Factoring receivable – Invoice discounting

This challenging time can prove to be very trying for your business. Turn-around times are slow and nobody is eager to pay. Due to the recent economic downturn, customers are asking for extra extended terms of payment, which additionally constrains your cash flow.

The ever present need to cover your expenses makes you struggling just to make ends meet and you are concerned about your ability to resolve financial obligations. Ever heard or think about selling your companies invoices? It might seem ridiculous idea, but it is possible and is called factoring receivable. Many business owners that sell on credit terms just don’t realize having a hidden asset that can be used to obtain cash on-the-spot. It is as simple as a line of credit based on invoices of your company. Account receivables, i.e. your invoices are sold to factor company and you don’t have to wait for your customers to pay them. The basic benefit of factoring receivable is providing your business with expedient cash flow, and it is based on your current invoice assets. When your business is in a need of efficient cash flow alternative this might be appropriate financial strategy. Now, don’t just jump in blindly. Before taking any decisions you better ask if you are suitable candidate for this method. Getting a general understanding of how factoring companies earn their money is crucial for the future of your business.

Factoring receivable companies do not lend money, but they literally purchase your account receivables, i.e. invoices at discounted price. The difference between the face value of sold invoices and the discounted price you get is fee and is charged by factors to cover expenses for their service. No matter how desperately you are in a need of cash, fee must be deciding during your considerations whether to take factoring receivable agreement or not. Just the thorough calculation where the expenses are subtracted from income can determine your company's net profit. Only fees that are not menacing to your profit margins can be acceptable and good for the growth of your business. Of course advanced cash from your factor may substantially help to your purchasing power. It is true, expanded business results in higher profit margins for fixed costs are not increasing with larger volume of your business. But don’t try to cheat yourself; if your company is not growing and profitable, then factoring does you no good. Only when improved cash flow allows you become more profitable, factoring receivable is the right thing for you.

Check the offering factor companies profoundly and take in consideration the risk of negatively influencing your customer relationship. Looking long-term, you can not afford your customers to be harassed for money. Factors with highest reputation are specialized in collections of your funds in a strictly professional manner, providing your long established business relationships to remain unaffected.They are serving you as your account receivables department, fully managing your sales ledger and all processes related to your invoices. Unloaded of the burden of follows-up on late invoices, monitoring procedure of collection and annoying confrontations with late-payers you may finally be able to concentrate on your business and other matters strictly connected with the growth and expansion of your company.

Factoring receivable – business invoice funding

Companies all over the world seldom faced more difficult times. Nobody is eager to pay immediately, but everybody needs immediate cash. Check over your accounts receivable open schedule and find out by yourself – with numerous past due accounts you are financing your customer’s business. For free. But is there anybody else ready and willing to finance your business at all? No, at least not gratuitous. Because of the lack of cash stability you might start facing difficulties to cover ever present expenses, to meet increasing demand or just any other day-to-day operations. When liquidity crisis impacts the rising course of your company, missing important business opportunities might be crucial for your growth or even survival. With this kind of struggles you might easy run into troubles even if your business is profitable and tends to grow. In situations like this you need to look out for additional financial incomes, but you know bank loans are difficult to obtain and the truth is banks prefer the ones that actually don’t need their money.

Considering your options you should see your open invoices in totally different light. The idea probably never occurred to you, but when you sell at extended terms of payment, your open invoices might prove as your company’s most valuable assets. Because out there are many financial institutions that are interested to buy your account receivables. What they do is called factoring receivable and is one of the quickest methods for companies to raise working capital and allows to cash the value of issued invoices now, not weeks or months from now. Looking for a way to convert your sales into cash as soon as possible, factoring receivable might be the answer. Before you get too enthusiastic about it, carefully consider if factoring is right for you and your business at a certain moment. It works in every industry, but it doesn’t work out for every business. As every financial strategy, factoring receivable comes with a certain price. Always take your time before you jump and ask yourself if it is room for such expenses in you pricing.

Do not ever allow related fees to gobble profit margins. If you state for sure that the nature of your business can afford additional charges, go on and look for a reliable factor that will handle your affairs in highly professional manner. In factoring receivable business your factoring partner controls your sales ledger and is managing the entire process of your account receivables, including monitoring of the collection procedure. Your new "account department" takes over even confrontations with your customers and it is of extreme importance that the relationship between you and your customers remains impeccable. To verify if you are good candidate for factoring, you will have to open your books to outside scrutiny. Unlike banks, factors are utmost interested in paying habits of your customers. Through a selection process they too choose the ones that are most probable candidates to pay their debts in a timely fashion. It is highly unlikely to find a factor if you have a high percentage of deadbeat customers. Speaking of this, every factor's main mission is making money. Stand firmly in process of negotiation and fight for every possible percentage in determination of your fee. Factoring receivable is quite simple financial transaction where you sell your accounts receivable in exchange for instantaneous cash to finance continued business or cover payments on daily basis. Because the factor's profit is a bite out of your return, cautiously calculate the line where the expenses are subtracted from income, to determine your company's net profit with certainty.

Factoring receivable? Let’s do some math...

To ensure a healthy growth of your business and the bright future of your firm one of your most important tasks is the one of providing current and steady cash flow. Nowadays for several known reasons and in addition because of general liquidity crisis even most reliable customers tend to extend the most accommodating terms of payment, causing cash shortages also in relatively sound and stable businesses. In spite of increased sales less and less money is coming in, always late, thus hard expected and needed. It is true, there is no completed sale before the money is in the pocket. In times we are going through, the lack of financial discipline could easily endanger the strongest business, for not only the real value of money is wasted; current struggles to make ends meet can brings the company on its knees. Paying bills on daily or weekly basis can simply turn into the mission impossible if the money is too tight because of the outstanding invoices.

Getting a bridging bank loan that banks are lending for short time can prove to be too complicated, requiring a lot of paperwork and a slow turn-around time. The decision of the bank will be based on your creditworthiness. For several reasons it could easily happen that you are not able to qualify for a classical bank loan. In cases like these you should explore other options. One is quite different method of providing funds based on the money that is sure to be coming in. It is called factoring receivable and can be a sound solution when you are looking to resolve the always present need for fast money. Factoring receivable means literally selling issued invoices to financial institution which collects the payment for your benefit. What you get is the face value of your account receivables, minus discount charged for advantages of instantaneous cash.

Can you imagine your open invoice settled in within even twenty-four hours after being issued? In general you get eighty percents of the amount immediately; left-over called »reserve« is paid to you once the amount due on account receivable is collected. It comes reduced for fee as settled in process of negotiation. When deciding for or against factoring receivable every business must thoroughly considerate the costs of factor against the inconveniences related with cash flow deficiency. And estimate the price of missed sales opportunities. It is recommended to calculate the costs of the funds paid to factor per month and compare it with possibility of having the cash in hands to produce higher percentage return. After all, what a return can a business generate when having an order but is not able to fill it because of the lack of supplies, working power, materials etc.? Taking advantages of early payments to your suppliers and the use of volume discounts makes you more competitive and puts you in the better position on the market, making you more enterprising and successful than others. And instead of early payment discount you can offer more popular and required extended paying terms.

Yes, the factoring receivable might a be wise alternative, offering you to fully manage your sales ledgers. Factoring receivables firm is directly interested in following up on your invoice to excite payments in timely fashion, saving you headaches on account of confrontations with your customers. Search thoroughly, ask advice and take your time to find a reliable partner for factoring receivable; the one that value professionalism and follows only what is best for you without compromising your best interests just to do a deal. 

Factoring receivable – fresh capital without any debt

Every business depends on steady source of working capital. How to survive waiting thirty, sixty or even more days for you customers to pay, is a tricky question. Besides, collecting outstanding invoices takes time and keeps you distracted while you are trying to focus on your primary business, not to mention how unpleasant can be tracking down overdue invoices and confronting your customers with ill paying discipline. You are determined to concentrate on your business, but the cash is short and cash flow of your business weak. There are always unpredictable expenses in your business and you just can't afford new debt. Perhaps you are thinking about partial sale of the ownership of your company. Don't. There is another manner to put your hands on immediate money without annoying difficulties related to bank loans and complicated paperwork.

It is called factoring receivable and it is a way to maximize the cash flow of your business. It is quick, accessible and flexible. It can arrange money for when your business needs it the fastest and easily. Many companies never see their account receivables in the light of their company's most valuable asset. In fact, there are financial institutions called factor that are interested to buy them, paying you with instantaneous cash. What you get is, at first, immediate advanced amount of all your account receivables sold. The difference, called reserve, is coming to you when your buyers pay total amount of invoices in question, less fee that is associated with the transaction and is determined during negotiating process. Although factor will ask you to show your books openly for thorough inspection, it actually doesn’t care much about your credit score. What are fundamentally interested in are your buyer's paying habits. Unlike traditional bank loaning, factoring is based upon your customer’s creditworthiness, not yours.

Even if your company's credit is not yet established or is poor due to general liquidity crisis or other reasons. The essence of this financial strategy is that it remarkably speeds up the time in which you get the payment, i.e. your money that would eventually come in. It can help tremendously with extended terms of payment that your business partners expect and demand. Yes, factoring is one of the fastest sources of financing, but it comes with some baggage, of course. Expenses can be significant thus considered with required attention. However, the opportunity cost of losing a return on the cash that a business could otherwise invest must be carefully balanced against the costs of factoring. After all, it really isn't a classical bank loan, but an asset based lending.

Via factoring receivable your company can take comparative advantage of supplier volume discounts and early payment. Volume purchases can surely substantially pay back with discounted price, giving you additional room in your calculation for factoring expenses. Without worrying about off balance sheet, as it is not a loan and it doesn't represent no debt for your company. Besides, if you choose your factoring receivable partner carefully, it will act as your account receivable department, managing not only your sales ledger, but the entire process related to your receivables. Just performing follow-up on your late payments can be well worth some additional expenses, not to mention reliable credit checking services on your existent and new customers, simplifying and improving your decisions what terms to offer. Decide deliberate for factoring receivable company with impeccable reputation, well known as professional, fair institution and never ask for less than having your best interests at heart. After all, what else can be better for your factor than what is best for you?

Factoring receivable – Prompt cash yes or no?

Just a quick glance at aging schedule of your accounts receivable tells you the high amount of accounts far over 30 days. Do you know you are offering free credit to those customers? Yes, they actually use YOUR money for free, while your company might be short of breath because of the cash shortages. And you do know, don't you, that you will have to get the bank loan to get the money for pay rolls or the money you owe your suppliers or the money you owe to your bank (including interests)... There are endless needs, to expand your business, to finance new investments, finance a start-up operation, marketing promotions, anything related to your business, besides current expenses on daily basis. So do you ask yourself what is the true cost of not having these funds available? And what all are you giving up to in missed opportunities when your funds are tied up in your invoices? 

Providing a stable and predictable cash flow is of the highest significance for the success and stability of every business. When your money is in hands of your buyers and you are facing liquidity crises, factoring receivables might prove as a right opportunity to turn your invoices into immediate cash. If you want to put at end your customer’s expectations and demands to finance their business by extending terms of payment to thirty  and in practice usually even more days, consider factoring receivable as an option appropriate for you and specific needs of your business.

Factoring receivable has nothing to do with the way how a bank loan works, with long and complicated way to convince the bank your business is sound and worth of trust. However, it doesn't works without the costs, either. You should count on two types of costs involved in this operation. First, a service charge related to the amount of sales factored and second, an interest charge for the cash advances.  Service charges are mainly determined by your annual output, quantity of invoices and number of customers. Your monthly invoicing volume, average size of the invoice, average number of days to payment, creditworthiness of your buyers, all this facts are taken in consideration before the percentage of fee is settled down. The right answer when you are asking if factoring receivable is for you or not is not only in looking at factoring fee and accompanying costs. It is crucial to find out if and how your business may expand and increase your profits with the help of factoring, converting precious account receivables into cash via third party. Because factoring receivable is not a bank loan, certainly represents no debt in your ledger. In the matter of fact it is your own money that is advanced to you before your buyer is ready to open his pocket and pay the account receivable, i.e. invoice. If you need additional financial injection, your balance sheet looks good and makes it easier for you to obtain classical bank loan. However, never decide for factoring receivable as a way to get immediate cash for your business, before you carefully consider the pros and cons.

It is true, a sale is not completed until you have money in your hands, but there can be also some reasons that speak against factoring. Some customers might understand a factor's name on your invoice as a sign of instability of your business. Also, factor can refuse paying you on past due accounts. Besides, the expenses of factoring are higher than the cost of a short-term bank loan. Like said in the beginning,  when all other options to obtain fresh current of cash are out of the question, do a thorough research to look for a possible factoring partner, consult your banker, accountant and check if anybody you trust has experiences in factoring. There are many companies offering factoring receivable services, and for your peace of mind it is wise to carefully choose the right and a reliable factoring company that fits your business profile and has your best interests at heart.

Factoring Receivable: Ready money for your business

The possibility that you are going to deal with the shortage of cash during your business career is quite probable. It can happen in early days of the start-up, but can also appear later when a need for fresh cash occurs to expand the business, take it to a higher level or simply to cover any kind of investments or expenses on daily/weekly bases. It is wise to search for various ways to ameliorate the existent cash flow of your business and to thoughtfully explore available options.

However, when all other alternatives are used up, perhaps you should think about factoring.

It can get handy to pay suppliers, meet payrolls, add sales and in other emergencies when the wheels of your business are rolling, but the cash is tight. First, get familiar with this method of literally selling invoices, i.e. accounts receivables in exchange for immediate cash. In practice, factoring receivable is financial activity of selling invoices (accounts receivables) with a purpose of obtaining prompt cash. Mostly factoring is simple and quick way of solving a cash flow problem, but it of course always appears with certain expenses. Naturally, factoring company, i.e. the factor is charging a considerable fee to cover its service. Looking from this aspect, factoring proves to be a better short- than long-term decision, but still handy to put your hands on the cash fast and without complications, usually related to efforts get approved a bank loan.

To see yourself as worthy client, a factor will ask to see your documents, firstly receivables, i.e. invoices.

In practice factors actually fully manage your sales ledgers and in order to check how reliable your buyers are, you will have to show them your books. Factors are much more interested in your buyer's financial discipline than yours, but to justify their trust you will have to reveal current financial statement, several reports, invoices and other papers related to your business, all with the purpose to state your real financial position.

Because the factor is going to purchase your accounts receivables, it has to be sure your buyers pay them in a timely fashion. And in reality factors aren't willing to take over just any invoice, but they always look for invoices that are very probable to be paid by the buyer, thus not the ones that are regularly overdue.

The pattern is quite simple. When the factor and you agree upon which invoices it will buy, you receive an advance from the factor. It can vary depending on several matters, but let’s say you agreed on eighty percent of the total amount of account receivables. When the factor receives the payment of your buyer, it will recoup you the twenty percent left, reduced for the fee, of course. Fee charged by factors usually vary, but reckons on the amount of your account receivables, i.e. invoices, creditworthiness of your buyers and to the amount of the time that your collection cycle requires (interests charges). Sometimes, factor will charge additionally administrative expenses like postage, long-distanced phone calls or computer time. However, you can take leave of somewhere from three to seven percent of the total that your factor collects from your customers, sometimes even more. After all, factors are business companies working to comply the same mission as is yours: make money. And perhaps you just don't have enough time to affect timely payment of account receivables; factor surely has. In the world of business, time is money.

No matter how much in hurry you are to get immediate cash for the needs of your business, always consider the pro's and con's of factoring receivable. It can be indeed a good solution, mostly when your really need prompt money and - most important - by taking advantages of the money you know will be coming in. After you apply to a factor and his reviews are over, the money can be on your account in a very short time, even within one day of issuing the invoice. More and more factors provide Internet access to your account and electronic transfer of your invoices to the factor can substitute a lot of paperwork while allows constant monitoring of individual customers and your ledgers in general.

Factoring receivable - short cut to immediate cash

When you are in a hurry to get out of the cash flow shortage, take in consideration the benefits of factoring receivable. Sometimes, the cost of financial service can be well worth the prices if it allows you the growth of your business, start-up of new business operation, marketing campaign or other business moves that requires cash.

As for thousands of other companies it is nothing unusual for you to come to the point when your business is steady and sound, but cash flow problems are giving you headache. Sales is getting better and better, but the common liquidity crises is extending terms of payment and causing the lack of cash you need for essentials like pay rolls, new supplies and other daily needs of an average business. No matter what, your accounts receivable schedule is getting late all the time, and without knowing you are financing your buyers not only with goods they are purchasing, but with your money they are taking hold on as well.

Where can you look for the solution?

Factoring receivable enables you immediate access to the money you know it will come. How it works? Factoring companies like factors, banks and other financial institutions may be interested in purchasing your invoices, i.e. account receivables, giving you instantaneous cash at discounted price upfront. Usually you will get about eighty (or more) percent of the total amount of single or more invoices. The reminder you are getting when they receive the regular payment according the terms of payment from your buyers. In fact, your business is getting immediate cash infusion, and factors are earning determined charges for their services.

They are not charitable, of course, and they can charge you for up to seven percents of the total amount of account receivables, or more. Comparing the interests you might pay for a classical bank loan, it is a notable cost to be carefully considered, but on the other hand it is true hat factoring is a fast and quite simple way for financial expansion and growth that enables you covering expediently all your expenses on daily basis. Some factors are also charging certain other expenses, administrative costs etc. However, with the use of Internet, many costs are cut off. Right because of the agility of Internet technology most processes are accelerated and costs reduced. The majority of paper works can be eliminated by electronic transfers and many factor companies provide on-line access to your account, constant monitoring of sales ledgers and other individual details.

Before a certain factor is ready to purchase your account receivables, it want to establish the financial position of your business at first, thus see your sales ledger, company books and waste kind of documents, related to your business. It surely isn't eager to buy just all outstanding invoices and is therefore checking the creditworthiness of your buyers. In the matter of fact, for every factoring receivable operation paying discipline of your buyers is the most deciding fact. It is quite unlikely for any factor to get in business with you if you have a large part of deadbeat buyers. Besides, factoring may be inappropriate for companies with a low turnover and those with extraordinary number of invoices for small amounts. It just makes too much work and costs for too little money.

In short, factoring receivable can tremendously help with your efforts to quickly cover your lack of cash, but never forget it has its price. You don't have to be afraid of the misconception of your customers that failing businesses turn to factoring as a last help. Healthy companies sometimes use factor receivable, because it can be a very effective short-term solution of collecting your invoices.