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.

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Is the Small Business Lending Plan Really a Good Deal?

The recently rolled-out plan of the Obama Administration has the goal of encouraging greater lending to small business.  The approach is to make more money available to the smaller community banks - about $30 billion.  But will this succeed?  Is this program really a good deal when it comes to small business lending?

Many small businesses and banks don’t think so.  First of all, many of the targeted small banks have ample funds to lend. Capital is not the issue – risk is!  Even though the government is making the capital available, they will of course want it back someday, and if it goes out on a bad loan, well, the bank will still have to pay the piper!  Secondly, like any other government program, this one comes with strings.  The participating banks will have to pay a dividend back to the Treasury, based upon their loan portfolio. 

In concert with this, any government program comes with even greater oversight, additional record keeping and reporting.  Few banks really want any more of that.  And who knows what ‘add-ons’ will come later?  The banks are still smarting from the last bailout, when they were told how much they could pay executives, when they could pay dividends, etc.  So a firm “no thanks” is what most banks are saying now.

And who do these banks loan to?  Small businesses, of course! However, in my conversations with small businesses and bank loan officers alike, businesses don’t want loans now - they want customers!  Banks are seeing very low volumes of loan requests.  Businesses do not want to be extended until things pick-up.  They, too, have bad memories from the meltdown of credit lines being reduced or pulled.  So, businesses as well have no interest in creating debt which may come due much sooner than they expect!!

Still, businesses need access to capital to grow when the customers come knocking.  That is when the services of Compound Profit come into play.  By using Smart Capital Advance small businesses can get cash just when they need it.  And it doesn’t add any debt to the books!  Through monetizing their commercial accounts receivable to create liquidity and working capital, small businesses can raise the cash they need when they need it.  Now that IS a good deal!  No strings, no debt, no additional reporting.  In fact, through using Smart Capital Advance, a business can get RID of irksome tasks-like collecting on accounts receivable and credit checks!

For access to cash when you need it, contact a Compound Profit advisor to learn how our products can help you through these difficult times.

Reynolds Dods, rdods@cprofit.com

Compound Profit - New Jersey and eastern Pennsylvania.

Phone: 877-386-3716 ext. 240 / Cell: 609-289-6256

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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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Factoring Accounts Receivables: Definition, Advantages, Compound Profit - specifics

Factoring Accounts Receivables is the purchase of some or all the accounts receivables that have been completed in various transactions at a discount. From a business owner’s point of view, factoring accounts receivables is similar with improving your cash flow by giving your customers a small cash discount if they pay their invoices much faster.

Compound Profit specifics:

- We work with big companies, as well as small businesses and startups;

- We are very focused on customer service; although we have a national presence, the local offices are independently owned and outstanding customer service is the definition of our success;

- We also provide financing to companies who are in their pre-banking phase of life; they may be valued account holders but they can’t qualify for a business loan because:

a) They have only been in business for a few months or years;

b) They are overtrading / undercapitalized;

c) They have bad credit;

d) They are growing too fast;

e) They activate in a market niche that the banks just don’t like (construction, restaurants, and so on);

f) Any other reason that may cause these companies not to fit within bank’s underwriting guidelines.

We offer several unique financing solutions such as Factoring, Invoice Discounting, Credit Card Factoring and a few others.  So we can help just about any company if they are either invoicing their customers or if they accept credit cards.

Factoring accounts receivables is one of our important funding products; we lead the way in this area, because we can also help retail companies, something that typical factoring companies won’t do. We also offer a very unique service that provides a “use us as you need us” approach.  Any company that uses our services can choose to factor all of their receivables, or just a part of them; this puts them in control of their cost of financing and puts our flexibility into perspective.

We don’t have any hidden costs, we purchase the receivables and we’ll take even small invoices, starting with $1,000; most of our competitors will only take your invoices if their value is at least $50,000.

We take a holistic approach to working with our clients, offering them free consulting, in order to improve their business position and get them to the point where they can get traditional loans.

We work with almost any company who has “business to business” accounts receivables or accepts credit cards. Another thing that sets us apart is that we actually like funding contractors and specifically sub-contractors and restaurants. There’s virtually no one in our industry who likes to focus on these markets.

One more thing: if you choose Compound Profit’s Accounts Receivable Factoring service, the money can be in your account in as quickly as 24 hours.

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Accounts Receivable Factoring Fees Are Often Misunderstood

One common misconception with the accounts receivable factoring fees is that the invoice factoring "discount” rate is an "interest" rate and therefore must have an annual rate of interest. Many business owners incorrectly believe that selling an invoice at a discount from the face value is a loan. Hence, they incorrectly assume there is an interest charge.

“Accounts receivable factoring fees are more analogous to the business owner selling an asset (the invoice) at a discount. The invoice is an asset that the business owner chooses to sell to a finance company at an agreed-upon discount from the face value of the invoice”, says George Douvas, CEO and Managing Partner of Compound Profit of Southern California.

Demystifying Accounts Receivable Factoring Fees

Let's say a business owner has a $1,000 invoice in January and receives 80% or $800 from a finance company in advance. Instead of paying the owner the remaining 20% or $200 when the invoice is paid by the customer 30 days later, the finance company deducts $40 and pays the business owner $160.  Everyone will agree the invoice was purchased for $40 off the face value, or at a discount of 4% for January's transaction.

Let's say this occurs not only in January, but each month for the rest of the year.  In total, the business owner has 12 X $1,000 invoices, for a cumulative yearly amount of $12,000.  A the end of the year, the finance company will have deducted 12 times a discount fee of $40 on each invoice, or a total of $480 per year.

So, in a year, instead of receiving $12,000 from the yearly sales, the business owner receives $11,520.  The $480 discount is only 4% of the total $12,000 yearly sales value.

Many business owners incorrectly assume the annual cost of financing receivables is upwards of 50%, thinking that 4% per month for twelve months = 48% - wrong!

Douvas says “I am often amused when a client says that a rate of 3% for 30 days of accounts receivable financing is too high.  If a client’s customers offered to pay their invoices using a MasterCard, Visa or American Express, would they accept that form of payment?  Most would agree that this method is preferred and are often losing 2, 3% or even more; on top of that, they will be waiting longer for their money to arrive and they receive zero additional services from their credit card processors.” 

Compound Profit of Southern California provides complimentary evaluations of the key aspects of a company’s business and specializes in providing working capital, cost reduction and marketing solutions for businesses.  Additional information regarding CProfit South California can be found at http://www.cprofitofsoutherncalifornia.com

Compound Profit provides working capital and equipment to companies. With decades of experience in finance and business, Compound Profit's team empowers clients with the know-how to make their companies profitable and healthy. Launched in Texas, Compound Profit has expanded nationwide and operates under a successful franchise model. For more information, visit Compound Profit's website: http://www.cprofit.com/

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Just what the world needs: another middle-aged man jumping on the social media bandwagon and starting a blog to talk about improving your business through cash flow... right?

Right.

It seems, after beating our collective heads against many walls in Richmond, Va and pounding our chests to virtually anyone who will listen, the message still hasn't been internalized by many small business owners. There is help out there for your short term cash flow needs and it doesn't necessarily have to come from the bank. It often exists in the unlocked potential of one of your most valuable assets: your accounts receivables.

What's frustrating to many professionals is the number of people who share stories about the demise of their business by saying "if I only knew about alternative financing when I had my business I may have still been in business today."

The beginning of early alternative financing forms, such as factoring, dates all the way back 4000 years to the time of Hammurabi and the Mesopotamians. Yet it seems today about as many people are familiar with factoring as are familiar with Hammurabi and the Mesopotamians.

So here's the deal:

Some businesses find themselves needing capital to grow and manage their business. At times, these businesses are unlikely to obtain a traditional bank loan because of unacceptable debt to income ratios or low personal or business credit scores!

Many businesses, no matter how well they are run, cannot qualify for traditional bank loans due to personal credit issues, too few years in business and / or limited cash reserves.

When a capital need strikes, they face few smart alternatives to the bank, and then the owners must turn to family money, personal loans, or even cash advance firms that may charge astronomical rates.

Enter the "Factor". By outsourcing accounts receivables to a reputable company, one can have cash in hand, usually within 24 hours, for a nominal fee (1... 5%). These are the added benefits:
- The focus is on the business and not on collections.
- With cash in hand the owner can now negotiate better terms with suppliers.
- The business can now invest in equipment, hire new employees, start a marketing campaign and more.
So before the pain reaches the point that one decides to go to some of the last resort "boot strapping" measures, or before one’s business is perilously close to failure, seek the help of a cash flow expert to look for alternative and prudent ways to sustain and grow your business.

The solutions are out there. You don't have to be Mesopotamian to know that.

Alex Cherlin is a Cash Flow Expert with Compound Profit of Virginia

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Compound Profit(R) Corp. is dedicated to invoking seismic expansion in the wealth and success of small businesses. They are now offering a $500 REWARD for any referral sent to them that uses their receivable finance service. You can learn more at: http://www.youtube.com/watch?v=Te3aKpRFhGM

According to the company's CEO James Penny, "We will touch every small business, in every neighborhood across our great nation, one business at a time. It is time for us to stand up as Americans and do what we can do to help the true backbone of our economy, our small businesses.

By helping companies 'Compound Their Profit' we create opportunity, jobs, and contribute to our local communities." And now with our new $500 Reward program we can get the word to a huge number of businesses; while at the same time giving families the opportunity to supplement their income. Imagine how many families could use an extra $500 in these tough times. We do not limit the number of referrals a person can send in so there is no real limit on how much a person could earn!"

Compound Profit's(R) growing team of Profit Advisors is invoking seismic expansion in the wealth and success of small businesses. While the news is squarely focused on the recession, unemployment, and tough times; Compound Profit(R) continues to grow. They have helped create thousands of jobs through their clients' businesses. In addition, Compound Profit(R) has continued to grow to over 200 strong to include Area Developers, Franchise Owners, Account Executives, and Home Office Staff. With the impact Compound Profit(R) is having in our economy it is no wonder they were recently featured in USA Today as a World Class Franchise.

When asked what angers him most about the conditions of our current economy, Penny shared a story of a recent conversation where a businessman stated it's all over for America and we will soon need a Third World Country to bail us out. You could see the determination in Penny's eyes when he stated, "Hearing these words made my American blood boil and steam come out of my ears. Our country was built on hard work, determination, sweat and blood. Since when do we need another country to bail us out; where did all this government bailout mentality come from??? It is time for us to remember how we built America, and stand up and fight for our dreams. It is time to rebuild the foundation of our economy from the bottom up. It is time to help small businesses Compound Their Profit, and we will do this!!!"

It is no wonder Penny is so passionate about the American Dream - he has lived it. James grew up in a family of 12. Growing up as one of 10 children, the family dinner table was built of two sheets of plywood end to end as that was the only way they could eat together. His Dad was a hard working mechanic who taught him about the American Dream and always said, "Dream your dream and never give up no matter what." Having grown up in a large family with limited income, Penny knows firsthand what an extra $500 can do for a family.

It took every penny earned as a mechanic to care for the Penny family, so there was no silver spoon or trust fund to help Penny build success. According to Penny, "America is still the one country you can start at any level of life and build your dream. There is no secret here, you must dream your dream and never give up no matter what. America is the land of opportunity!"

Penny has been able to live his dream, and has a great desire to help others do the same. Penny feels like the most fortunate person in the world. "I get to help my franchisees build their companies, knowing they will help small business build theirs. Imagine having the honor of leading a company that will touch so many businesses, communities, families, and lives! That is what Compound Profit(R) and their Profit Advisors are all about."

To find out more about Compound Profit(R) and the $500 Reward program view our You Tube video online: http://www.youtube.com/watch?v=Te3aKpRFhGM or visit our website http://www.cprofit.com/

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