducts their fee and remits the balance to the staffing company.

Payroll funding is often available with or without the back office services related to payroll processing, taxes, and invoice creation.

One company meeting the payroll funding demand is Sterling National Bank. Earlier this month they announced making $100 million available to help fund Gulf Coast staffing companies providing workers for the clean-up efforts.

“We know the staffing industry inside and out and are fully prepared to help these companies and communities at a time of extraordinary distress,” said Allen Gershlak, Senior Vice President. (Source: Sterling Press Release – July 1, 2010 – http://www.sterlingresourcefunding.com/gulfcoast.html)

With headquarters in New York City, funding is provided through payroll financing group Sterling Resource Funding. Dale Busbee, Southeast Regional Representative, is based in Slidell, Louisiana and can be reached at 985-640-2782.

Busbee commented, “The response to this catastrophe by people in the Gulf region communities has been swift and truly inspiring. The staffing firms that are being called upon to provide an important part of the clean-up efforts are determined to not let credit limitations deter them from what needs to be done.”

Many firms struggle to maintain their bank credit facilities, and securing a new line of credit or increasing a company’s current limit is nearly impossible.

So if the lending wells have dried up, what’s a small business owner to do?

Capitalize on the benefits of accounts receivables factoring.

Once a small business owner has been approved by an accounts receivable factoring firm, the basic invoice factoring process is as follows:

1.  A small business owner’s customer requests goods or services from the company.

2.  If it’s a new customer, the business owner should request a credit check and approval by the invoice factoring firm. Once approved, the company completes the service or delivers the goods.

3.  The business owner issues an invoice, reminding the customer that their receivable has been sold to and will be collected by the factoring firm.

4.  The business owner submits a schedule of accounts for purchase to the factor, including the supporting documentation (purchase orders, invoices, time-sheets, etc.).

5.  Upon verification of invoices for pre-approved customers, the A/R factor will advance funds within hours.

6.  The factoring firm provides all accounts receivable and collections services as required.

7.  In most cases, the customer makes payment(s) directly to the factoring company’s lock box.

8.  Upon receipt of the payment, the invoice factor remits the difference (reserve) between the collected amount and the advance, less the discount fee.

It’s easy to get things started. In most cases, the owner needs only to complete a brief application and present a current accounts receivables aging report to begin the process.

As if a quick approval process wasn’t good enough (banks can take months to approve a loan), there are numerous additional reasons why factoring invoices is an attractive alternative financing option for small and medium-sized businesses-the first being that entrepreneurs with less-than-perfect credit can qualify for financing based on their customers’ creditworthiness. This is simply not the case when looking for a bank loan. Traditional lenders review the applicant’s financial strength in combination with the company’s operating history before they are willing to extend credit.

Furthermore, healthcare invoice funding also gives business owners the ability to offer credit terms to their customers. Especially in today’s economy, customers appreciate the value of having a 30-day grace period to make a payment. Because a business owner receives up to ninety percent of the invoice upfront each time he/she factors, their cash flow remains unaffected by the net-30 terms.

Additionally, accounts receivable factoring helps owners build their company’s credit. Once an entrepreneur begins healthcare factoring and has adequate cash flow, he/she is able to pay vendors on time, establishing a good credit history with them. This makes it so much easier for business owners to get credit from other vendors and increases their chances of borrowing from bank in the future.

All in all, invoice funding instantaneously relieves business owners from many of the stresses involved with managing working capital. The ongoing factoring process is straightforward and easily adaptable. Accounts receivable factoring gives small business owners the ability to control their company’s cash flow as the business grows, while simultaneously improving their creditability.

About the Author: Philip Cohen is the founder and president of PRN Funding, LLC, which is an extraordinarily focused niche player in the healthcare accounts receivable invoice financing market place. Through a process known as factoring, PRN Funding provides healthcare business owners with the financial resources needed to grow and effectively compete in the industry. With no minimums or fixed terms, PRN Funding ( http://www.prnfunding.com) provides healthcare companies with flexible and immediate access to capital.

Article Source: EzineArticles: Accounts Receivable Factoring – An Alternative Funding Option For Small Businesses

Invoice factoring is a form of financing that is often offered by factoring companies. It’s ideally suited for companies that are selling goods/services on net 30 to net 60 days, but can’t afford to wait for payment. This is a common problem since most medium sized companies have immediate expenses and don’t have the necessary capital to wait for payment.

Factoring companies solve this problem by accelerating payment of your invoices. They act as an intermediary who buys your invoices and pays you for them immediately. This provides your company with the necessary cash flow to pay operating expenses and handle new orders. The factoring company, which now holds the invoice, waits for your client to pay for the invoice and settle the transaction.

A factoring company usually buys your invoice in two payments. The first payment, called the advance, is usually 80% of the invoice. The remaining 20% is called the reserve and is held to cover any invoice discrepancies and potential underpayments. Once your client pays the invoice in full, the factoring company sends the second payment, which is the 20% reserve less the factoring fee.

Factoring fees are determined by the credit quality of your clients, the volume of financing that you need, your industry and invoice diversification. They vary in range but they are usually a specific percentage of the purchased invoices.

One of the big advantages of invoice factoring is that factoring companies consider the credit quality of your invoices to be your biggest asset. This means that medium sized companies that have a solid roster of clients can usually qualify. However, to qualify for factoring your invoices need to be free of any potential encumbrances or liens.

Marco Terry
About Commercial Capital LLC

Are you looking for a factoring company? We are a leading factoring company and can provide you with a competitive factoring quote. For information, call (877) 300 3258.

Article Source: EzineArticles.com – Using a Factoring Company

Unfortunately for consumers, that creativity often translates into price hikes, additional fees, reduced services or cut backs on productivity. But does it have to be that way?

Take a look at the airline industry. When fuel prices soared last summer, airline giants started charging extra for what were once common courtesy services in addition to the original ticket price. They started with charging for snacks and drinks and then quickly moved onto charging checked bag fees, assigned seat fees, fuel surcharges, curbside check-in fees, etc.

Once the industry giants established that this additional fee policy was going to be part of the standard flight-booking procedures, it didn’t take long for all of the airlines to jump on the “Hidden Fee Bandwagon.” From a customer’s perspective, it seemed as though the airline industry as a whole started seeing dollar signs instead of thinking about its customers needs. Then along came Southwest Airlines with its clear thinking and its “No Fee Policy.”

In some ways, the accounts receivable factoring industry can appear to be a lot like the airlines industry. Both operate world-wide, both industries should be service-oriented, and both industries are notorious for tacking on extra fees in addition to the basic fee. Much like Southwest Airlines, the factoring industry has a handful of healthcare factoring companies who do not charge extra fees in addition to the base fee. This article will discuss three areas where factoring firms might insert hidden fees.

First and foremost, a business owner needs to understand the basics of how a factor charges for its factoring services. It’s important to note that healthcare factoring firms do not loan money; rather, they purchase a company’s invoices at a discounted rate. This discount rate can be a one-time flat fee, or it can vary depending on how long the factor owns the invoice.

In general, discount rates can be affected by a number of things, including the contractual commitment, the average monthly purchase volumes, the average size of the invoices sold, the number of account debtors (customers) that will be factored and the credit quality of those debtors. Variations in each of these will lead to potentially substantial changes in the fee structure. In many cases, factoring firms will have extra fees in addition to their factoring discount fee. More often than not, these “hidden fees” are disguised as set-up fees, administrative fees and penalty fees.

Set-up Fees
There are some factoring companies that start charging fees as soon as a potential client applies for  healthcare factoring services. Set-up fees range from a minimal application fee of $25 to a hefty origination fee of $500. In some cases, factors will add in individual fees for due diligence procedures (i.e. running credit and background checks) and legal documentation fees (i.e. assembling legal documents and filing liens). When all is said and done, a new factoring prospect could be $1,000 out of pocket before knowing if he/she has been approved for funding.

When business owners are comparing and contrasting factoring companies, it’s important to inquire whether the factor charges specific set-up fees. Sometimes, the factor will say yes, and sometimes it will say no. It’s up to the business owner to decide whether or not the factoring services outweigh the start-up costs before moving forward.

Administrative Fees
In addition to application, origination and due diligence fees, some factoring firms charge their clients for the time it takes to compile and ship legal documents, billing for postage, long-distance phone calls, photocopying documents and/or time spent on the computer while assisting their clients. There are also fees associated with funding procedures. Most factors will institute set prices for a same-day wire or an overnight transfer of funds.

When a business owner is contemplating the notion of factoring his/her receivables, it’s important to factor any administrative costs into the equation. Without doing so, a business owner could wind up paying a lot more than he/she had initially anticipated.

Penalty Fees
The last way a factoring firm could potentially squeeze in some additional “hidden fees” is when it assigns fees for various “penalties.” Under this umbrella of penalty fees, a factoring firm could designate fees for misdirected payments, early termination of a contract, aged invoices, expedited funding (within 24 hours or less), not hitting a monthly minimum factoring requirement or going over the maximum allowable factoring amount. In addition, a healthcare factoring firm could also penalize its client by holding onto the funds within the reserve account (cash that is owed back to the client once payments have been received).

When choosing an accounts receivable factoring company, business owners should take the time to read all of the terms and conditions before signing on the dotted line. Entrepreneurs should not be afraid to dig deep into the factoring contract and ask a question when something is unclear. Otherwise, those hidden fees hidden fees will reveal themselves at a point where it’s too late to re-negotiate the terms.

So in conclusion, it does appear that the factoring industry is similar to the airlines industry in that players in both are notorious for charging “extra fees.” The plus side to this realization, however, is that both industries also have some players who stand firm in their “No Extra Fee Policy.” The bottom line-much like when shopping for the best airline deal, it’s extremely important to look at the all-inclusive price, including possibly extra fees, before agreeing to do business with an accounts receivable factoring company.

About the Author: Philip Cohen is the founder and president of PRN Funding, LLC, which is an extraordinarily focused niche player in the healthcare staffing invoice financing market place. Through a process known as factoring, PRN Funding provides business owners with the financial resources needed to grow and effectively compete in the industry. With no minimums or fixed terms, PRN Funding provides medical staffing agencies with flexible and immediate access to capital. We give you the freedom to factor what you want, when you want, whom you want, for as long as you want. Prior to founding PRN Funding, Mr. Cohen was an executive officer of The MRC Group, a national provider of Medical Transcription Services. Contact Philip Cohen at toll-free 866.776.5407 or via email at  pcohen@prnfunding.com. Please visit PRN Funding, LLC on the web at http://www.prnfunding.com/

Article Source: EzineArticles Freedom From Factoring Fees

Make sure to review these timely topics as you make plans for your accounts receivable financing business in 2010.

#5 – 10 Benefits to Factoring Invoices and Accounts Receivable

Every business has cash flow needs but options are dwindling in the face of a recession. Fortunately savvy business owners know they can still raise cash when banks say no to business financing. Read More…

#4 – Earn Consultant Fees Factoring Invoices with Millennium Funding!

Factoring account receivables is helping businesses through these tough economic times opening the door to earning opportunities for cash flow consultants. Find out how factoring brokers can earn fees by helping businesses sell invoices. Read More…

#3 – How to Obtain and Factor Government Contracts to Cash in on the $787 Billion Recovery Package!

The American Recovery and Reinvestment Act was signed into law promising to spend another $787 billion to stimulate the economy. While families and businesses have a death grip on their money, the federal and local governments are spending freely.

For better or worse, these billions will be spent so how can we cash in on our piece of the recovery? One way is to obtain or factor government contracts! Read More…

#2 – How I Run My One Person Factoring Business

Have you wondered what it takes to run a small factoring operation by yourself or with just a family member?

What do you need for day-to-day operations in terms of equipment, technology, documentation, and know-how? Read More…

#1 – Free Webinar for Business Owners and Factoring Brokers – Discover Why Yahoo Hot Jobs Names Factoring Broker as a Top 10 Profession for 2009!

When Yahoo included Factoring Brokers on their list of 2009 Hot Jobs it created a stir of activity.  Read More…

Business owners and cash flow brokers were eager to take part in this lucrative $127.6 Billion Dollar Industry. This led to a popular series of Free Webinars on How to Broker, Buy, or Sell Invoices for Cash! Read More…

Thanks to all of our faithful readers for making 2009 a great year at FactoringInvestor.com. We wish everyone a successful and prosperous 2010!

Well, this article is for you!

What is factoring?

Factoring is the sale of accounts receivables or invoices at a slight discount.

How does it work?

You set up an account with a Factor. Once set up, you send the new invoice to the Factor who then cuts you a check for the agreed upon percentage, referred to as the advance. Read More…

How much does it cost?

The factoring fee depends on the strength and performance of the accounts. For the most part the fee will be between 2-5%. Read more…

How long does it take?

Setting up an account can take 5-10 days. Once the account is set up an advance is typically funded within 24 hours of invoice submission.

Do I have to factor all my accounts?

Not unless you are looking for a “one time” shot. Otherwise you pick and choose which invoices you would like to factor.

How long do I have to work with the Factor?

There is no set time. The average business may factor for 2-3 years but some companies continue on indefinitely.

What if I have poor credit?

For the most part the factor is looking at the strength of the payer (your customer), not you or your business.

What happens if my customers don’t pay?

That depends on how you set up the transaction with the Factor. If it is “non-recourse factoring” then you may not be responsible. If it is “recourse factoring” then you will need to repay or replace the bad invoice. Read More…

What if I have a bank or tax lien?

Oftentimes the factor can work with the bank or tax entity to have them subordinate their position. If there are enough receivables you may even be able to pay off the loan or tax obligation. Read More…

How can I get started?

There are numerous great factoring companies right here at FactoringInvestor.com. We recommend that you “interview” more than one to see which company may best fit your needs. Read More…

What if I want to learn more?

There is a lot of great information on this site. There are also many in-depth resources available from a variety of authors. Check out the “Resources” section of FactoringInvestor.com. Read More…

Save time and money by understanding these 5 areas before making application to factor your accounts receivable:

1. Client Profile

The first step in the process is helping the factoring company get to know your company.  This might start with a phone conversation but will eventually be formalized in a client profile form. This provides basic information including:

• Company name
• Contact Information
• Type of business
• Information on your Customers

The nature of the business and type of customers play the leading role in determining whether a factoring company will move forward with the transaction. Most factors are looking for invoices that are owed by a businesses rather than individual consumers.

Other factors specialize in certain types of invoices.  For instance construction factoring or medical receivables will only appeal to a company that targets those areas.

2. Aging Reports

The aging report provides the detail that goes along with the initial profile.  This report reflects the amounts owed by your customers and the length of time it takes them to pay on the invoices. A customer that pays within 30 days is more attractive than a customer that takes 45-60 days.

3. How it Works

Factoring is the purchase of accounts receivable at a discount. The factoring company provides an advance on approved invoices. The factor handles collection and releases the reserve balance when the customer pays the invoice.  The factor deducts their fee before releasing the balance.

4. What it Costs

The first question every business wants to know is, “What will factoring cost me?”  Don’t be frustrated when the response is, “It depends.” The industry, strength of the customer, and length of time it takes to receive payment affect the advance rate and the discount fee.

The volume of invoices a business plans to factor also impacts pricing.  A company desiring to factor $400,000 every month will receive better rates than a business factoring $15,000 on a sporadic basis. The terms offered by the factor can often be negotiated and will ultimately be spelled out in the contract.

5. Underwriting Process

The factor is very interested in the strength of your customers since they are actually purchasing the account receivables rather than making a loan.  The factor will evaluate the creditworthiness and establish credit limits for each customer.

The factor will also perform a public records search on your company to verify there is clear title to the accounts receivable.  This search usually includes corporate status, judgments, liens, UCC, pending litigation, back taxes, criminal records, and any other items that might interfere with the factor receiving payment on the invoices.

This due diligence process takes an average of 5-7 days on new accounts.  Once the initial review process is complete it can take as little as 24 hours to receive cash for invoices with approved customers.

Factoring provides cash flow solutions to both new and established businesses providing funds for operational expenses, expansion, and growth.

Related Articles:

How Accounts Receivable Factoring Works

When Should a Business Use Factoring?

Five Strategies to Reduce Factoring Costs

Just take a quick look at these highlights from the 2008 Asset-Based Lending and Factoring Surveys recently released by the Commercial Finance Association in June 2009 to see where opportunity is knocking in the United States.

Factoring Highlights

• Factoring experienced an annual volume of $136 billion in 2008 compared to $20.2 billion volume in 1976, the first year reported for the survey results.
• While the growth was a nominal .5% compared to 2007, it still reflects stable volume during volatile economic times.
• The major regional market for factoring continues to be the Northeast (47%) followed by the West (24%) and the Southeast (20%).  The Midwest and Southwest comprised just 5% and 4% respectively of market share.
• The textile/apparel industry prevails as the primary client base for large scale factoring companies while transportation and business services contributed to much of the small factor volume.
• Non-recourse factoring makes up 77% of transactions with the remainder consisting of full or partial recourse factoring.
• Notification factoring comprised 78% of the volume with non-notification contributing the other 22%.

Asset Based Lending (ABL) Highlights

• The Asset-based lending industry reached $590 billion in 2008, an 8.3% increase over the prior year.
• The regional market allocation for ABL was more consistent across the United States but was still led by the Northeast (27%).  It was followed by the Southeast (25%), the Midwest (20%), the West (16%), and the Southwest (12%).
• Just 12 states represented almost 65% of ABL outstanding loans.

The Commercial Finance Association releases this informative survey each year. Adrej Suskavcevic, the trade association CEO, shared these comments, “Businesses in need of capital should look beyond traditional bank loans and realize there are lenders that are able to help business meet their capital needs”.  To view the full press release and survey results you can visit the  Commercial Finance Association.

In face of a tightening credit market the need for alternative financing is on the rise.  This is just part of the reason factoring made Yahoo’s Top Ten Jobs List for 2009. Yes, that is opportunity you hear knocking!

This leaves many businesses to wonder, “What’s the difference? Is it really apples and oranges?”

Actually, the fruit analogy works here. Factoring and Asset Based Lending (ABL) are both types of financing (or fruit, if you will) offered by specialty business financing companies. They commonly involve funding based on receivables but the differences come down to the variety of financing.

Asset Based Lending

The asset-based loan is just that – a loan. The company borrows money incurring loan fees and interest charges. The loan is collateralized or backed by assets of the business. This can include the account receivables but can also extend to other assets including inventory, raw materials, equipment, patents, or fixed assets.

Factoring

Rather than a loan, the factoring transaction involves the purchase of the invoice itself. The factor buys account receivables at a discount through a cash advance. All or a portion of the reserve is released upon payment of the invoice by the client’s customer. Instead of earning interest the factor earns a discount or factoring fee.

All in the Family

When an asset based loan is secured just by the accounts receivable the distinction between the two can become blurred. Both the lender and the factor usually verify invoices and use some sort of lock-box system to accept payment on the invoices.

The costs can vary greatly so neither factoring or ABL can be deemed the most or least expensive. It is safe to say that specialty financing is generally more expensive than traditional bank financing. It is best to shop around and compare the costs and benefits of both options.

Factoring and asset based lending can both be categorized as types of asset based financing, with the big difference being an asset loan versus an asset purchase at a discount. At the end of the day, both can be a tasty option if it fills the company’s appetite for working capital at a cost that still enables growth and profit.

Here is an alternative solution to consider when a company does not want to discount invoices or doesn’t qualify for factoring.

It is a common problem…

A business delivers the goods or services, invoices the customer, and waits for payment. A business could demand payment upon delivery but many customers might take their business elsewhere. Rather than waiting 30, 60, or even 90 days many companies decide to sell or factor their invoices for an immediate cash advance.

However some companies do not want the expense of factoring or don’t want their customers notified of the factoring transaction. Others might want to factor but their invoices don’t qualify.

Rather than factor invoices for a discount, enterprising companies turn to their customers. By offering the customer a discount for paying the invoice early a business can receive payment faster. Rather than punishing a customer for late payment they are rewarded for timely payment.

A common approach is to offer terms of 1%/10 days, net 30. This gives the customer a 1% discount from the invoice amount if it is paid within 10 days. After the 10th day and up to the 30th day the full invoice amount is due. After the 30th day a late fee might be incurred.

A tiered approach can also be effective. For instance, a 4% discount if paid within 10 days and 2% if paid within 20 days offers a more aggressive incentive for a longer period of time. As long as the discount is less than the factoring fee the business and the customer have an opportunity to benefit.

Of course offering early payment discounts can affect the bottom line and demand additional time in managing account receivables. Plus, not all customers will take advantage of paying early causing unpredictable fluctuations in cash flow. In addition to reliability, a factoring company can provide credit and risk analysis when deciding on whether to extend terms to a new customer.

Offering early payment discounts to customers is one accounts receivable management tool that can be an effective alternative or addition to factoring. An experienced accountant or consultant can assist in weighing the cost versus reward benefits.