Five Potential Barriers to a Successful Factoring Transaction

Accounts receivable factoring is a simple and quick method for temp nurse staffing agencies, medical transcription services and medical coding companies to access working capital. However, certain requirements must be satisfied to take full advantage of factoring’s many benefits.

Sales must be final. The only way a company can factor an invoice is if the sale is final: the company provided a service (i.e. a medical staffing agency sent temporary nurses to work in ABC hospital) or a good (i.e. a medical supply company sold latex gloves to a doctor’s office), and the customer unequivocally accepted it.

Goods or services must be invoiced after they are received. Some companies bill their customers before providing goods or services. This type of relationship is unacceptable in a factoring transaction.

There can’t be any set-offs or charge-backs. Some company/customer relationships allow for set-offs, in which invoice deductions are made based on the receipt of goods and/or services over the amount due on the invoice. Similiar to set-offs, charge-backs give a customer the right to deduct payment if goods are incorrect, faulty or damaged. Both of these practices affect the final invoice amount. While set-offs and charge-backs are common in many industries, they cannot exist when a factoring company is involved because factoring firms purchase the invoice in full.

Liens and lawsuits against a company complicates a factoring transaction. Liens and lawsuits affect a company’s welfare. In some cases, it’s possible for an accounts receivable factoring firm to work with a lien-holder to resolve difficulty. Lawsuits, on the other hand, could raise a number of issues, and need to be addressed on an individual basis.

Prospective factoring clients need to be approved during a due diligence process. Most factoring companies will conduct a thorough review before a factoring relationship can be established with a medical staffing agency, medical transcription service or a medical coding company. While a factor’s decision relates to the creditworthiness of a company’s customers, it’s important for accounts receivable factoring firms to understand and evaluate its client’s history, operations and prospects. Full disclosure and open dialogue are the most efficient and effective means to a positive factoring relationship.

Click here to see a step-by-step factoring diagram.

How to Control Your Factoring Costs

PRN Funding’s fees are based on three main components: the time it takes to collect invoices, the volume of invoices factored, and the creditworthiness of your customers. Each of these issues is important in establishing how much you will pay to factor your invoices, but there are ways to control your costs.

 

Time

Part of the financial risk that PRN Funding incurs when it purchases an account receivable is related to the time it takes for a bill to be paid. Time is therefore an important commodity that can affect your fee: the longer an invoice is outstanding, the higher the fee. (A 60-day invoice would consequently cost more than a 30-day invoice.)

You can reduce your time-related costs in two key ways: 1) Factor customers that pay their bills quickly. 2) Send invoices to PRN only when you absolutely need money. By retaining your invoices for a while after you provide the services/goods to your customer, you will decrease the amount of time PRN owns the account receivable, which will decrease your fee. 

Volume
Volume refers to the total amount of money that is factored each month. Opposite from time, higher volume means lower fees, while lower volume means higher fees.  Eventually, you can lower your fees by factoring larger dollar amounts and larger invoices. Also, long-term relationships that result in factoring large cumulative dollars can result in lower fees.

 

Customer Creditworthiness
Unlike a bank loan, the ability to factor is dependent on your customer’s creditworthiness, not your own. Therefore, PRN Funding is assuming risk based on your customer’s credit history, which affects your fee; Marginal credit means higher fees, while good credit means lower fees. The most straightforward way to decrease your fee is to factor invoices due from customers with good credit history. While PRN will only factor customers who have acceptable credit, those who have better credit will be less expensive.

 

While other variables can affect the factoring fee, time, volume and credit are the most significant components that PRN Funding will evaluate. By carefully using our services you can minimize you costs.

 

SBA Loans Plummet

According to a recent article from BusinessWeek, “Tightening credit markets have claimed a new casualty: Small Business Administration loans.”

Experts reported that banks have increased their credit standards for the government-guaranteed loan program, and fewer entrepreneurs are seeking credit from the Small Business Association (SBA). In other words, demand for SBA loans is low, and the standards for receiving one are high.

Click here to read the entire article: SBA Loan Plummet.

Tips to Attract a Factoring Company

It’s a well-known fact that if a business is having a hard time securing bank financing, accounts receivable factoring is a good option because a factoring firm is willing to look at a company’s ability to grow, rather than focus on its past. However, factoring firms can still be selective when it comes to approving clients.

Here are a few tips that will help make your business more attractive to a factoring company:


Bookkeeping
Factoring companies want to know how your customers payment trends so they can design the appropriate factoring program to meet your company’s needs. Develop a system or purchase the appropriate software (i.e. QuickBooks) to track and monitor your company’s accounts receivables.

Screen Credit
Accounts receivable factoring firms are concerned with the creditworthiness of a company’s clients (debtors), because it is the debtor who will be paying the factor. Have a plan in place to check your customer’s credit so that you can make sure you are only doing business with creditworthy customers.

Think Ahead
A funding company wants to work with passionate business owners. Give the factoring company an idea of how much you routinely bill and how much you project your business can grow by utilizing accounts receivable factoring.

Available Assets
Because a funding company advances cash on invoices, it’s important for your business’ accounts receivable to be free and clear. Pre-existing loans listing accounts receivable as the collateral makes it harder to factoring firms to feel comfortable advancing money.

Honesty
Communicating to a factoring company why you need accounts receivable factoring is crucial. Don’t be afraid to tell a firm that you were unable to be approved for bank financing or that your credit is less than perfect. Accounts receivable factors can work around most credit issues, and being honest about them in the beginning will save both parties a lot of time and effort in the long run, while also building a strong foundation of trust.

Click here to learn more about PRN Funding’s accounts receivable factoring program.

PRN Funding’s Tips for Decreasing Factoring Fees

Here are three quick tips to help medical staffing companies, medical transcription services, medical coding companies and medical supply businesses to decrease their factoring fees with PRN Funding:


Retain your invoices for a while after you provide goods/services to your customer. Send them to an accounts receivable factor only when you absolutely need the money. PRN Funding’s factoring fees are based on how much time passes between when we purchase the invoice and when we receive payment from our clients’ customers. So one way to save money is to limit the amount of time PRN Funding owns your invoices.

Factor customers who have a better credit history. While PRN Funding will only factor customers who have acceptable credit, those who have a better credit history will be less expensive to factor because they will pay their invoices in a timelier basis.

Allow your customers to absorb some or all of the factoring fee by slightly raising your prices or by charging a fee for invoices paid past the due date.

How to Avoid a Loan Scam

We came across a very interesting article in the BusinessWeek Insider entitled, Why Loan Scams are Increasing, and we thought our readers would be able to benefit from the tips included in the article about how to identify the warning signs of a loan scam.

Here’s one example taken from the article about how small business owners across the U.S. are being scammed:

“The advance fee loan scam targets small business owners looking for money to grow their businesses. Maybe they’re trying to get a construction loan, but they’ve been turned down by traditional lenders. Then a company draws them in and tells them they are going to qualify for a loan worth a couple hundred thousand dollars. They’ll say it’s your lucky day, and all you have to do is send some money to cover administrative costs, or taxes—they use any number of excuses.

Next, they ask for a wire transfer or a cashier’s check to cover these initial loan costs. Once the entrepreneur sends the money, many of the scammers simply disappear: Their phone gets disconnected and there’s no way to get a hold of them. Other times, the scammers manage to string their victim along for a couple of weeks, asking them to send more money to “complete the transaction.” They keep this going until the victim finally catches on, then they disappear.”

As a general precaution, the Better Business Bureau advises business owners to stay clear of any funding company who asks for fees upfront. (Rest assured that PRN Funding does not have any application fees, origination fees or due diligence fees.)

Click here to read the entire article: Why Loan Scams are Increasing.

Two Free eBooks on Factoring Small Receivables

If you are an entrepreneur who wants to understand factoring or a cash flow consultant looking for more information on accounts receivable factoring, these two eBooks are sure to help you learn more.  Jeff Callender, president of Dashpoint Financial Services, Inc. and author of several factoring books and articles, is offering two free eBooks for people who are interested in learning more about the art of factoring.What is Factoring? and Factoring Vs. Other Financing are available as free downloads on Jeff Callender’s Web site.  Taken from his books, Factoring Small Receivables and Unlocking the Cash in Your Company, these eBooks can be used as an extensive introduction to accounts receivable factoring.

We invite you to check them out and let us know what you think!

Click here to learn more about Jeff Callender’s free eBook offer.

Trade Show Exhibiting Tips from Skyline

If you plan on exhibiting at an industry-specific trade show, such as MTIA for medical transcription services owners, the19th Annual NNBA Conference for nurse staffing entrepreneurs, or the 30th Annual AAPC Expo for medical coding consultants, here are some helpful tips provided by Skyline Exhibits:Talk to EVERYONE that comes within shouting distance of your booth.  Approach everyone with a smile, have no fear and you will be amazed at the results.

 

Just because you have spent big bucks on your display, people may still not understand what you are selling. Draw them in and tell your story.

Most people are wandering through the exhibit hall because they are looking for something new.  They cannot come home and face the boss without a sack full of exhibit hand-outs….it is a “seller’s market.”

 

Once I pull them from the aisle and into the booth, I always go into the long version “chat.”  People will give off enough clues pretty quickly if they feel you are wasting their time, which in turn, is wasting your time.   If the clues are present, I quickly fall into just the overview talk, wrap it up with a “thanks for stopping by,” and let them move on.I have had many successes with people I “drug” into the booth, and explained our product.  These are the same people who told me that they were glad I made them stop because they had no intention of visiting the booth until I began the “chat.”
 – Warren Hand, Institute for Healthcare Advancement

 

One of the most often-heard objections from booth staffers is their concern about losing touch with their clients while attending the show and putting their time in at the booth.  One means of helping to relieve this concern is by creative scheduling as the next reader’s tip points out:

 

Schedule your sales people according to what time zone their territory is in.  If the show is on the West coast don’t schedule your East coast sales people in the mornings.  Put them on in the afternoon, that gives them an opportunity to take care of their clients back home during the AM on the West coast, which is still working hours on the East coast.  That way you won’t have cranky sales people whining about taking away their ability to meet their weekly goals.
– Traci Browne, Red Cedar Publicity and Marketing

 

To all our readers who are sales folk, just kidding about the “cranky” and we know that you never whine . . .  Moving right along, the next tip offers the suggestion that the responsibilities for booth staffing are not confined to the hours that the exhibit hall is officially open. . .

 

When setting up your display at a trade show and before the doors open to the conferees, you may, from time to time, get interrupted by someone just walking around looking.  That person could be a future sale and is worth receiving a personal invitation to come back and see your product when your display is completely set up.
– John Conti, President, Continental Covers

 

Or when you are within the boundaries of your exhibit:

 

No matter if you are in the booth or not, any time you spend at the show dressed in your company’s attire – you represent your company.  This includes your breaks, lunch etc.  I have made many quality contacts while on lunch or in the break/smoking area, just by initiating regular conversation.  This leads to the inevitable question: “What does your company do?”  I always use this as an opportunity to invite people back to our booth.
– Kris Magnotti, Hahn RaceCraft

 

The theme of creating an inviting and comfortable environment for your guests runs consistently through all the readers’ tips about booth staffing.  The thought is nicely expressed by this reader:

 

Make sure to dress appropriate for the conference or show – too dressy or too casual may not work for the type of show you are at.  You want your attendees to feel “at home” in your booth. Remember to always invite attendees into your booth with a warm smile and friendly greeting; the rest will take care of itself if you are prepared. Just be yourself, relax and remember its okay to have fun. We always have a big jar of chocolates in our booth – no one can resist!  We find it’s a great way to start a conversation.
– Jan Wyatt, MECO Engineering

 

We close with another sentiment that has been expressed by many people who have sent us their thoughts about succeeding on the show floor:

 

Love what you are selling. The client or customer can tell if you are faking it. Be knowledgeable about all areas of the business, not just your product. You never know what questions you might be asked.
– Kate Getty, Stephens College

 

 

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