Invoice Factoring Companies
Invoice Factoring- Find Out If It Works For You
All businesses have pending bills to pay off and hence require money on hand at all times to make different payments such as paying to suppliers, employee salaries and maybe go in for quantity purchases to get that extra discount. If your terms of credit to your customers are between 30 to 60 days and if your business is growing quite fast, you might not be able to wait that long for your payment to mature. Then, in this case you require invoice factoring.
Invoice factoring is when a third party, i.e. an invoice factoring company “buys” off an invoice which you have issued to your customer and pays you around 60 to 90 percent of the invoice value in 24 to 48 hours and the balance amount, minus a factoring fee, when they receive the payment from your customer on the due date. This frees you up from waiting to collect your payment after the credit period is over and hence allows you to invest that money immediately, back into your business.
So, if you are in a business where you have to give credit to customers, then you will require funding to get over that credit period. You could get a bank loan, but for that you will be required to submit many documents, spend a lot of time running around for the right bank, and will eventually still have to pay interest on that loan. You could also select a venture capitalist to put in funds but that might compromise on the right of running your company the way you want to. So in this case, invoice factoring can help you out with the minimum of fuss and time.
Invoice factoring also helps you to offer credit periods to your reputed and proven customers, thereby increasing your sales and hence your profits. Once your sales increase, you can go in for bulk purchases, which will be beneficial since you can negotiate a better price with your suppliers. So, this again can work in your favor.
Most factoring companies also have their own collection staff to handle collections from your customers and also send you regular statements regarding the payments collected and out standings from your customers. This helps you to reduce your own collection staff and redirect your energies in sales.
Once you have decided that you need invoice factoring, you will need to find the correct company to handle the job. You can check out the Internet, or hire a factoring broker to find out details of the company. Find a company that gives you a decent “discount” on the invoice value, but more importantly, gives you good service and doesn’t harass you or your customers. You may have to sign a yearly contract with the company, but if possible insert a “termination” clause, which gives you the right to terminate their services if you are unhappy with them for any reason or if you find that invoice factoring is not your cup of tea.
So, from the above points, you can decide whether you actually require invoice factoring and if once started, if it really works for you.
Factoring Government Receivables
The US Government continues to be the biggest spender in the world. That is good news for the twenty-five million small and medium sized business located in the United States. Government contracts can mean big money and a boon to smart entrepreneurs and business owners that grab these opportunities. So what’s the bad news? Getting paid by the US Government is not easy and can take a long time. There are mounds of paperwork, documentation must be in order and submitted correctly, not to mention the actual process of getting the checks cut. This can mean that a business owner can wait anywhere from fifty to one hundred twenty days to get paid. Many businesses cannot wait that long as they need to make payroll, replenish supplies, or purchase materials to fulfill the next order.
So what is a cash-strapped business to do? Well, the obvious comes to mind – get a bank loan, borrow money from friends and family, or even worse – give up equity in the company in exchange for some working capital. There is another solution. This is a solution that won’t create extra debt on your balance sheet nor require you to give up ownership in your company. It is called government invoice factoring.
Government factoring is quite simple. You continue to operate your business in the usual way with the exception of your invoicing. When you generate your invoice you provide a copy to a Factoring Company that specializes in government invoice factoring and they will provide you with the cash you need to operate your business now. No more checking the mailbox everyday hoping the big check arrives. Government Invoice Factoring companies can normally wire money directly into your bank account within 24 hours of receiving the invoice.
Not all factoring companies are created equally in this regard. Be sure to do a little research to be sure you are dealing with a company that is well versed in the funding of Federal contracts. The Federal Acquisitions Regulations are very complicated and the last thing you want is to have an inexperienced Factor muddy the waters and delay your payment. A simple internet search on “Factoring Government Invoices” should give you a good place to start. Ok, so this sounds great, but it must be really expensive. Not really. Consider the cost of missing a payroll or even worse, not meeting the deadlines and milestones on your government contract. The actual cost will normally be between 2 and 3 percent of the invoice amount, a small price to pay for complete peace of mind and the freedom to operate your business in the best mode possible.
If it is time for you to begin sleeping better and night – not worrying about when the next check will come, consider setting up a government receivable factoring line.
How Invoice Factoring Works
When businessmen sell products to their customers, they issue invoices to those customers. The businessmen then receive payments after some days, normally 30 to 60 days, which is called the credit period. This blocks the business cash flow and creates problems if they have to pay their suppliers, employees or if they receive big orders during that time. By and large, small to medium businesses face this problem. The solution is invoice factoring. You too can avail of it.
In invoice factoring, you can “sell” your invoice to a third party called the invoice factoring company which “buys” that invoice from you. The invoice factoring company then pays you the majority portion of that invoice immediately and then takes the full payment from your customer on the due date. So, in short, your accounts receivable becomes the third party’s accounts receivable. You can get your payment immediately but in 2 installments.
Usually you will get around 60 to 90 percent of your outstanding amount in the 1st installment which is payable on submitting the customers invoice. The balance installment is received when your customer pays the factoring company the full invoice amount. The factoring company will deduct a factoring fee from your 2nd installment. This fee can range from 1.5 to 12 percent, depending on a number of factors like your customers credit rating as perceived by the factoring company, the number of credit days given to your customer and the total amount involved.
You can go in for invoice factoring if your margins in sales are reasonably good and if your business is growing quite fast since this is the period where you will require access to ready funds. This is also a good way of getting funds without applying for a loan from a bank where you would need to submit more documents and have to pay interest on that loan anyway. This method eliminates credit cycles and provides you with ready cash that can be used to fulfill your business needs. Calculate your profit margins minus the factoring company’s charges to arrive at a conclusion whether you can afford to go in for this type of ready finance.
You can find many invoice factoring companies that provide you ready money within 24 hours of you sending them the invoices on the Internet. Some of them even have their own collection agents to collect the payments from your customers. Check out different invoice factoring companies and compare their factoring rates before doing business with them.
This method can give you a chance to get big orders from your reputed customers who require a certain credit period but you were previously unable to execute their orders because of their credit terms. Now, since you are getting at least your purchase cost immediately, you can go in for more business with them.
Invoice factoring therefore is a good way of maintaining your cash flow and also a good way to increase your sales especially to reputed customers, without having to worry about receivables. As your sales increase, you too can go in for bulk purchases thereby getting additional discounts. It could turn out to be a win-win situation for you.
Business Trends: Accounts Receivable Factoring
Invoice factoring companies have been around for centuries, and they exist to be able to provide you with the working capital you need to meet your obligations and grow your business. But, funding a new businesses can be challenging in today’s economic times. The reality is that small businesses no longer need to be victims of their own success.
Sales on credit terms may eventually lead to the need for additional working capital. If sales are creating a cash flow shortage in your business, then your company may be able to benefit from factoring. Here are some tips from one of the leading factoring companies. Factoring companies, specialize in financing growing businesses. Lending on accounts receivable simply is the advancing of funds against your accounts receivable. Factoring isn’t the same as a loan, it’s an advance or purchase of your receivables, so there’s no need to make payments or accrue business or credit card debt. Once you get an accounts receivable loan, the lender, a factoring company, will use your company’s accounts as collateral.
If you need help with accounts receivable factoring, purchase order financing, invoice purchasing, asset-based lending, post-bankruptcy invoice factoring, a solid, reputable factoring company. No matter what you decide to call it, invoice factoring or accounts receivable financing, and the services provided by a factoring company provide many small businesses with their own bailout plan to survive these tough times.
It appears as if small businesses, firms with fewer than 50 employees, in the United States are finally ramping up on hiring. Unemployment is still at nine percent, but experts think the trend for invoice factoring is happening due to more optimism plus economic recovery. A year ago at this time we were losing thousands of jobs monthly, according to ADP data who reported 100,000 jobs in February 2011. There were 101,000 in January and in December too.
According to ADP, which released its most recent report, businesses defined as firms with fewer than 50 employees, started hiring in January 2010 and have been adding jobs consecutively for the last 12 months, which is a very good sign for economic recovery. And it also appears that 46 percent of the 217,000 jobs were added by small businesses in February, most of which are labor or service-intensive jobs. Cash is needed by these small businesses in order to sustain, hire employees, pay their bills and to continue to grow and be profitable. We are seeing more businesses beginning to use the financial strategy of invoice factoring. Factoring companies have seen an increase in new small business customers interested in factoring services, who now use it as one of their prized business strategies.
Make Invoiuce Factoring Part of Your Financial Plan
Accounts receivable factoring became a common business practice early in the history of the United States of America. It involves is the sale of a company’s receivables, otherwise known as its assets, or invoices, at a discount to a factoring company who pays the business a discounted amount off of the face value amount of these invoices. A factoring company typically will receive the payment for the factored invoices from the client’s customer.
The practice of invoice factoring has been around for more than 4,000 years since the inception of commerce. The first documented use of invoice factoring occurred in the U.S. sometime before the revolution, at a time when cotton, animal furs, cotton, and other materials including timber were shipped from the colonies over to to Europe. London’s merchants advanced funds to the colonists so that the Americans could continue to harvest their new land. The Industrial Revolution was when invoice factoring became more focused on credit when they assisted clients in determining the creditworthiness of their customers and setting credit limits. Factoring companies would then guarantee payments for customers that had been approved, which sped up the process dramatically.
Prior to the 1970′s, financial services were identified by one metric: sales. Commissions and other types of incentives typically drove financial advice, and financial planners were accountants or insurance agents. Sometime early in the 1970′s was the beginning of the financial planning revolution which re-focused the industry from product-driven sales to process-driven services. It was in 1970 when the International Association for Financial Planning (IAFP) was formed. Today, during these challenging economic times, invoice factoring is an especially beneficial tool for business owners worldwide because obtaining a loan from a traditional financial institution has become a challenging process.
Factoring companies provide short-term working capital to growing businesses who often find it difficult to get conventional funding.However, invoice factoring isn’t a loan – it is the purchase of receivables otherwise known as financial assets, from a factoring company. accounts receivable factoring is not like a traditional bank loans because bank loans typically involve two parties, while factoring involves three. Credit decisions from banks is based on a company’s credit worthiness. Factoring companies base their decision on the value of the receivables. There are no minimums, no maximums, no long-term commitments and no lengthy application processes when using an invoice factoring company.
The main reason eight of ten new businesses fail primarily because of the lack of good financial today is because they lack financial planning. Financial planning can actually have an effect upon how and on what terms you will be able to attract the funding required to establish, maintain, and grow your business. Financial planning also determines the materials and supplies you should get and the products you will be able to produce, as well as the services that will be rendered, including whether or not you will be able to market them.
There are many essential components of financial planning and one of them is factoring. Small business entrepreneurs may have a fighting chance of success in today’s highly competitive business environment. Financial management is the use of financial statements that reflect the financial condition of a business to identify its relative strengths and weaknesses. It enables you to plan, using projections, future financial performance for capital, asset, and personnel requirements to maximize the return on shareholders’ investment.
Well documented financial plans have established goals and include the use of budgets, pro forma statements and even the suggested use of factoring, can help ensure financial control, and will demonstrate not only that you know what you want to do, but how you plan to accomplish your goals. These tactics will essentially help you attract the capital required by your business from future investors.
What Every Wholesale Distribution Company Should Know about Factoring
In the wholesale distribution industry, everything depends on consumer demand. Distribution companies want to run successfully with the least amount of inventory possible, but they also must anticipate what the owners and managers of the retail companies they sell to and their customers are going to want. Stocking up on items that customers want takes a lot of investment – which many wholesale distribution companies just don’t have right now. There is a way to ensure you have the capital needed to stock up on extra inventory, however. The solution is factoring. Read on to learn what every wholesale distribution company needs to know about factoring.
Also known as accounts receivable factoring, factoring services help wholesale distribution companies with the capital needed to purchase inventory, as well as help to pay for operating costs such as storage space rental fees, telephone bills, operating equipment, delivery equipment and more. Factoring works by offering distribution companies cash in return for their invoices and/or accounts receivable. The wholesale distribution company just submits as many of their invoices as they want to the invoice factoring company and they receive a percentage of the total amount of your client invoices, minus a small fee, in cash. The invoice factoring company then collects on the invoice, in most cases taking on 100% of the credit risk.
Factoring companies work quickly – many can provide funding in as little as 24 hours. Factoring is not a loan, once your clients pay their invoices, the factoring company is repaid. Factoring your invoices not only provides quick cash to buy seasonal inventory or compensate for inventory that didn’t sell well, but it also leaves you free to focus your time and company resources on more profitable things then accounts receivable activities.
No matter what type of products your wholesale distribution company works with, factoring services can help. Most invoice factoring companies will work with any wholesale trade company that sells products to merchants, retailers, contractors and/or industrial, institutional and commercial users. Wholesale distribution firms that sell both non-durable goods (such as groceries, chemicals, printing and writing paper, and periodicals) and durable goods (industrial supplies, clothing, furniture, office equipment, and other goods that can be used repeatedly) are eligible for factoring.
Big or small, startup or veteran, whatever type of distribution company you have, at some point you have or will experience cash flow problems that can impact your ability to purchase stock or inventory. Large distributors that sell everything but the kitchen sink (i.e. distributors with a large stock of various, unrelated closeout items), midsized distributors who offer a variety of products to customers in just one industry, and wholesale distributors that specialize in a unique niche items can all benefit from factoring. Start a working relationship with an invoice factoring company today, and ensure that you’re never blind-sided by cash flow problems again.
Factoring Invoices in 2011
Its time to debunk a myth that factoring is the financing of last resort. In reality, Factoring Invoices should be the only decision for many businesses.
For as long as I can remember my industry has been labeled as the lender of last resort. What does “last resort” mean anyway? If it means you’ve turned down the banks that are beating down your door to give you a loan or the investors that want to get in on the ground floor of your business or you’re going to self fund, then it’s a good label.
If not, then perhaps a better description for Factoring Invoices is ACCESSIBLE.
Let me start by saying that as with any type of lending, if your business is “circling the drain” NOBODY wants to finance you! Factoring Companies are no exception.
If you run a low margin business, Factoring Invoices is simply not a viable solution.
If you’re a control freak and can’t have a third party interact with your customers, Factoring Invoices is probably not a good solution either.
Miss a couple payrolls or have a supplier put you on COD and perhaps your outlook regarding Factoring Invoices will change a bit. Why Factoring Invoices should be at the Top of your list of financing choices.
Accessibility
Factoring may be the most accessible form of funding available to perhaps one of the widest spectrum of businesses today.
Factoring Companies are highly specialized experts in collateral evaluation which gives them a tremendous amount of comfort in extending working capital to businesses that are unable to obtain “traditional credit.”
Given Factoring Companies take a unique approach to their collateral they are able to fund companies in the following situations:
• Start-ups• Companies with Operating Losses • Companies with negative tangible net worth • Poor Personal Credit of Owners/Guarantors • Rapid Growth • Companies in Bankruptcy • Companies in forbearance with their bank
Can you tell me another type of “traditional” financing source that would even consider one of these red flags?
Provided your business is supplying goods or services to another creditworthy business on terms, Factoring Invoices is generally available to you.
Therefore, before you go spinning your wheels down the conventional road take a reality assessment and have a candid conversation with your banker. Determine if your business is even in the ballpark of a traditional credit product. If your not, Factoring Invoices, suddenly moves to the top of your list.
Tangible Benefits of Factoring Invoices
Factoring Companies have many RESOURCES and vast experience at your disposal. Many of these resources rival those of the big boys and guess what….there available to you!
If you’re a small business owner you wear many hats, but the two most important hats are the ones that make your world go around and around. First is making good credit decisions and second is collecting payments. Without either, you’re out of business!
Credit Investigation
Factoring Companies have vast resources when it comes to evaluating another businesses creditworthiness. Many of these resources cost tens of thousands of dollars each year to subscribe to.
While almost any business can subscribe to Dun & Bradstreet or Experian are you truly qualified to effectively evaluate the information and make a GOOD decision? Credit is not an exact science and Factoring Companies have experienced credit managers and teams to evaluate the information and make an informed decision. These decisions are objective that often save businesses from catastrophic failures from a poor credit decision. Remember a sale is not a sale unless that check clears the bank!
Receivables Management
Factoring Companies are experts in the monitoring and collecting of accounts receivables.
Now, let me just clarify a couple things about most factors:
FIRST, we do not buy non-performing invoices or invoices that take longer than 90 days to pay.
SECOND, we’re not heavy handed collection companies. Most Factoring Companies have the EXACT same interests as their clients. Simply to get the invoice paid in the customers normal course of business. No need for pressure, coercion, discourse or the like.
The age old principle holds true “you get more with honey than you do a stick.” If a Factoring Company has does its job correctly and bought a quality receivable, then it should be enough to simply monitor it for the following:
• Confirm the customer is in receipt of the invoice; • Confirm the agreed upon payment terms between the factors client and their customer; • Ensure payment is directed to the factors lockbox
Better than half of the time with slow turning invoices a business owner is unable to ensure the customer is even in receipt of an invoice. The second trick is to ensure regular communication with a customer’s accounts payable department.
A good Factoring Company will act as an extension of it’s clients business. At my shop, we utilize a Softcall Methodology whereas we answer phones on behalf of our clients name, we do not disclose our name (unless necessary) and checks a still made payable to our clients business.
Again, the goal of most Factoring Companies is the timely payment of your customers invoice.
Reporting
Factoring Companies provide comprehensive reporting to their clients. Many business owners fall short of having a competent in house bookkeeper that can provide the owner with accurate and timely information. Remember, garbage in equal’s garbage out!
Room to Grow
Factoring Invoices is one of the few sources of financing that actually grows systematically with your business without the need for timely and complex credit committees.
Provided you extend reasonable amounts of credit to creditworthy businesses, a Factoring Company can provide availability against eligible invoices within hours of a request.
Credit Insurance
Factoring Companies can provide its clients with credit insurance against non payment due to protracted default or customer insolvency. Many credit insurance policies are simply out of reach of a business due to high premiums of such coverage.
A Factoring Company can provide this valuable resource to its customers in its normal course of business at an affordable rate. This is protection that can me the difference between staying alive and closing your doors.
Piece of Mind
How does a business owner measure the piece of mind of knowing that the cash is in the account to cover payroll?
How does a business owner measure their ability to focus on areas of the business that generate sales or drive production knowing that the cash is there to support the business? Very simply, through Factoring Invoices!
Invoice Factoring is going to be a dominate form of financing for American businesses for the foreseeable future. With the credit markets forever changed, this accessible form of working capital can make itself available….even to the most vocal critics.
Invoices Factoring: Choosing the Invoice Factoring Company
Invoices factoring has become the life line of every industry across Canada. Concepts such as transportation industry factoring and trucking factoring have gained great popularity. One thing is very important to note. Invoices factoring is no longer confined to the transportation sector. Other sectors of the economy such as agriculture, manufacturing and the service industry have all started to show interest in invoices factoring. This is where the need for a good invoices factoring company comes into the picture. Here is a list of some key aspects that must be looked into while looking for an invoices factoring service provider.
Research and Analysis: This is something very important. It is advised that each company conduct thorough research before zeroing in on an invoices factoring company. Going through the website is a brilliant idea. This helps you understand the credentials of the company in a better fashion. It will also provide you with mission, vision, goodwill and reputation of an invoices factoring company. Taking client references is also a good idea. Striking a conversation with some of the previous clients will help you understand the credit worthiness of your choice of invoices factoring company. Invoice factoring does provide a significant advantage over other types of financing as you do not need to go through an approval process with a lender. Since this is not considered a loan, the factoring firm will approve you based on the timeliness of your customer’s payments. If they find that your customers usually pay within the 90 day window, you will have an easier time gaining the funds. However, older invoices may pose a significant problem to the factoring company and they may be unable to provide you with the funding you need. This is due to the fact that when an invoice is older than 90 days, the success rate of having a person pay on it is extremely rare.
Specialists: A decent invoices factoring company not only provides monetary solutions but non-monetary solutions as well. Many good companies hire industry specialists who help clients maximize profits. Theses specialists provide input to help clients reduce credit risks, administration costs and also help them build industry relationships. One of the biggest decisions you need to make with accounts receivable factoring is choosing the right firm to handle your invoices. If you choose a company that has high fees, you could be losing money as it decreases the value of your products and your inventory.
I hope this information helps you understand the importance of choosing the right invoices factoring company.
Accutrac Capital Solutions is a leading invoices factoring company. For more details, please visit http://www.accutraccapital.com/
Small Business Funding Through Invoice Factoring
Article by Kristin Gabriel
Today’s troubled economic environment means that businesses are under constant pressure to maintain profitability. Are you worried about the effects a recession can have on your business, or the financial stability of your clients? Is your company lacking capital? Or does your business experience seasonal fluctuations for its products and services? If so, a factoring company can help.
If you are spending too much time and money on your accounts receivables and collections, invoice factoring can help.
What is invoice factoring? It is the age old practice of using your invoices or receivables as collateral so that a factoring company can give you an infusion of cash. Historically factoring has been around for more than 3,000 years. Most recently, however, trends are for something known as single invoice factoring, which can also be called spot factoring. This is when you factor one invoice at a time.
Factoring is simply a way to acquire business capital without having to make any type of payments to a lender. It’s much better than a typical business loan because you don’t have to worry about monthly payments accumulating every month. Another advantage is that many companies do not want to worry about getting paid by their clients 60 or 90 days after they send out their invoices – because it often creates a financial burden on their business to have to wait that long.
Plus these days, some businesses may suffer from a less-than-perfect credit score. Factoring firms are experts at helping you minimize your risk from bad debt while at the same time they help you improve your cash flow dramatically. A few factoring companies are able to provide cash flow within two hours and it could be wired directly to your account. Other companies can take up to 48 hours.
The factoring company will collect your receivables for you, which provides you with business capital. This also minimizes your bad debt by making sure your clients pay on time. It can give you peace of mind in having a positive cash flow. Uncertainty regarding cash flow is removed, and your company can be more positive about the future since new orders are more easily filled, employees, utilities and vendors are paid on time and debt payments to credit card companies go out on time.
The professional fees among various factoring companies are competitive. Each client’s circumstances will vary and may have an impact on the fees. Some companies can advance up to 90 percent of invoices you are selling, and they don’t expect to buy 100 percent of your receivables.
Ultimately, invoice factoring can take away the worry regarding your clients making their payments, and you can focus on new busniess tather than chasing down slow or no pay clients. Look for invoice factoring companies online today, and start factoring.
About the Author
Kristin Gabriel works with The Interface Financial Group, North America’s largest alternative funding source for small business. The company provides short-term financial resources including accounts receivable factoring and serves clients in more than 30 industries. Go to http://www.ifgnetwork.com
Enable Invoice Finance – Factoring & Discounting – Cash Flow
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Invoice Factoring turns accounts receivable into cash overnight. This greatly improves cash flow, which allows for more rapid order fulfillment and greater revenues. www.ifgnetwork.com