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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.

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If you have to wait up to 3 months in order to be paid by Medicare / Medicaid, read the article below to find out how invoice factoring can help you get access to the money in only 24 hours.

It’s clear that with the current economical climate, almost any medical office will go through cash flow problems sooner or later, and these problems can occur even if your medical-related business is growing. And when this happens, many medical office owners will usually try to get access to a business loan, or maybe to a business line of credit.

This sounds like a good plan, but there are quite a few drawbacks. First of all, getting a loan from a bank has become a tedious, time consuming task that doesn’t end well most of the time; in fact, an official report from the SBA administration shows clearly that small business lending has decreased significantly during the last year. And even if you would get a loan from a bank, these loans come with set limits, so if your medical business grows, the loan might become useless because it can’t cover the values of your invoices anymore. This is a key factor that can harm your business, because if this happens, it will be virtually impossible for you to get a new loan for a larger amount of money before paying the older loan.

Medical factoring solves all these problems, eliminating the need to wait for up to 3 months in order to get paid for your invoices and reducing this interval to only 1 or 2 days. It’s the perfect solution for any medical office that wants to solve the cash flow problems for good, offering enough money to cover the payroll, rent, new equipment, and so on. If you have struggled to pay your vendors or your employees, medical factoring offers you a constantly growing financing source – the amount of cash grows automatically, as the value of your invoices grows.

Unlike business loans, almost anyone can qualify for medical factoring; your past credit history really doesn’t matter, as long as you have paid all your taxes and obligations. Getting funding through medical factoring is a very simple process:

- You fax a copy of your claim to the medical factoring company;

- The factor pays you up to 90% from the invoice value right away;

- The factor gives you the remainder as soon as it gets paid by your clients, keeping a small service fee.

With medical factoring you can concentrate on your business, helping it grow to its full potential. Compound Profit offer medical factoring services for companies of any size, so contact us for a complimentary consultation.

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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.

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A client (let’s call him John B.) had a small, and yet successful business; however, even though he was making a decent amount of profit each year, he was thinking to shut down his company for good. If you are asking why he wanted to do that, the answer is quite simple: John didn’t have enough working capital.

John’s business was profitable indeed; he only had a few employees, but since the quality of his products were very high and his prices were very good, his customer list included many high profile companies and even a few government agencies. And I’m sure that you know it: those agencies were buying stuff in large quantities from John.

It all sounded good in theory, but he soon realized that something wrong was happening: at some point, he didn’t have enough money in the bank, so he had to delay a payment to one of his suppliers. A few months later, he had to bring some of his own money from home, in order to take care of the payroll. Finally, he chose not to bid for a major government contract because he wasn’t sure that he will be able to fulfill it. He was still making a lot of sales, but something was preventing him from having enough money in his bank account.

John was a “real” entrepreneur, so it didn’t take him too much time to figure out what the problem was: his clients were paying the invoices in 30 days or more, while his suppliers were asking for their money in 5 to 10 days. In addition to that, John had to pay his employees twice a month, and this was denting his bank account quite a bit, preventing him from getting more business.

Fortunately, the solution to John’s problems was very simple: invoice factoring. Through factoring, John is now able to cash his invoices in less than 24 hours, so he is able to pay all his suppliers and meet the payroll in time. The process is very simple: whenever John sends out an invoice to one of his clients, he faxes a copy of it to the factoring company, which gives him up to 90% from the invoice value right away. The invoice factoring company then waits until John’s client pays the invoice and then sends him the remainder, keeping a small fee for its services.

This story has a happy end: John’s company is now thriving. He was able to confidently bid and win a huge government contract, knowing that through factoring, he will always have quick access to the needed cash. If you are facing similar problems, Compound Profit’s Advisors have created customized solutions for each business owner, so make sure to contact us for your free consultation.

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It might surprise you, but very few business owners try to get loans from the banks these days; they have learned (the hard way) that the banks are much more reluctant to give away money to small businesses, especially if they’ve just been founded or if they don’t have a strong business credit value. We can’t put all the blame on the banks, though; they were hit hard during the last few years, so they aren’t willing to take more risks these days.

Fortunately, other financial institutions are willing to take on higher risks and they are thriving nowadays, because the small business owners will always need funds, be them for inventory, business growth, and so on. In fact, the capital that they are receiving today might make THE difference in ensuring their success tomorrow.

Take working capital factoring for example; it’s the process of turning your accounts receivable into working capital or plain, hard cash to cover all your company’s expenses, no matter what they are. You send the factoring company the existing or ongoing invoices, receiving up to 90-95% of their value right away, depending on the amount of money, the risk taken by the factor, etc. The remainder of the money will be sent your way as soon as the factor gets the money for your invoices and the factoring company will keep a small percentage from the value (1...2%) for its services.

No matter if you want to meet shorter or longer term goals, working capital factoring is a great solution, because the funds that are at your disposal grow instantly, as your company grows. Try to get that kind of service from a bank! No matter if your company is expanding or if the clients are paying your invoices way too slow, a factoring company can get you the needed working capital in less than 48 hours.

Unlike the banks, the alternative financing companies have the liberty of tailoring their financial solutions, adapting them to their clients’ needs. This is all good in theory, and yet many factoring companies only offer a small variety of options when it comes to working capital factoring. We at Compound Profit understand that each business is unique, so we assign a highly trained account executive to each one of our clients, helping them get the most benefits out of our highly customizable working capital factoring solution. And the good news doesn’t stop here: our consultations are 100% free, so don’t hesitate to contact us.

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Working Capital Factoring – the basics

The banks don't give out loans as easy as they did in the past, so many small business owners try to get the working capital they need through various sources, including loans from relatives,  friends or even by getting personal credits and thus lowering their personal credit score.

Working capital factoring is fortunately one of the best solutions to the problem, even though few people really understand it. Working capital factoring provides instant access to money, allowing the business owner to secure the funds even if his / her business credit profile isn't optimal; in fact, through working capital factoring their business credit profile will become better and better, because each transaction will be reported to all the major credit bureaus.

But what is working capital factoring, you might ask? It's a system that allows the small business owner to sell the company's business to business invoices to a Factor, a company that pays the small business owner up to 90% of the invoice amount (sometimes even more!), and then cashes in the invoice and pays the reminder to the small business owner, keeping a small processing fee, usually in the range of 1...2%.

Unlike banking institutions, the Factor doesn't care about your business credit value, but about your customers' credit strength; you can thus get access to your funds immediately, purchasing the needed equipment and / or taking care of other business expenses. Contrary to what most business owners might think, working capital factoring isn't a tool for failing and / or desperate business owners, but a natural choice, especially for companies that are growing fast and don't have the time to wait for 30, 60 or even 90 days, until their clients pay their invoices, because they want to invest the money back into their business as quickly as possible.

Working capital factoring has a great potential to solve the problems for most small business owners, and yet few people know about it and use it. Nevertheless, if you have read this article, you are one step ahead of your competitors now :)

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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

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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.

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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

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