Small Business Factoring

Kristin Gabriel asked:


know the three reasons why a small business never gets off the ground? 1) Lack of funds, 2) Fear of failing, and 3) Limited ideas. But foremost, most new businesses just cannot keep going due to lacking the money to stay afloat during the start up phase.

With so many people out of work, many are seeking new start up business ideas. But with the excitement and anticipation of starting something new, there are also many concerns.

It is not just about working hard. One key ingredient is to ask yourself if you are passionate about the idea. It is proven that people who like their work, are more successful. Next, you must determine if there is really a demand for your new product or service. Doing research is critical. Take a look at your competition. Ask questions of others in this business, and do your homework and research, before you invest in the idea. Think about how much money you will really need to start up, then double that, or more. How will you market this new endeavor? How will it be different from others like it? How much money will you need to survive personally, and how much will be needed for the business to survive?

In reality, you need a business plan with a scope of operations, and a budget for how much it will cost. Short term planning is critical, but you may also want to think about three years out.

It can be challenging to pay all the bills on time. And you won’t always get the money in on time either!

Accounts receivable factoring can be a huge benefit to small businesses. Single invoice factoring is one of the newer solutions tat provides short-term working capital to growing businesses.

Here’s how it works. Because many businesses do not get paid right away for delivered products and or services, factoring will allow some wiggle room. Every business needs some cash on hand in order to sustain and grow. So what happens if you do not get paid for a few months by one client and you do not have time to seek alternative financing through banks or venture capitalists?

Factoring can be the answer to your troubles because it is an extremely fast way to turn your receivables into cash. In an ordinary scenario you might have to wait 30, 60, or sometimes even 90 days for invoices to be paid. But factoring companies look at your customers’ credit (not yours) and can pay you the majority of what’s owed to you fast. Sometimes even in under 24 hours.

Invoice factoring will allow your new company to do more business, keep up with supplies, manufacturing costs and payroll, and continue to do more business and stay afloat.

To find out more about how invoice factoring can help your new business, simply search online for invoice factoring.

For Commercial Finance Loans – Factoring Loans * Equipment Financing * Purchase Order Finance * Commercial Mortgage – IMM Financial has been in the Commercial Finance Business serving companies just like yours for over 14 years. Put our experience to work for you. We are the Cashflow Specialists.

Kristin Gabriel asked:


The new year is starting off with tough economic challenges, especially for small to medium sized businesses. The U.S. budget deficit is projected to widen to $1.186 trillion, and even with a much needed economic-recovery package, there will be more layoffs and downsizing.

More than ever before, small business owners must be quick to put plans for the New Year into works in order to save money and maintain cash flow during these tough times. What’s more, obtaining loans from banks and other traditional financial sources can be a tedius and often frustrating process.

The good news is that today’s business owners and managers do have some alternatives to traditional financing. There is one strategy known as invoice factoring.

Factoring is when a business sells its accounts receivable invoices at a discount, and it is different from a bank loan. Banks base their decisions on a company’s credit worthiness, whereas factoring is based on the value of the receivables. Plus,factoring is not a loan – it is the purchase of a financial asset, or the receivable. Bank loans involve two parties, while factoring involves three parties.

Factoring should not be confused with invoice discounting, because factoring is the sale of receivables. Invoice discounting is borrowing where the receivable is used as collateral.

There are three parties involved in factoring including: the one who sells the receivable, the debtor, and the factor or factoring company. A receivable is basically a financial asset associated with the debtor’s liability to pay money owed to the seller. It is usually money that is owed for professional services or products that have been sold. The seller sells one (spot or single invoice factoring) or more of its invoices (the receivables) at a discount to the third party. Then the factor obtains the cash, so in essence, the sale of the receivables essentially transfers ownership to the factor, who obtains all of the rights and risks.

It is impiortant for small businesses to learn how to manage their cash flow. Usually, more sales means increased cash flow, but when these sales are based on credit, when sales increase, only the accounts receivable increase. As small businesses inventories are depleted after the holidays, and receivables can’t be collected until 30, 60 or 90 days later, cash reserves are low.

Here are some tips for managing cash flow:

- Billing, collections and payables systems must be efficient.

- Watch your customer’s credit limits.

- Work out New Year settlements with debtors.

- Share credit terms upfront with clients.

- Review and/or add a cash flow management system.

- Watch overdue accounts closely.

- Manage your own payables and wait as long as you can to pay without late fees.

- Also known as accounts receivable factoring, invoice factoring speeds up cash flow.



For Commercial Finance Loans – Factoring Loans * Equipment Financing * Purchase Order Finance * Commercial Mortgage – IMM Financial has been in the Commercial Finance Business serving companies just like yours for over 14 years. Put our experience to work for you. We are the Cashflow Specialists.

Marco Terry asked:


Small business owners are usually confronted with a number of challenges. One of them is getting business financing. Although most entrepreneurs start their businesses with their own funds, or those of friends and family, soon they reach a point where they need additional funding to grow the business.

One solution is to look for additional financing among your friends. This is a risky strategy since there is a risk of losing the friendship if you run into business problems. Another solution is to try to go to the bank for a business loan. However, to qualify for a bank loan, your company usually needs to show three years of profitable operations and appropriate collateral assets. Generally, this puts business loans out of the reach of most small business owners.

Two alternatives that are often overlooked by businesses are factoring and purchase order financing. Both offer great flexibility and are much easier to obtain than conventional business financing.

Invoice Factoring

Do have clients that pay their invoices in 30 to 60 days? If you need funds quickly in order to meet company expenses you should consider invoice factoring. With this type of financing, a factoring company can give your business an invoice advance, secured by your soon to be paid receivables. Although terms vary, most factoring companies advance about 80% of your outstanding invoices. The remaining 20%, less the financing fee, is advanced once the invoice is actually paid. One of the advantages of an accounts receivable factoring facility is that you can use it regularly to reduce the length of time it takes you to get paid on your invoices. Also, factoring financing is tied to your sales and increases as your company grows.

Purchase Order Financing

One common challenge for resellers (and wholesalers) is winning a purchase order that exceeds their financial capabilities. Purchase order financing can be used in these situations to bridge the financing gap, enabling the company to complete the order and book the sale. Basically, purchase order funding covers your supplier expenses. The transaction is settled once your customer receives the goods and pays for them. Purchase order factoring is only available to companies that resell goods, or companies that use third party manufacturing. Unfortunately, it most po finance companies cannot service direct manufacturers.

Conclusions

Factoring and purchase order financing have gained substantial traction as a financing solution for small and medium sized companies. They both have the advantage of being easy to obtain and setup. They can be an ideal solution for companies looking for pre-delivery and post-delivery financing of their commercial sales.



For Commercial Finance Loans – Factoring Loans * Equipment Financing * Purchase Order Finance * Commercial Mortgage – IMM Financial has been in the Commercial Finance Business serving companies just like yours for over 14 years. Put our experience to work for you. We are the Cashflow Specialists.

Kent Harlan asked:


If you are considering using accounts receivable factoring as a financing tool, you should carefully consider the type of billing arrangement you have with your customers. Invoice factoring relies on important considerations concerning your business model that could make it easier to get funding.

When you initially set up your agreement with the customer, you should specifically outline the work to create deliverables or milestones that allow you to invoice. By setting these milestones, the customer is obligated to pay for the work to that point and you can generate an invoice for that part of the goods or services. Contrast this scenario to progress billings, an arrangement in which the customer advances money for the job as a whole. The factor is hesitant to advance funds to the client with progress billings, since the company getting billed may become unhappy along the way and stop making payments. With milestones, on the other hand, that is not a problem.

Pre-billing for services is another example of a problem for factoring invoices. Common to the publishing and advertising industries, the customer is invoiced for a publication that will run in the future. From a factoring standpoint, proceeds of the obligation are assigned to a third party. If the work has not been satisfactorily completed, the customer likely will not pay the entire amount, if at all because there are too many “outs”. The factoring company has advanced a significant amount of funds up front, so they are left holding the bag when the customer refuses to pay. In this situation, the factoring company will almost assuredly adopt recourse factoring. This means that if the customer doesn’t pay the client the full amount that was invoiced, the factoring company can collect the money that was advanced.

Many business owners might not understand why factoring companies would take such a strong stand with both pre-billing and progress billing situations, especially since factoring is admittedly an expensive form of financing. Factors make their money by the spread between their own credit lines and those they extend to customers. It doesn’t take too many “hits” from non-paying customers to wipe out profits. Therefore, factoring companies must have a cushion to prevent non-paying accounts.

Even if you don’t need to factor your invoices, it is usually better to structure your invoicing in such a way that the customer is obligated to pay during each step in the process. This gives both you and the factoring company some piece of mind that the customer isn’t likely to walk away. The milestone arrangement is the best way to accomplish this goal.



For Commercial Finance Loans – Factoring Loans * Equipment Financing * Purchase Order Finance * Commercial Mortgage – IMM Financial has been in the Commercial Finance Business serving companies just like yours for over 14 years. Put our experience to work for you. We are the Cashflow Specialists.

Marco Terry asked:


One of the biggest obstacles for small business growth is access to working capital. Companies that have access to business financing, are usually better positioned to take advantage of opportunities – and – better positioned to weather challenges successfully than those that don’t have it.

But getting working capital is a major challenge for most businesses, especially startups and small companies. Most will not be able to meet the requirements for a conventional business loan or line of credit. Plus, conventional business loans are usually offered to companies that have long track records of success and hard assets. Few startups and small businesses meet these criteria.

However, business loans are not the only way to finance a company. There are some alternate ways of financing that have started to gain popularity in the recent years. One alternative is called accounts receivable factoring, also known as invoice factoring.

Invoice factoring solves a very simple but common problem. Most companies that sell to other businesses have to wait 30 to 60 days to get paid. However, few can afford to wait that long. This is a major problem for small companies that don’t have a strong balance sheet and need funds to pay suppliers and employees. Factoring provides an advance against your slow paying invoices and gives you the working capital to pay employees and suppliers. It puts you on a stronger financial footing, enabling you to take on new businesses without worrying about payment terms.

A factoring transaction works as follows. First you deliver your product/service and invoice the client. Then, the factoring company advances you up to 80% of your invoice. This is your first installment. Your company gets the remaining 20%, less the service fee, once your client actually pays for the invoice.

So the benefit is simple. You get 80% upfront and the rest once your client pays.

Invoice factoring is a great solution if your cash flow is not predictable and if you can’t afford to wait 30 to 60 days for your invoices to get paid. It provides you with predictable cash flow, providing you with another tool to grow your company.



For Commercial Finance Loans – Factoring Loans * Equipment Financing * Purchase Order Finance * Commercial Mortgage – IMM Financial has been in the Commercial Finance Business serving companies just like yours for over 14 years. Put our experience to work for you. We are the Cashflow Specialists.