Compound Profit Blog

Factoring, also referred to as accounts receivable financing, is the process by which a company sells its outstanding invoices or accounts at a discount to a finance company which then assumes the risk associated with the accounts in exchange for immediate cash. In this instance, companies are essentially trading future earnings potential for the ability to immediately obtain cash to finance separate projects or cover different expenses.

The particulars of the financial agreement vary depending on the nature of the account and on the nature of the financing institutions personal policies and guidelines. In most instances, the financing company will charge a 5% fee associated with the proceedings, which, may or may not be less then other comparable financing options. Additionally, every account has a value assigned to it on an individual basis. Basically, the lending institution will assign a higher base value to an account relative to how recently the account has been opened. For many small businesses, financing of this form offers several benefits.

Manage Collections.

Many small businesses lack the resources necessary to properly pursue and manage collections. This form of financing allows companies to continue normal business operations while only suffering a minor loss on specific accounts. Though factoring companies are often uninterested in purchasing accounts greater than 90 days past due, most accounts will qualify for financing.

Free Up Capital.

For companies involved in the production process, a majority of their working capital is connected directly to their inventory levels. In the event that a customer wishes a delayed payment schedule, smaller operations are often left facing extended downtime between the completion of an order and payment collection. Factoring allows companies to minimize downtime while maximizing capital liquidity levels.

accounts receivable, accounts receivable factoring, accounts receivables, factor, factoring, financing, receivable finance, receivables accounts receivable, accounts receivable factoring, accounts receivables, factor, factoring, receivable finance, receivables

accounts receivable, accounts receivables, small business credit, small business financing accounts receivable, accounts receivables, small business financing, small business credit

It is not unusual for small business owners to encounter issues with cash flow. In today’s economy, the business owners customers are often in a slow-pay cycle and are often paying invoices much later and this can cause a cash-crunch for the small business owner.

Banks that were making micro-loans for payroll, taxes, supplies, equipment, etc, to the business clients are now declining loan requests due to the economy, which further constricts business cash flow.

With banks now declining loan requests and even capping credit lines and with customers in a slow-pay status, many small business owners are seeking alternative financing solutions for their business cash flow situations.

A solution that business owners are embracing more often now is Invoice Factoring. Invoice factoring or receivables financing, has been around for literally hundreds of years, but not known by many small business owners. The reason that they are not familiar with Invoice Factoring is that their banker does not reach out to them and offer this solution and educate them as to the viability in relieving cash flow problems. Many banks do not offer Invoice Factoring at all. The banks that do offer factoring are only offering it as a solution to their very largest business clients that are factoring hundreds of thousands of dollars of invoices every month, week or even every day. With smaller billing volumes, most small business owners do not qualify for their bank’s factoring program (if offered at all by the bank). As such, no one from the banking community is calling on the small business owner to educate them about the benefits of Invoice Factoring.

However, the good news is that there are alternative Invoice Factoring companies (called Factors), that specialize in factoring for the small business owner. They actively factor invoices for small business owners all across the country. Some factors specialize in small monthly dollar volumes in the $10,000 to $15,000 range. Others seek volumes with minimum billings in the $25,000 to $100,000+ per month. All small factors can/will syndicate with other larger factors if the business client grows their billing volume beyond their funding parameters.

Invoice factoring will help grow the business… and then provide more cash as the business grows. The more invoices proffered, the more cash available in as little as two working days.

The valuable benefits of Invoice Factoring are …

1. The factoring decision is based on the credit history of the business owner’s clients, not the business owner.
2. Factoring is off-balance-sheet financing and does not add debt to the business financials.
3. Factoring will improve the business credit rating of the company.
4. Factors can often assist companies that are in a work-out situation.
5. Factors can often assist companies that have tax liens if the taxing agency will subordinate behind the factor.
6. Factoring provides cash-in-hand that the business owner can use to get cash discounts, and volume discounts from suppliers. These cash and volume discounts will often offset all or part of the factoring costs.
7. Factors often work with Purchase Order finance companies to facilitate large orders that the business owner would otherwise not be able to bid on.
8. Factoring offers an opportunity for the small business owner to compete for larger deals where the customer demands payment terms.
9. Once approved by the factoring company, business owners can accelerate their cash flow as often as they like simply by submitting invoices for processing.
10. The initial approval process takes 7-10 days, not 2-3 months like a bank… and funds in 24 hours as needed.

General Factoring is done for all types of manufacturing and service companies. There are also specialized factoring companies that will factor Medical and Construction Receivables.

Summary …
Is Invoice Factoring a solution for your company? If your company is providing goods and services to other businesses or to government entities such as municipal, county, state or federal agencies, your business is a good candidate for invoice factoring. So, if you are faced with cash flow needs, you can relieve that problem by accelerating cash flow with invoice factoring. Invoice factoring will also allow you to extend credit terms to your best customers in these trying economic times and thereby continue to grow your business.

Robert Jacobs is an Account Executive with Compound Profit. Mr. Jacobs helps small to medium size business owners get capital for growth and cash for operating expenses… when the bank has to say no. Visit his web site at http://www.cprofitrj.com/ for more information. He can also be reached at (877) 386-3716, ext 134 to learn more about Compound Profit’s SMART CAPITAL ADVANCE™ Invoice Factoring solution for business owners and for bankers.

accounts receivable, accounts receivable factoring, factoring, invoice factoring factoring, accounts receivable, accounts receivable factoring, invoice factoring

Almost any business owner dreams at having contracts with the government; nevertheless, these dreams can often turn into nightmares, because those high ticket clients are used to paying their invoices in 60 days, and sometimes even more. So you end up being happy because you’ve won a big contract and you know that your customers will pay the invoices in the end, but at the same time you know that you have to manage the company finances with extra care until they do that.

Sadly, it’s not only about your company: your suppliers demand payment for the goods and services they’ve provided, your employees demand their salaries, you need to pay the taxes, and let’s not forget that your family’s needs must be met as well. And as all of these things start to pressure you, the intial dream looks more and more like a nightmare.

Most small and even medium sized companies go through this struggle, because most of them are unable to get a business loan under good terms. And even if they manage to get a loan that covers their immediate needs, they can’t apply for fresh loans again and again, as their company gets more and more profit-producing orders from the big clients.

Factoring the account receivables is definitely the perfect solution for all the companies that have slow paying customers, no matter if they have just started their activity or if they are well established businesses. With accounts receivables financing you can regain peace of mind, so the future will look bright again.

But how does account receivable financing work? This financing instrument, also known as factoring, regards your invoices as precious assets – which they actually are! The factor will give you money in return for your invoices right away, and then it will wait until the slow paying customers take the time to pay them. Accounts receivable factoring allows you to exchange your slow paying invoices for cash, with a service fee rate that’s usually a few percentages from the invoice value, and can go even below 1% for low-risk invoices.

If you are interested in running and growing your business, accounts receivable financing (factoring) is definitely a good solution, especially if your customers have a good business credit record. Contact us for a complimentary consultation and we will help you choose the best financing options for your company.

accounts receivable, accounts receivable factoring, accounts receivable funding, accounts receivables accounts receivables, accounts receivable, accounts receivable funding, accounts receivable factoring

Many small business owners have experienced this: you go to the bank hoping to get a loan for your business, and after they look through your paperwork you get a polite “sorry, we can’t help you”. While some of the entrepreneurs might take it personally, this is just the bank’s way of saying “you pose a great risk, so we are afraid that we might lose our precious money”.

Things change dramatically when you use an invoice factoring company, though. The factor isn’t interested in your paperwork, but in your customers’ financial strength; if they are solid, you won’t have any problem getting upfront money for your invoices. It’s true, the bank sees your accounts receivable as being financial assets as well, but it doesn’t want to use them as a guarantee because of the long waiting terms that can sometimes go up to even 4 months; however, the factor is ready to purchase your invoices and wait until it cashes the money.

Now why would the invoice factoring company take on a higher risk? To begin with, the risk isn’t that big, especially if your customers are in a good shape from a financial point of view. It’s all common sense, you would say, but try and tell that to your banker! And then, the factoring company wants to stay in business, while the banks appear to have lost their desire to work with the small business owners. I would also add the fact that the factors are used to dealing with some of the toughest clients, so they have much greater chances to collect the money from them than you do.

Defaulting on a bank loan can make you lose your business; the consequences are much less dramatic even with recourse factoring, and even if your customer didn’t pay the invoices to the factoring company. It’s clear that we are still going through troubled economical times this year; fortunately, the constantly evolving business environment offers great opportunities for the entrepreneurs that can adapt their business financing strategies to the actual parameters of the economy.

Invoice factoring is a business that exceeds one trillion dollars across the U.S.A., being used by hundreds of thousands of companies, regardless of their size. Compound Profit offers invoice factoring services with rates that start at only 0.75% from the value written on your invoices, so contact us for a free consultation.

accounts receivable, accounts receivable factoring, factoring, invoice factoring, financing factoring, financing, accounts receivable, accounts receivable factoring, invoice factoring

Liquidity.  Such a key component to success. It is not enough to provide a great product or service at an attractive price.  To grow and prosper you have to have cash, and even your best customers probably won’t turn it loose to you quickly enough.  That is where factoring comes in.  Use your own cash!  Just because someone else is holding it shouldn’t stop you!

By factoring with Compound Profit, you get immediate access to your cash which happens to be in a customer’s bank account (or maybe your customer’s customer’s bank account!).  Factoring is the tool whereby Compound Profit will purchase your qualifying receivables at a small discount, remitting most of the funds to you NOW, so you can use it.  Buy more inventory.  Get better terms or a discount on what you buy by paying cash.  Bid on that big job, which is profitable but you know the customer pays slowly.  Don’t let the lack of working capital hold you back.

Factoring can also be used to dig you out of a hole. You already had a line with the bank, and then things slowed down.  You are in default, and if you only had some cash, you could grow again, pay the bank, and start to make money again.  But since you are in default, NOBODY will loan you money.  Use factoring and the experience of a Compound Profit advisor to escape.  Your profit advisor can work with the bank to establish a payment schedule for the loan, to be remitted directly to the bank from the factoring proceeds.  That will give the bank comfort and your business the liquidity it needs to grow.

So, don’t go to the bank for cash.  Use YOUR OWN  cash to grow and prosper! Not sure about this?  Contact us today and learn more.

Reynolds Dods, rdods@cprofit.com, 877-386-3716 x240

Compound Profit Eastern Pennsylvania / Southern New Jersey

accounts receivable, accounts receivable factoring, factoring, invoice factoring factoring, accounts receivable, accounts receivable factoring, invoice factoring

The need today in small business: working capital through account receivable funding

In today’s business climate, there are really only three ways to get working capital: debt, equity, and what has been called, “Do It Yourself Financing.” Depending on your strategy and business cycle, any one of these might be right for you. Here are some pros and cons of each.

Debt

Debt requires a bank or funding source to lend money. On the positive side, it is relatively cheap. On the other side, it is debt and as such, the loan will show up as a liability and make future requests for funding more difficult. A loan requires a substantial amount of paperwork and personal time. Then, it takes time for the loan committee to review your request. If approved, you will make regular monthly payments over the term of the loan. A critical issue right now is that banks are most often unable to make business loans because of the regulations imposed on them. This is a key reason why working capital has all but dried up for today’s business owner.

Equity

Equity is provided by investors who get part ownership of the company (and the profits!). There seems to be a great deal of capital available these days as investors are looking at areas other than the stock market to increase their ROI. However, they often want a certain measure of control. In the long run, equity funding is very expensive - especially if your company does well. If it does not do well, equity funding can lead to loss of control of your company. Suffice it to say, “Angel Investors” require a huge return on investment.

Do it yourself – Account Receivable Funding

To qualify for this type of financing, a company must be involved in business-to-business or business-to-government commerce and have accounts receivables (AR). In either of these scenarios, the company sells their AR to a ‘Factor’- like Compound Profit - who buys the company’s AR at a small discount. The Factor pays the company and then collects the funds from the company’s customers.

Some of the positive elements of such transactions include:

- Needed capital is available quickly (no waiting for payments);

- No debt on the balance sheet;

- No qualifying based on the business or owner credit;

- No loan committees;

- The factor will check the credit of your customers at no charge.

Account Receivable Funding is a great way to maintain control AND have substantial cash to grow your business. This immediate cash can be used to pay suppliers, get discounts on current or future purchases, hire more staff, or pay for materials for future orders.

To be eligible for Account Receivable Funding, a company must deliver a product or service to credit worthy customers (which can include the government). Once the product or service has been delivered, the company can submit the invoice to the factor for immediate payment. Payment usually occurs in 48 hours or less. Compare that to 30, 60, or more days for payment!

Account Receivable Funding, although relatively unknown, is a wise way to build a business without incurring debt. Doing it yourself, using the funds and expertise of a Factor and their advice can radically change the trajectory of your business.

For more information on Account Receivable Funding feel free to contact:

Doug Linder, Owner / Advisor, Compound Profit Tampa Bay - dlinder@cprofit.com

http://www.cprofit-tampabay.com  / Phone: 877-366-3716 Ext. 218

accounts receivable, accounts receivable factoring, accounts receivable funding, accounts receivables, factoring, working capital factoring, accounts receivables, working capital, accounts receivable, accounts receivable funding, accounts receivable factoring

As I meet business owners at networking or social events within the Washington DC Metro area and tell them about what we do, the first thing I state is that Compound Profit is an “Alternative Business Financing” solution provider to the small business community. The first question that usually follows is… ”What is Alternative Business Financing?”

So what is Alternative Business Financing? In today’s tight economical times when traditional banking institutions have stopped lending money to small businesses and have slashed lines of credit by 30-50%, the small business owners must look at “Alternative Business Financing” solutions or tools to stabilize and grow their business. That answer makes sense but usually does not make the proverbial “light bulb” go off. So these are examples of Alternative Financing Solutions that are available to the small business owner to help them grow and expand their business:

• Accounts Receivables Financing – Factoring, as it is most commonly referred to, is the practice of selling a company’s customer invoices (B2B invoices) to an authorized 3rd party (otherwise known as the Factor) and they will advance your company up to 90% of the invoice amount, collect the money from your customers, and then refund you the remaining 10% minus their processing fee. Unlike banks or other lending institutions, these companies do not lend based on your credit, but focus mostly on your customers' credit worthiness and / or strength in repayment. This is a great way for businesses to better manage their cash flow, purchase needed inventory, or cover operating expenses. There is no need to wait more than 30 days to be paid by your customers when you could take that capital and generate even more revenue for your business in only a few days. Our Smart Capital Advance program is an example of this type of solution.
• Friends & Family - If a bank is not willing to give you a loan, sometimes friends and family are more than willing to provide you the initial seed money or working capital for your business. Usually, friends and family can be the best source of financing because they know you well, and understand the social consequences of you failing to repay their investment.  However, sometimes it is best to keep business and personal relationships separate; otherwise, you risk to ruin those personal relationships. If you do move forward with getting financing from friends and family, make sure that you get all agreements in writing, even if your family members insist that it isn’t necessary.
• Purchase Order Factoring / Financing – Similar to Accounts Receivables Financing, Purchase Order Financing is the advance of funds to a company, based on the amount of the purchase order, so that the company can fulfill the purchase order. Purchase Order Financing is a solution that enables small businesses to go after and fulfill large orders. When used correctly, this can enable you to grow your company quickly. As opposed to bank financing, purchase order funding does not rely on your business credit profile, but rather on the financial strength of your customers. In other words, if you sell products to large companies or to government entities, purchase order funding can be a great way to finance those sales. To qualify for purchase order financing, your company must sell products. An ideal candidate for this type of financing would be a product reseller or distributor who is buying products from a supplier and then shipping the products to the client. Purchase Order Factoring is one of our core solution offerings as well.
• Angel Investors - Angel investors are private parties, and sometimes businesses, that invest their own funds into selected businesses. The angel investor becomes, in essence, a stockholder in your company, and is as concerned about your business' success as you. Each investor establishes his own guidelines, application methods and standards.  Angel Investors do require a fair amount of documentation (i.e. business plan, sales forecasts, sales and marketing plan) before they will invest any funds. In addition to that, the business owner must be willing to give some equity in the business to the angel investor.
• Merchant Cash Advance - Merchant Cash Advance programs grew from accounts receivable financing solutions. Merchant Cash Advance is a financing solution based upon the merchant’s future credit card sales. Specifically, the lender purchases a portion of the business' future credit card sales at a discount, the rate of which is generally based on the business' sales volume and history. In order to receive a cash advance, a business must be operating for a minimum of three to six months and must process a minimum amount of credit card sales (around $3,000 a month). Many lenders provide a short online application that can be reviewed within 24 hours. After approval, most lenders can send the money within a week. The merchant will receive all the money, while the lender collects a fixed daily percentage of the business' credit card sales until the debt is paid in full. Our Merchant Card program is an offshoot of Merchant Cash Advance programs within the industry.
• Peer-to-Peer Lending - With peer-to-peer (P2P) lending, the financial transaction occurs directly between individuals or "peers" without any involvement of a traditional lending institution. Companies such as Prosper.com monitor an online marketplace where borrowers post their loan requests and are connected with lenders who "bid" on the chance to finance the loan. P2P business loans are usually limited to $25,000, and if you default on your P2P loan payment it can negatively affect your business credit profile.
• Equipment Leasing – Leasing vs. Purchasing is a question that small businesses ask themselves every time they need equipment. Leasing offers many benefits over actually purchasing the equipment. For example, leasing does not require large down payments of cash, which can be put to better use inside the business to pay for current operating expenses. In addition, some leases allow customers to expense 100% of each monthly payment, thus resulting in a real tax benefit to the customer. We offer many types of leases: Small Ticket Leasing, Commercial Leases, and Municipal Leases but this is a discussion for another day.

These are just some examples of alternative financing solutions that are available to small business owners. By using these alternative sources of capital, many business owners will be able to grow their business to a point that they do become creditworthy in the eyes of their financial institutions. Compound Profit is the #1 Brand in Alternative Financing and we have a variety of solutions to help small businesses grow and expand their business.

Anuj Mehta, Regional Director/Principal Advisor

Phone: 877-386-3716 ext. 221

Fax: 877-490-4224

http://www.cprofitdc.com

amehta@cprofit.com

accounts receivable, accounts receivable factoring, business financing, cash advance, equipment financing, equipment leasing, factoring, merchantcard, municipal lease financing, municipal leasing, small business financing, small ticket leasing, working capital business financing, cash advance, small business financing, factoring, equipment leasing, working capital, accounts receivable, accounts receivable factoring, small ticket leasing, municipal lease financing, equipment financing, municipal leasing, MerchantCard

Business lending solutions – who can help?

I have heard the question asked lately “when will banks start lending to small businesses again like they used to”.  The answer I hear from many recognized experts on the subject is “probably never.”

Now before you cringe, stop and think about this for a minute.  During the bull markets of the 80s and 90s, when our economy was supposedly sound, money was relatively cheap and easy.  And while some may have seen these as the “glory days”, in truth it did nothing more than mask some bad decisions and practices by both borrowers and lenders.

We saw people pour money into the stock market without any thought as to the instruments they were buying.  The thought process was their money would continue to grow at ten to twenty per cent a year and their retirement strategy was built on this myth.

We all know how would be non qualified buyers actually obtained mortgages for homes they could not afford, putting nothing down and paying interest only.  How’s that working for us?

So it is easy to point at the banks today and say “see what you did”.  But the fact is there is plenty of blame to go around.  Just like an uneducated decision in personal investments for many had catastrophic outcomes, so too did the borrowing practices of many businesses.

Loans came easy and the more money one “needed” for their business the more they would get.  Business growing through the roof?  Take on more debt to pay for the inventory.  Your fleet of trucks not as shiny as they used to be?  Take out a loan and buy some more. Money was cheap and money was easy.

But were those the good old days?  Not at all! Today the business person must be calculating and intelligent about how he or she finances the business.  With banks lending practices significantly altered, the popularity of alternative financing is booming and financial instruments long overlooked are moving into the forefront.

Take AR factoring for example.  Often viewed as a tool for less successful or desperate businesses, now thriving companies are leveraging their invoices for growth.  By selling their receivables to a reputable third party for a discount, these businesses now have cash in hand to invest back into their business without taking on additional debt or selling a part of their business.  Born out of necessity, this practice is proving to be a far better alternative to high growth companies.

Leasing and micro-leasing is also becoming more and more prevalent. Businesses, in order to survive, are looking to protect their cash reserves.  By leasing equipment, signage, or any asset they can they are able to take full advantage of available third party money to grow their business.  Even if the rates are higher, if an investment in an asset shows a positive return (say a new truck) the prudent owner is leasing that product.  As long as the return on the investment is greater than the cost of the lease, it is a wise choice.

Of course positioning yourself properly is always the most important way to secure the financing you need.  Know your numbers, have your house in order, and be able to articulate your needs.  As a start up, try to keep six to eight thousand dollars in your account for six consecutive months to give lenders the confidence you can repay your debt. 

The bottom line is funders, as investors, do not want risk.  They want a guaranteed return on their money.  The better job you can do to assure them their investment in you is safe, the better you will be at attracting the financing you need for your business.

Alex Cherlin is a Cash Flow Expert with Compound Profit of Virginia. Contact him - acherlin@cprofit.com - for more information.

accounts receivable, accounts receivable factoring, accounts receivable funding, accounts receivables, business financing, equipment financing, equipment leasing, factoring, line of credit, small business financing, working capital business financing, small business financing, factoring, accounts receivables, equipment leasing, line of credit, working capital, accounts receivable, accounts receivable funding, accounts receivable factoring, equipment financing

Small business loans stimulus – will it work?

There may be some relief in sight for small businesses across North America. If the U.S. Senate passes the Small Business Lending Bill, a 30 billion dollar fund will be allocated for small business loans stimulus. This will hopefully spur a rush of new lending inquiries from the small business community.

While funds may become available, there is no indication that the regulations imposed on banks recently are going to be eased. I spoke with a banker today about this, and he stated clearly, “No way”. These regulations have forced banks to look closely at every request for capital. Any minor issue a business owner might have could be cause for a rejection on the small business loan request. Thus, it does not appear that most small businesses will benefit from this move.

B2B Companies needing working capital should consider Accounts Receivable Factoring. It is a viable option that frees the business owner from the requirements of loans and lines of credit, and allows them to get the funds they need much sooner without the paperwork, loan committees, and delays. Requirements do not depend upon funds in the bank or the credit of the business or the owner; rather, the credit worthiness of the company’s creditors is the key to becoming fundable.

Accounts Receivable Factoring involves Compound Profit purchasing a company’s accounts receivable at a small discount. Funding occurs quickly; most of the time, the entire process can be completed and funds allocated within 10 business days. As part of the process, the creditworthiness of the company’s creditors is checked. As funding continues, Compound Profit will check creditor’s credit on an ongoing basis allowing the business owner to be the first to know if a creditor is having problems.

Following are some of the industries Compound Profit has provided working capital to through Accounts Receivable Factoring:

- Produce

- Graphic Design

- Cleaning                   

- Transportation

- Garment

- IT Service

- General Contracting

- Maintenance Supply

- Marketing Consultant

- Oil Field Service

- Import / Export

- Manufacturing

- Staffing 

If you own a company that does B2B or B2C commerce and want to know more about this powerful tool - accounts receivable factoring - that allows you to grow your business, you should consider calling us so we can get you the cash you need to radically change the trajectory of your business.

Doug Linder - dlinder@cprofit.com

Advisor / Principal - Compound Profit-Tampa Bay

877-386-3716   Ext 218

accounts receivable, accounts receivable factoring, accounts receivable funding, accounts receivables, business financing, factoring, receivable finance, working capital business financing, receivable finance, factoring, accounts receivables, working capital, accounts receivable, accounts receivable funding, accounts receivable factoring