3 Ways Invoice Financing Can Help Your Business

Factoring Benefit #1 – Take On The Slow Payers

What?!? Purposely take on accounts that have slow payers? That is right…

Everyone who deals in any significant volume has a couple of accounts that just kill the cash flow. It is not that there isn’t plenty of profit; it just takes the customer forever to pay.

The problem is that these accounts can often be your BIGGEST accounts. Or, if you are like many other small businesses, you may have passed on a large order because you knew the client simply pays too slowly.

With factoring, you can afford to wait for the slower paying companies by taking an advance on the invoice and increasing your sales volume.

Factoring Benefit #2 – Pay Your Suppliers Early

Hey, everyone has a cash flow issue – some worse than others. But not one of your suppliers would mind getting paid a bit sooner.

The best part is, that paying your suppliers on time will enhance your company’s reputation and all the while, your bank account.

Most suppliers offer an “early pay” discount. If you are factoring invoices, you will have a stable cash flow allowing you take finally take advantage of these lucrative discounts.

Factoring Benefit #3 – Avoid Bad Deals

One of the best parts about working with a factor company is their ability to help you “pre-screen” potential clients.

Not only will your factoring agent tell you whether the new account is a good risk when it comes time to factor invoices, they can also help you avoid the bad companies altogether. In turn, losing less on bad or unpaid invoices will go a long way to your bottom line.

No matter what your reason, Factoring account receivables is certainly worth checking out when debating between lines of credit or simply selling invoices.

What do you look for in a good factoring program? Check out this list for comparing factoring companies.

Why aren’t they hiring more people?

One major reason…big business is using small business as their banks!

The big guys are showing solid returns yet purposely taking longer and longer to pay the invoices owed to small business owners.

Customarily an invoice would be paid in 30 days but it is becoming common to see large corporations waiting 60, 90, even 120 days before paying on the goods and services already delivered.

This is making many companies strapped for cash at a time when banks have severely limited their lending to small business, as revealed by Jeffrey Leonard from the Washington Monthly.

Here’s a clip of the video shared from The Colbert Report (Copyright © 1995-2011 Comedy Partners) that is sure to provoke many reactions.

Warning, the exchange does get a bit heated and at one point Colbert says “I didn’t realize it was possible to fire up people this strongly about bookkeeping!”

Did you catch that part about the Cisco Systems new policy? In searching for more information I found this interesting quote from Mr. Jeffrey Leonard:

“Take Cisco Systems, Inc., one of the world’s largest technology companies. Cisco has seen its net earnings increase by 26.6 percent, from $6.1 to $7.8 billion in the last year. Yet effective March 31, 2010, Cisco announced to its small business suppliers that as a rule Cisco would wait sixty days after receipt of an invoice—or net 60, in business jargon—before cutting a check. The reason Cisco gave for this new policy was not that it was hard up: the company has nearly $39 billion of cash on its balance sheet, and in the third quarter of 2010 alone it spent $2.7 billion to repurchase its own shares. Rather, the corporation explained that it had been “benchmarking against our technology peers” and found a precedent for “new payment terms.” In other words: Everyone is doing it, so we are too. (Source: http://www.washingtonmonthly.com/features/2011/1101.leonard.html)

And Cisco is not alone. In the open letter Leonard goes on to mention the net 60 policy implemented at Boston University and a whopping net 120 by AB InBev, the 2008 purchaser of Anheuser-Busch.

Certainly there are other problems ailing small businesses but waiting to get paid on invoices is not helping! While not discussed in the interview, one possible solution evident to our readers is…

Factoring Accounts Receivable

We know converting accounts receivables to cash is the whole basis of invoice financing! The Factoring Company will pay the business a discounted amount for the purchase of their receivables. The business is then free to use the advance to pay bills, meet payroll, purchase materials for the next order, or fund other business needs.

Until there is a way to get big business to pay small businesses on time there will continue to be an increasing need for factoring, factoring companies, and factoring brokers.

Have your own thoughts on the interview or the plight of small businesses? Be sure to leave us a comment!

1. Sales must be final.

The only way a company can factor an invoice is if the sale is final: the company provided a service (i.e. a medical staffing agency sent temporary nurses to work in ABC hospital) or a good (i.e. a medical supply company sold latex gloves to a doctor’s office), and the customer unequivocally accepted it.

2. Goods or services must be invoiced after they are received.

Some companies bill their customers before providing goods or services. This type of relationship is unacceptable in an accounts receivable factoring transaction.

3. There can’t be any set-offs or charge-backs.

Some company/customer relationships allow for set-offs, in which invoice deductions are made based on the receipt of goods and/or services over the amount due on the invoice. Similar to set-offs, charge-backs give a customer the right to deduct payment if goods are incorrect, faulty or damaged. Both of these practices affect the final invoice amount. While set-offs and charge-backs are common in many industries, they cannot exist when a factoring company is involved because factoring firms purchase the invoice in full.

4. Liens and lawsuits against a company complicate a factoring transaction.

Liens and lawsuits affect a company’s welfare. In some cases, it’s possible for an accounts receivable factoring firm to work with a lien-holder to resolve difficulty. Lawsuits, on the other hand, could raise a number of issues, and need to be addressed on an individual basis.

5. Prospective factoring clients need to be approved during a due diligence process.

Most accounts receivable factoring companies will conduct a thorough review before a factoring relationship can be established with a medical staffing agency, medical transcription service or a medical coding company. While an accounts receivable factor’s decision relates to the creditworthiness of a company’s customers, it’s important for accounts receivable factoring firms to understand and evaluate its client’s history, operations and prospects. Full disclosure and open dialogue are the most efficient and effective means to a positive accounts receivable factoring relationship. Click here to see a step-by-step factoring diagram.

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: Ezine Articles Five Potential Barriers to a Successful Accounts Receivable Factoring Transaction

As an industry, construction has always been difficult to finance. This is in part because each contract carries a lot of risk since many things can go wrong. Also, each contract has many players – the project owner; the general contractor; the subcontractors; the financing institutions; which increases financing complexity.

Although demolition companies are considered to be in the construction trade, they are not always as affected by their issues and can be easier to finance. Demolition work tends to be done at the start of the project and is not subject to the usual overruns of other subcontractors.

Most demolition companies tend to get paid 30 to 60 days after invoicing. This is a common business practice but it can create serious cash flow problems. Few companies can wait that long to get paid and still cover their own payroll, rent and business expenses. Unless the company has substantial cash reserves, it will run into problems.

Most company managers will try to cover the cash flow gap with a business loan. However, few companies can qualify for business loans in this environment. Institutions will only provide business loans to companies that are well collateralized, have strong management and have impeccable financial statements. Few demolition companies will meet this criteria.

There is an alternative that is available to most construction subcontractors. It’s called construction factoring. Construction factoring solves the cash flow problem by advancing funds against construction invoices. Instead of waiting 30 to 60 days to get paid, you get an advance from the factoring company. The transaction is settled once the GC or commercial client pays.

One major difference between factoring and a business loan is that the factoring company considers your invoice to be strong collateral, provided it’s from a good commercial client or GC. Factoring is dynamically tied to your sales, and grows as your company does.

Factoring can provide predictable cash flow to companies who cannot afford to wait up to 60 days to get paid by clients.

About Commercial Capital LLC

Looking for construction factoring? We can provide a competitive construction factoring quote. For information on our invoice factoring program, please call (877) 300 3258.

Article Source: Ezine Articles – How to Finance a Demolition Company With Construction Factoring by Marco Terry

Improve your chances for approval by keeping four qualifiers in mind when courting receivable financing:

1) What’s Your Type?

Factoring firms tend to specialize in certain types of invoices. They have fine-tuned their systems to fit a particular niche of the industry. If their specialty is medical factoring then they might not be into transportation factoring.

That’s why the first round of qualifying questions will include:

“What industry does the business work in? What are the goods or services they provide?”

While some companies offer funding on a variety of invoice types it pays to know any preferences upfront to avoid turndowns.

2) Size Matters

The size of a transaction matters to the factoring company. Make sure you know,

“What is the average monthly invoice volume and desired credit facility?”

Larger companies might require a minimum volume of $50,000 per month. If that’s the case then it’s better to send the smaller deals to a small business factoring specialist.

3) The Company They Keep

Good news! The credit worthiness of the business is not the primary concern. With invoice funding new businesses and other companies deemed “unbankable” are able to access working capital.

That means the main focus is shifted to the quality of the customer paying on the invoice, leading funders to ask:

“Who are the customers and how long do they take to pay?”

A factoring company generally likes to see customers or debtors paying on invoices in 30 days, although some will accept 60 to 90 days. They will look to the credit of the customer and ask for an accounts receivable aging report. If the risk of timely payment seems too great they could decline funding invoices owed by a particular customer or altogether.

4) Let’s Be Exclusive

Factors provide working capital with an advance on invoices. They need to know they are first in line to receive payment on the account receivables purchased. They’ll want to know,

“Has the business obtained prior financing with another company?”

They are trying to determine if existing claims have been filed against the receivables, making a lien search a standard part of underwriting. If it reveals there is already a UCC-1 Financing Statement of record the factoring company will want it terminated or subordinated by the creditor.

It pays to be prepared. Whether business owner or factoring broker be sure to know the answers to these questions. Then do your homework so the funding request goes to an investor that fits the deal. It will save you and the factoring company time, frustration, and rejection!