FINANCING STRATEGIES COPMARISON FACTORING:Cash Now, No Waiting!
Factoring provides working capital without adding debt to your balance sheet. There is no predetermined maximum limit. This working capital arrangement is not limited in amount as many bank products are nor is it subject to banking regulations. Unlike bank lines that can tie up all of your assets, factoring encumbers only your accounts receivable(invoices), or relating to medical/healthcare your (3rd party medical claims).What Factoring is not...(1) A LOAN-Factoring is the sale of your accounts receivable (at a discount) for delivered services. (2) OFFERED BY BANKS. Factoring is not an asset-based loan, nor is it a debt facility similar to those offered by banks. Also, FACTORING IS THE ONLY FINANCING VEHICLE THAT INCREASES THE NET WORTH AND THE EQUITY POSITION OF A BUSINESS! A VERY POWERFUL INVESTMENT TOOL WITHOUT CREATING ADDITIONAL DEBT TO YOUR BUSNIESS!
* Some documents that we will probably need for accounts receivable financing (factoring)
from you are...(other documents may or may not apply).
Profit and Loss or Income Statement: Also known as "P&L". It shows your business revenue and expenses for a specific period of time. The difference between revenue and the total expenses is your business net income. A key element of this statement, and one that distinguishes the balance sheet, is the amounts shown on the statement represent transactions over a period of time, while the items on a balance sheet information show information as of a specific date or point in time.
Balance Sheet: An itemized statement that lists the total assets and the total liabilities of a given business to portray its net worth at a specific date of point of time. The amounts shown on a balance sheet are generally the historic cost of items, not their current values.
Aging Report: Report showing what's owed in 30 day increments, as well as payer sources.
Articles of Incorporation: (Usually just the first page) Also called "Charter ,Corporate Charter, or Certificate of Incorporation" The document that a firm files with state authorities when establishing a corporation. This document contains the firm's mame, address, the type and amount of stock to be authorized and issued, the type of business activity, a delineation of corporate powers, and other informantion.
* Being prepared with these documents before you contact us may speed up the process for funding. In most cases these documents are required.
| Before Factoring | After Factoring | | Revenues | $100,000 | $200,000 | | Cost of Goods/Services Sold | $65,000 (65%) | $130,000 (65%) | | Gross Profit | $35,000 (35%) | $70,000 (35%) | | Variable Costs | $10,000 (10%) | $20,000 (10%) | | Fixed Costs | $20,000 | $20,000 | | Cost of Factoring | N/A | $5,000 | | Net Profit | $5,000 (5%) | $25,000 (12.5%) |
COST OF FACTORING (The above analysis is very simplified and used only for the purpose of demonstration.)
The obvious conclusion is: The benefits of factoring far exceeds its cost. The client has invested $5,000 in factoring, but increased his profit by $20,000. The return on his investment in factoring is 400%. How many businesses can boast this type of return? When some people might think it is high for a 5% factor fee, clearly in this example, they were minimal.
NOTE! NOTE! NOTE! NOTE! WE HAVE TO MAKE THIS CLEAR. IF YOUR BUSINESS HAS ANY OPEN LIENS ON RECEIVABLES,TAX LIENS, BANKRUPTCY, CRIMINAL RECORDS, OR JUDGEMENTS, IT MAY BE TURNED DOWN FOR FUNDING, DEPENDING ON THE FUNDING COMPANY'S PARAMETERS AND RULES. (IF THIS IS THE CASE, PLEASE MAKE SURE THAT YOU ADDRESS THIS WITH ME OR THE FUNDING COMPANY UPFRONT TO SEE IF THEY CAN OR CAN'T HELP YOU.) HOWEVER IF YOUR BUSINESS IS GROWING, OR ABOUT EVEN AND YOU NEED CASH TO MEET CURRENT OPERATIONAL COSTS OR NEED IT TO FUND GROWTH, WHATEVER FACTORING FEES YOU PAY WILL BE A VERY REWARDING INVESTMENT, BECAUSE YOUR PROFIT WILL INCREASE BY SEVERAL TIMES WHATEVER YOU PAY IN FEES, IN THIS CASE, FACTORING WILL HAVE TWO OBJECTIVES. (1) TO ACCELERATE YOUR GROWTH, AND (2) TO INCREASE YOUR PROFIT, BOTH DOLLAR-WISE AND PERCENTAGE-WISE. WE DO NOT WANT TO CAUSE MORE DEBT TO A BUSINESS, WE WANT TO HELP THEM GROW. ***IS FACTORING FOR YOU?*** DO YOU HAVE CREDITWORTHY CUSTOMERS OR ARE YOU SELLING TO GOOD PAYING CUSTOMERS THAT REQUIRE YOU TO WAIT 30, 60, OR 90 DAYS FOR PAYMENT?,ARE YOU SPENDING TOO MUCH TIME TRACKING AND COLLECTING YOUR ACCOUNTS RECEIVABLE?, DO YOU HAVE A PROFITABLE BUSINESS THAT IS SOMETIMES SHORT OF CASH?, WOULD YOU RATHER HAVE YOUR CASH IMMEDIATELY RATHER THAN WAITING 30 TO 60 DAYS OR LONGER TO RECEIVE PAYMENT?, IS TOO MUCH OF YOUR AVAILABLE CASH TIED UP IN ACCOUNTS RECEIVABLE?, HAVE YOU MISSED A GROWTH OPPORTUNITY BECAUSE YOUR CASH WAS TIED UP OR YOU COULD NOT TAKE ON A NEW CUSTOMER?, HAS A BANK REJECTED YOUR LOAN APPLICATION OR REQUIRED YOU TO PLEDGE PERSONAL ASSETS AS COLLATERAL?, COULD YOUR BUSINESS GROW IF YOU HAD MORE AVAILABLE WORKING CAPITAL?, ARE YOUR RECEIVABLES AVAILABLE TO BE COLLATERALIZED?(THEY HAVE NOT BEEN PLEDGED TO A LENDER OR OTHER ENTITY.)
If you answered YES to any of the above questions, then FACTORING is absolutely a solution for your busiiness!
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-Once a client has been set up, money can be wire-transfered to their bank account within 24-48 hours.
-The client is free to choose which invoices it offers for sale..and when. The funding companies will purchase invoices from their creditworthy customers.
-With the exception of Medical Receivables Factoring, most of the time, there is no recourse to clients. Once an invoice is purchased, the funding company assumes the credit risk.
-Client doesn't have to have a good credit history--Funding companies are only interested in the credit worthiness of the account debtors. (The clients customers).
-Client will not be taking on new debt or giving up equity. You will be selling an asset!
Benefits and Advantages of Factoring
-Fast & Easy
-Improve Cash Flow
-Leverage Off Customers Credit
-No Consideration of a Business' Credti Rating
-Continuous Source of Operating Cash
-Faster Payment
-No Added Debt-No monthly payments or balloon
-Client Gets Detailed Management Reports (most funding companies do this).
-Most funding companies do not require pesonal guranatees (Sometimes they do).
-No Geographical Limitations
-Reduces Overhead--Helps businesses downsize so they can concentrate on growing their business.
-Greater Operating Efficiency
-Off Balance Sheet Financing
-The "Time Value" of Money.
-Retain Control of the Business--You don't give up equity.
-Reduces Bad Debt.
-Professional Collections
-Offer Credit Terms to Customers.
-Meet Increasing Sales Demands.
-Stop Offering Early Payment Discounts.
Reasons For Factoring
With the advantage of positive cash flow, factoring clients:
-Increase working capital by establishing an additional, ongoing source of cash.
-Increase cash turnover and pay bills, taxes, etc...on time.
-Get cash for operating expenses when you need it.
-Get cash when you can't get financing elsewhere.
-Avoid giving up equity or control, as you would in traditional financing.
-Protect & improve your credit rating.
-Avoid long term debt and high interest costs that come with it.
-Avoid repayment of debt at inopportune times.
-Take advantage of trade discounts by having the cash available to pay up-front for supplies, equipmnet, etc.
-Take advantage of volume discounts and other spur of the moment opportunities that require cash.
-Get instant credit reports on prospective customers and the continuous monitoring of the credit status of all their customers.
Who Needs Factoring?
-Small and medium sized businesses, including new businesses and women and minority owned businesses that can't get conventional financing.
-Any business that needs additional operating capital.
-Businesses that want to expand and need a cash flow injection.
-Businesses with tax liens (or problems they are trying to work out with taxing authorities before a lien is put into place. NOTE-Some funding companies can work with this problems and others won't, please let us know this upfront if this is the case).
-Businesses that are working through either Chapter 11 or a bankruptcy. NOTE- Some funding companies will work with this problem and some won't, please let us know this upfront if this is the case).
THE TEN COMMANDMENTS OF GOOD BUSINESS
1. A CUSTOMER is the most important person in any business.
2.A CUSTOMER is not dependent on us-we are dependent on him/her.
3. A CUSTOMER is not an interruption of our work- he/she is the purpose of it.
4. A CUSTOMER does us a favor when they call-we are not doing him/her a favor by serving them.
5. A CUSTOMER is part of our business-not an outsider.
6. A CUSTOMER is not a cold statistic-he/she is a flesh-and-blood human being with feelings and emotions just like our own.
7. A CUSTOMER is not someone to argue or match wits with.
8. A CUSTOMER is a person who brings us his wants-it is our job to fill those wants.
9. A CUSTOMER is deserving of the most courteous and attentive treatment we can give him/her.
10. A CUSTOMER is the lifeblood of this and every other business out there. |
