Options for Funding Working Capital Needs

Working capital is defined as current liabilities subtracted from current assets- aka, the current assets remaining after debts are taken into account. According to an Entrepreneur article called How to Determine Your Working Capital Needs, though, calculating what it means to your business is a little more complicated. They recommend using the operating cycle, or the time is takes for a sale to be paid. When companies have credit terms, this can be anywhere from 30-90 days and sometimes even longer when customers do not pay on time.

Financing the company in the interim can be a challenge, and most small businesses don’t have enough excess funds to do so. There are several options for getting short-term working capital, including but not limited to the following:

Factoring

In this form of financing, a factoring company buys their client’s accounts receivable and advances 80-90% of the value up front. When the remainder is paid, they give back the rest less an agreed upon fee. Advantages of factoring are flexibility, speed of delivery, and reduced overhead by outsourcing the collections process. The main disadvantage is that it is relatively expensive compared to bank loans.

Line of credit

If the business is well financed and has good collateral, they may qualify for a line of credit that allows them to borrow funds when needed. The money must be repaid to the bank once the accounts receivable are paid in full. Advantages to having a line of credit are financing when you need it and that it is relatively cheap. A major disadvantage is that they have strict policies and not many small businesses qualify.

Short-term bank loan

For businesses that don’t quite qualify for a line of credit, it might be possible to get a small bank loan instead. The terms are usually less than a year, and can be provided for a large order or a seasonal inventory buildup. The advantage to a short-term loan is the low cost of financing, while the disadvantage is a lengthy and difficult approval process.

2013 Factoring Conference

The 19th annual Factoring Conference, sponsored by the International Factoring Association, will take place this year on April 24th-27th at Miami Beach’s Fontainebleau Hotel. Below are some facts about the conference, which is sure to be a valuable experience where factors can learn new information and network with peers.

Speakers: There are many guest speakers lined up to talk on a number of subjects, but the two most eagerly anticipated speakers are Warren McDonald and Kevin Mitnick. McDonald is a world renowned mountain climber who also happens to be a double leg amputee, and Mitnick is a famous former computer hacker turned computer security consultant. McDonald’s “Challenge in Change” speech is scheduled for 9am on Thursday the 25th, followed by Mitnick’s “Art of Deception” at 11.

Accomodations: The conference will be held at the Fontainebleau beachfront hotel in Miami Beach, with rooms going at $269 per night at the Factoring Conference group rate. Register your room here.

Activities: There are many activities planned for the four day conference, including but not limited to: Golf Tournament, Portfolio Management, 5K Fun Walk for Charity, and an Everglades tour. See the full list of activities here.

Exhibitors: There will be over 40 companies exhibiting at the conference, and there is still time to register your company to exhibit as well. There are also sponsorship opportunities.

For the full website on the conference, go here.

Reverse Factoring 101

According to The Global Trade review article Supply Chain Finance, the process known as supply chain finance (SCF), or reverse factoring, is the next logical step for factors. The article points out that factoring companies can build on their own receivable offerings and supply this in-demand service to their customers, though some factors are hesitant due to the high cost of implementation. There is a distinct lack of knowledge about this sector, so this post will attempt to enlighten readers on how SCF works.

The SCF process involved the same three parties as the regular factoring process: the factor, the supplier, and the ordering party. In regular factoring, the supplier initiates the process in order to get cash for their receivables. In reverse factoring, the ordering party initiates factoring by choosing which invoices they will allow to be factored. The supplier then chooses which need paid. The end result is the same: the supplier gets advanced funds from receivables.

Reverse factoring is beneficial to suppliers because they get better terms than they would otherwise. It usually works best for small suppliers and big companies as the ordering party. A factor benefits because they are working with companies that have a good, mutually beneficial business relationships and therefore lessening risks of non-payment.

Reverse factoring seems like a logical step for factors. Whether they get on board or stick to what they know best remains to be seen.

Tips to Avoid Lumpy Money

Cash flow issues are a constant source of worry for some industries, such as start-ups or seasonal businesses. This “lumpy money” syndrome, where cash from customers is intermittent and slow, affects many companies but luckily can be mitigated by following a few simple tips.

Cash Up Front: Instead of waiting for payment, ask for a down payment or retainer at the beginning of a large order. Due to the down economy, it is no longer taboo to ask for payment early on in the order process.

Credit Cards are Your Friend: Don’t worry about credit card processing fees. Sometimes, even just a percentage up front can be better than waiting months for cash. You can run your business while the bank does its thing.

Customer Credentials: You have to know who you are doing business with, and in the online age it is easy to do background research. If the research fails to yield anything, ask for references.

Factoring: In certain industries, selling your accounts receivable at a discount is an effective way to get cash up front. Some expenses like payroll have to be paid every month, and factoring can help even out cash flow.

These are just a few tips to bettering your company’s cash flow. Do what is right for your industry and eventually you will smooth out those lumps.

For the full article, see 5 Tips for a Better Cash Flow

Modern Challenges to Factoring

The way we do business is constantly changing and companies either have to evolve and adapt, or die out—and factoring companies are no exception. In a recent interview with Dash Point Financial President Jeff Callender, he points out several modern changes to the factoring industry.

More Small Factors: Factoring for companies with under $10K per month in receivables used to be a niche, but now there are more and more companies joining the fray. This increases competition, but with more awareness there is also a bigger customer pool.

Sketchy Clients: Because most factoring companies tout that a client’s personal credit history doesn’t matter, Callendar has noticed a trend of “less desirable” clients applying as an alternative to a bank loan. While credit history doesn’t technically matter, factoring companies have to consider the character of a potential client when considering whether to take their business.

More Awareness: The public is more aware of factoring than ever before, and this means they’ll be doing independent research. Often they waste everyone’s time if the factor they research does not suit their needs.

A broker can be the best option, because they have the resources to perfectly match client and factor. Factor Finders is one such broker, and we are experienced in saving clients time and money by eliminating the search process and meeting client’s needs every time.

For the full article, click here

Factoring vs. Debt Collection

Almost every business has money tied up in accounts receivable. For those with adequate capital supply, it’s not such a big deal to wait 30 to 90 days for payment. For some businesses, however, cash flow is intermittent and irregular and waiting is not possible. Two viable options for getting money from accounts receivable that haven’t yet been paid are factoring and debt collection. Factoring is the process by which a factoring company purchases unpaid receivables for cash less a discount, while debt collection is where a third party agency collects old unpaid debts from customers.

There are several major differences between factoring and debt collection:

  • The purpose of factoring is to improve cash flow, while the purpose of debt collection is to recover old debt.
  • The process of factoring is simple and short and usually results in cash the next business day, while the process of debt collection is often long and involves a delicate balance between aggressive policies and alienating customers.
  • The age of invoices is also different, as factoring involves current invoices while debt collection deals with those 60 days or older.
  • The fees charged by factoring companies usually run from 3-7%, while debt collection agencies can run from 25-30%.

It is up to individual companies to weigh the options and decide which method is best for their needs. Small to medium sized companies that have seasonal demand or irregular customer payments would benefit more from factoring, while bigger companies would be more likely to use debt collection.

For the full article, see Factoring Vs. Collections: Which is Better for your Unpaid Invoices?

Knowing the Language of Factoring Helps Close Deals

According to Fred Leder from Xynergy Healthcare Capital LLC, factoring brokers can close more deals if they dress professionally and are knowledgeable about factoring. Clients are going to assume that the broker is a banker, and it is up to the broker to dress and act the part. Leder offers several tips for meeting with new clients:

  • Bring a “checklist” to see if the client qualifies for factoring and have them fill it out before you begin.
  • Speak industry lingo to improve credibility. For instance, always refer to factoring as “selling” rather than loaning, refer to interest rates as the discount fee, etc.
  • Accurately describe the process of factoring.

Credibility is key to closing factoring deals, and credibility is all about perception. Factoring is a relatively unknown and misunderstood industry- the average consumer or company might have trouble saying exactly what the process is. A factoring broker may be in charge of factoring invoices personally, but they need to know exactly how it is done in order to communicate effectively with a client. This includes learning the language of factoring, and being a fluent speaker.

For the full original post, see Learning the Language of Factoring

Bibby Financial Services to Offer New Non-Notification Factoring Service

In the most recent edition of the International Factoring Association newsletter, Bibby Financial Services announced that they have added non-notification factoring as part of their repertoire.

Non-notification factoring functions the same as traditional receivables funding, but all services by the factoring company remain in the client’s name.

This is a good option for small-to-medium sized businesses that prefer to appear to be the sole contact for customers, but also want the advantages of factoring such as improved cash flow and not having to handle collections. Says Leigh Lones, CEO Americas: “Some companies want a seamless representation to their customers regardless of who is doing the work.” For the full article, click here: Bibby Financial Services Launches Non-Notification Factoring Product.

Karaoke Company Secures $5M in Receivable Financing

In late October of this year, The Singing Machine Company entered into a factoring agreement with Crestmark Bank. The deal provides the thirty year old karaoke machine company with up to $5 million in accounts receivable financing. The deal went down as The Singing Machine Co. enters into the peak holiday season. According to CFO Lionel Marquis, the deal represents a “big milestone in our plans for the future” and CEO Gary Atkinson says having the agreement in place will provide flexibility and strengthen relationships both at home and abroad.

The Singing Machine Co. is an example of the type of business that factoring helps most- a highly seasonal business that experiences uneven cash flow during off seasons. Their deal with Crestmark will allow them to expand overseas and tap into new markets, which encourages growth and increased profitability. Factoring their accounts receivable was a smart move for this karaoke company, one which will hopefully allow them to reach record highs- almost as high as the notes their customers fail to hit.

For the full article, follow this link: The Singing Machine Company inks 5 mln in accounts receivable financing.

PRN Funding Exhibiting at Private Duty Conference

Las Vegas, NV- For the fourth year in a row, PRN Funding, LLC will be exhibiting at the 15th Annual Private Duty National Conference and Expo. The event is taking place from November 14-16th at the Monte Carlo in Las Vegas, and will feature the home care industry’s best and brightest providing tips and solutions for making the best business decisions.

Account Manager Ryan Elliot and Marketing Associate Stephanie Chmielecki will be in booth #204 offering information on PRN’s invoice specialty factoring services, which includes factoring for home health care agencies.

Stephanie and Ryan will also be holding daily casino chip giveaways. Visitors of booth #204 will be entered into drawings taking place on 14th, 15th, and 16th at various times. Contest winners will receive casino chips, get their picture taken, and receive free publicity on PRN’s social media and blogging sites. If you are attending the conference, be sure to stop by!

###

With years of experience in the healthcare industry, PRN Funding has a precise understanding of the unique challenges within the private duty and homecare industry.  PRN Funding offers financial resources to these companies by purchasing their accounts receivable–a process known as ‘factoring,’ which provides the cash needed to sustain and grow a healthcare business.

Older Posts
Newer Posts