Invoice Factoring

Kris Koonar asked:


When you run a business that caters to a lot of credit clients, there are times when you need ready cash to meet your daily expenses or even to fund your expansion plans. You may be hoping for a way to unlock your money that might be locked until due date of your invoices. The following conditions can provide you with hints to estimate the right time to opt for business factoring.

When Your Cash Flow Is Choked. If you find that you have supplied your products or services to reputed clients and even earned a high profit margin, but are unable to arrange for timely finance to meet your regular expenses, then business factoring could be the ideal solution. These factoring companies can purchase your credit invoices and wire that invoice amount to your bank account within 1 or 2 days minus their factoring fee, which could be in the range of 1.5% to 5%. This could immediately put an end to your cash flow woes and you could meet all your expenses. If you have quality clients, providing a credit period of around 30 to 60 days and provide a high volume of business to your factoring company, then you could get away by parting with a very reasonable factoring fee.

When Banks Do Not Give You That Loan. If you find that banks are not willing to advance you any loan due to non-availability of collateral or guarantees, then business factoring could help you. If you are a start-up company, then you will not be able to provide the mandatory 3-year financial statements that banks usually require. You will also realize that banks will only loan you a fixed amount for a fixed term and you will need to pay back the loan within that period in fixed monthly installments. If, during that period, you require some additional funds, then you may find yourself in a quandary.

Angel Investors or venture capitalists might provide much-needed funds, but they come along with their own set of conditions. But on the other hand, business factoring will provide you the funds against invoices that have already been issued. Thus, if your invoice amounts are large, then the amount you receive will also be substantial. The beauty of business factoring is that it will grow along with the volume of your business. You do not have to worry about any monthly installments or penalties for late payments.

When You Want To Expand Your Business. You will require additional funds if you want to expand or cater to large orders. If you do not have ready funds then you could be financially crippled and end up frustrated. Business factoring can provide these funds and you could thus be able to cater to larger orders. You can also go in for bulk purchases that would further reduce your purchase costs, thereby leading to higher profit margins.

If you have a reputed credit client list and are supplying products maintaining good profit margin, then you could opt for this flexible financial option that has the ability to keep up with your increasing business needs. Thus, if you feel that the above factors are restricting your business, then go in for business factoring to improve your cash flow and expand your business.



For Commercial Finance Loans – Accounts Receivable Financing * Business Equipment Leasing * PO Finance * Commercial Property 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.

Kris Koonar asked:


If you have just started a business that requires extending credit to a majority of your clients, then you could have a severe cash crunch from the start itself. You would not only need to bring in additional inventory to cater to your clients’ growing needs, but you will also need to wait for the due date to arrive, in order to collect your clients payments.

The credit period extended to your clients could curtail your ability to pay your suppliers and employees and also restrain your expansion plans to a great extent. In order to fill your cash counter during this interim period, you need to either raise cash by availing a bank loan or you could tie-up with a business factoring company.

For all practical purposes however, a business factoring company scores heavily over a bank loan. A bank loan would require you to arrange sufficient collateral without which the loan would just not be possible. A factoring company would not require any collateral. You would also need to provide the audited financial statements of the previous 3 years to your bank including your profit figures. This could be difficult or even impossible, if you were to start up a company that had not even reached the break-even point. On the other hand, a factoring company would only require a list of all the credit clients that need to be factored. Since their credibility is even more important than your own, then you could save a lot on your factoring fees, if you have a solid and reliable client list.

A bank loan will only deliver a lump sum amount into your account, which will need to be paid back along with interest over a fixed period of time by way of fixed monthly installments. Thus, a bank loan has many fixed parameters and in case you require additional money during the loan period, then it would be very difficult to raise it. However, since business factoring only depends on the total value of invoices that you sell to the factoring company, it is a much more flexible way to virtually get money into your cash counter.

Business factoring also provides an additional service that banks can never provide. They can take over your collection service and can follow up with your clients to collect the outstanding dues. This service could relieve you of your daily stress that is associated with running after your clients to collect your money. You could redirect your energy and your employees toward more constructive tasks such as increasing your sales.

A bank would concentrate on only getting the loan back along with interest. Thus, if you falter after taking a loan, the bank could even seize your collateral, in order to recover their lost money. The thought of such a possibility itself could unnecessarily add stress to your start up business. A business factoring arrangement does not put any pressure on your mind, since everything depends on the invoices that you factor to the factoring company. If you sell more invoices to your factoring company over a period of time, then you could also negotiate a lower factoring fee, as time goes by.

Thus, a business factoring arrangement provides much more flexibility as compared to a bank loan. The various services offered by business factoring easily scores over the fixed nature of a bank loan.



For Commercial Finance Loans – Accounts Receivable Financing * Business Equipment Leasing * PO Finance * Commercial Property 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.

Kris Koonar asked:


Transportation Company owners have to face a typical situation in dealing with clients who pay the freight bills in 30 to 60 days. They have daily cash expenses to take care of. They have to pay the driver’s wages, fuel bills, and vehicle and tire repair expenses. The expenses have to be met urgently while the clients would delay paying the amount for many days. This puts them into a tricky situation with regard the cash flow for their needs. Unless the company has cash in the bank, they cannot afford to wait to be paid.

The owners try to sort this out by arranging for a loan from the bank. But the banks usually do not finance businesses that have less than three years of profit and financial statements to show. So what other option does a freight company have? They have a better option than business loan in freight factoring. It is a quick pay tool to convert slow paying client freight bills into cash. It does not need the clients to pay early. It is the factoring company who will buy the freight bills on delivery of the load and give you some percentage of the amount of the freight bills.

They even collect the bills from the clients on the due date. Generally they would provide you an advance of 90% of the bill amount. The remaining 10% is paid after the customer makes the bill payment. A small factoring fee is taken from this 10% based on how long the invoice is factored and the monthly volume of factored invoices. Discount rates range between 1.5% and 4% per month depending upon the above factors.

Freight factoring is better than conventional loans in more ways than one. It is easy to get it and that too in just a few days. There are certain limitations to the amount of loan you are taking, but if you consider the freight factoring option it has no such limits. As your sales grow so does your factoring amount! Thus your financing is directly related to your transportation company’s growth. If you arrange with the factoring company to collect the bills on your behalf, you are relieved of credit collection. You can use that time and money to invest more in your business. Factoring companies also regularly provide you with receivables and payment statements, which help you to streamline your business.

Most factoring companies buy the bills using non-recourse invoice factoring. Under this agreement the factoring company bears the risk of non-payment due to insolvency of your customer.

Not many banks provide factoring services. However there are many new factoring companies coming up who have professionals working with them and offer good services and competitive prices. There are many companies coming up, who advertise on the Internet also. You could check them out and make a long-term contract with a company that gives you and your customer quick and courteous service.

Freight factoring gives you the advantage of improving the cash flow and helps you to concentrate on the growth of your business. It is a very good finance option. Rather one may say that it is an extension of your business. Thus if you have a transportation company you may use the services of a factoring company and take your business to the next level.



For Commercial Finance Loans – Accounts Receivable Financing * Business Equipment Leasing * PO Finance * Commercial Property 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.

Kris Koonar asked:


Every business requires an uninterrupted flow of cash to meet all related expenses and this is especially true in the trucking business. There are drivers’ salaries to be paid, fuel and repair bills to be cleared and you might also need to keep a tidy amount ready for unexpected expenses, in case any of your trucks breakdown en-route to their destination.

Freight factoring can solve all these problems. In this process, a freight factoring company will ‘buy’ off your credit invoice that you have issued to your client and pay you the amount of your invoice minus a ‘factoring fee’, which could range between 1.5% to 5%. These companies can also take over your collection activity by collecting the payment from your clients on the due date and thus this method of finance is flexible and can provide you with an opportunity to flourish in your trucking business. However, there are some pros and cons to be kept in mind, before you rush to tie-up with any freight factoring company.

Pros:

The biggest advantage of entering into a freight factoring arrangement is that you will get your invoice amount immediately, even if you have issued a credit invoice. This will improve your cash flow and help you to meet your expenses, take on larger and longer hauls and even put into action any expansion plan that you might have nurtured. You will also require fewer documents and no collateral, without which you would not have gotten a bank loan anyway, even if you did wish for one.

The freight factoring company could, at an additional cost, also handle your receivables department, thus freeing your mind and staff from the trouble of running after your clients for your money. Since the incoming amount only depends on the value of the invoices that you ’sell’ to the factoring company, you will not need to worry about any monthly installments or interest rates, which would have been the case, if you had taken a traditional loan.

Cons:

It is essential to conduct a thorough survey of the freight factoring industry, before you tie-up with a particular factoring company. The factoring company should be able to handle your account efficiently and should make your payments within the stipulated time for you to enjoy the benefits. Their staff should be available to hear your queries and should also be courteous and polite, while handling your queries. Some of your clients too might not like the idea of answering to a third party in financial matters.

You will therefore need to placate them, if you do not wish to lose them as your clients. If you are already working on wafer-thin profit margins, then by paying the ‘factoring fee’, you will only end up transferring your profit to your factoring company. This might prove to be disastrous for your business in the long run. If the factoring company is retaining a certain amount of the invoice as security against bad debt, then that too could prove to be troublesome, in case of any dispute with the company or your client.

Therefore, even though freight factoring seems to be an answer to all your financial woes, by not paying heed to the above points, you could end up in even more trouble.

Thus, it is important to study the pros and cons of this mode of finance, in order to avoid any pitfalls associated with it.



For Commercial Finance Loans – Accounts Receivable Financing * Business Equipment Leasing * PO Finance * Commercial Property 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.

Nate Hananger asked:


When a business sells a product or service to a consumer, it’s a cash-and-carry basis. They pay and then receive what they purchased along with a receipt. However, when a business sells a product or service to another business this is known as a commercial transaction. Often times invoices (a.k.a. accounts receivables) are used in such transactions, leaving a window of usually 30-60 days for the debt to be paid.

Most small to medium-sized businesses recognize the importance of cash flow, which is exactly why factoring is of use to them.

Allow me to give you an example to better explain the process of selling your invoices. Let’s say Joe’s Printing provided a client, a local magazine company, with $200,000 worth of products. Joe’s Printing then sends the magazine company an invoice for that amount with a due date in 30 days.

Unfortunately, not all businesses pay invoices on time. Even if the magazine company intends to, perhaps Joe’s Printing needs to cover rent, pay employees and deal with other business-related expenses immediately.

By factoring this invoice, Joe’s Printing could cover those costs on time and still generate profit. So the company contacts a factoring broker, who then contacts a funding source who purchases invoices – known as the factor. The factor then offers Joe’s Printing $190,000 to purchase the $200,000 invoice – 95 cents on the dollar.

Typically the factor (the investor) will send the company selling the invoice roughly 75% of the agreed purchase price as a cash advance – in this case that would be $142,500. Then, once the invoice has been paid the rest is paid to Joe’s Printing – $47,500. This percentage may vary under different circumstances.

There are funding sources (factors) who offer recourse factoring and some who offer non-recourse factoring. Recourse factoring, designed to eliminate any risk on the investor’s end, allows the factor to rescind the deal after the invoices have been sold in the event the unpaid debt isn’t paid by the owing customer(s). In this event the business who sold their invoices may end up reimbursing the factor. So the invoices may be with the factor, but the risk stays with the company.

Non-recourse factoring is far more beneficial for the business owners who wish to factor their invoices. The risk of the debtor failing to pay the debt is assumed by the factor, rather than the business. No refund options are available, with the exception of defective goods or services. This option allows the business which sold the invoices to keep the funds received for them regardless of default payments.

Often times people confuse factoring with loans. This is a method of financing, but it’s not a lending service. It’s a transaction where invoices are sold, at a slight discount, to a third party who advances the business the much needed funds. If you owned a struggling business, would you knock 5% off of your invoices in exchange for immediate cash?

Banks and lending institutions simply cannot compete with factoring. Buying invoices would decrease a lender’s available capital, limiting how much they could lend. And even if a loan secured by the invoices was negotiated, the borrower would be lucky to receive 50 percent of the owed balance of the invoices.

Factors focus on the creditworthiness of the clients who owe money on the invoices, rather than the strength, credit and financial stability of the business holding the invoices like banks do. Combine all of the reasons already stated with the sky-high interest rates one would face when attempting to obtain a loan against accounts receivables and you can see why factoring is most definitely a smarter decision.

Businesses benefit from factoring because it allows them to match the speed of growth from improving cash flow, pay employees on time, cover taxes, decrease overhead costs and providing ample funding for debt restructuring, acquisitions and expansion.



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.