Accounts
Receivable Funding
Accounts Receivable Funding, also referred to as factoring, is the transaction of accounts receivable (or invoices) between a business & a third party called a factor. The business generates invoices when it bills its business or government clients for goods or services provided; the factor is a funding source who specializes in A/R funding, & agrees to purchase the business's receivables at a discounted rate. Overall, businesses who utilize A/R funding as a business strategy agree that it is the easiest, fastest, and least expensive way for a business to raise working capital and improve cash flow. The benefits a business owner can realize from accounts receivable funding include... Unlimited capital: As your sales increase, so does your working capital – allowing you to meet increasing production demands. A/R funding is the only financing model that provides capital based on your sales activity. Bad debt protection: Many funding sources offer non-recourse factoring, assuming the risk of delinquent debt, and allowing you to eliminate this expense from your business income statement. Invoicing simplified: Funding sources take responsibility for the processing of receivables, including computerized invoice posting, check deposits, and payment reports – all available to you in "real time". Greater purchasing power: With working capital to purchase raw materials, you can take advantage of better terms and volume discounts from your suppliers – significantly offsetting the cost of factoring. Preserving profits: Since businesses that factor receive their cash immediately, there is no further need to offer your customers terms unless you choose to. Take your money off the table and further offset the cost of factoring. Maintain control and equity: As opposed to compromising your business goals by accepting venture capital financing or a new partner, maintain 100% control & equity – as well as resolve your cash flow concerns. Flexibility and choice: Based on your specific cash flow needs, you have the flexibility and choice to determine how much or how little of your receivables you want to factor from month-to-month.
If your business sells products or services to other businesses or to the government on terms – a line of credit which can range anywhere from 30 to 120 days or more before payment is due – then you are a strong candidate for factoring. When you factor your invoices you immediately receive a percentage of your cash. The remaining balance, minus a discount fee, is then remitted once your customer pays the invoice. The advance is usually paid within 24 to 48 hours upon receipt. The rest is held as a bad debt reserve until the customer pays the invoice. Upon payment, the factor calculates its fee and deducts it, before remitting the remainder to you. The advance and fee are based solely on the factor's determination of the value of the invoice, which is based on the terms of the invoice and the credit of its payer. Your credit is not material to its value. Factoring is, in essence, the discounted purchase of an invoice. Once an invoice is factored, the funding source effectively owns it – payment on the invoice goes to the funding source. Please do not make the mistake of confusing factoring with lending. Most sources of capital for your business will offer you a line of credit with interest. Before such a transaction can be completed (if in fact you even get approved), your credit, both business as well as personal, is scrutinized to the utmost degree. For business owners, the tremendous value of factoring is that their company is able to immediately sell any invoice or invoices of its choosing, to create instant cash at any time prior to their payment. Once you understand how factoring can help grow your business or just allow it to survive, you'll think long and hard before using your accounts receivable again as loan collateral. Banks will very rarely lend more than 50% against them, and the resulting lien usually renders them ineligible. However, if you already have any number of collateralized loans, you can do your best to clear these liens – once you have decide that factoring is right for you and your company – by factoring current and available invoices and then paying off those loans. Once your company decides to factor, you will need to fill out a brief client profile to which you will add a recent Accounts Receivable Aging Summary. The importance of the aging summary is that it will take note of those customers who typically make late payments and might therefore be ineligible or too expensive for factoring. The due diligence involved with setting up an account usually takes one to two weeks and may require an initiation fee, but that will only impact the initial invoice. The fee does not affect the worksheet, only a completed application. The fee varies by factor. Unless you are in the health care industry, where the due diligence investigations are far more costly and thorough, any fee is strictly nominal, and will usually weed out the window shoppers from the serious clients. Why Use Accounts Receivable Funding (Factoring)? Factoring is a centuries old financial service. In the past, only available to multi-billion dollar corporations, factoring is now available to small and mid-sized businesses, to whom banks are usually reluctant to lend funds to. Today, Accounts Receivable financing fills a tremendous void in the world of American business. The invoices to your customers for goods delivered or services rendered can be converted into a "credit line" from which you may draw cash to better manage or grow business. You can draw only as much as you need and pay only for what you use. Factoring is a tool that you can use to: Raise capital without creating debt Improve the cash flow of your business Take advantage of discounts on materials Make payroll Pay back taxes Let someone else handle the collection process
Approval is solely based on the credit worthiness of your client. Even if you have had a bankruptcy, tax liens or slow pays in the past, Factoring-Accounts-Receivables can get you funded through our investors, usually in five to ten working days, provided your customers are approved for funding. We can help you manage the swings in cash flow by getting you your money now; and create a line of credit based on your receivables rather than waiting up to sixty days or longer. Your suppliers will get paid quickly, so you will be able to negotiate the best pricing possible. In many instances, the ability to take discounts and get better pricing will make up for the cost of factoring. The difference between advance funding with a private investor and a bank loan is that in factoring you use your customer's credit line as leverage, not yours. A bank loan is based only on your assets and the ability to repay the loan . When you factor, there is never a loan to repay. Your growth potential, based on the credit worthiness of your customers, is virtually unlimited. Simply put, the more credit worthy customers you choose to sell to, the higher your credit line becomes. Factoring-Accounts-Receivables can provide funding (factoring) for all your business needs. We can set up a credit line for you and your company that will effectively multiply your working capital by 'turning it' more often. Compared to a bank lines, the "credit line" created when factoring uses far less collateral, requires only minimal amount of paperwork, and can be in place in a minimal amount of time. The credit line compliments any loans that you have or are seeking, yet allows you to access additional funding. There is no faster financial service available for businesses. There is no need to change anything about the way you do business! By taking discounts from the vendors or possibly adding a little to your invoice, you may be able to factor for free. Also, nine out of ten times factoring is less expensive than a bank, which charges closing costs, origination fees, points, as well as interest. |
ACCOUNTS RECEIVABLE PURCHASING FACTORING QUESTIONS AND ANSWERS DEBITOR-IN-POSESSION FINANCING
|
||