Account Receivable Factoring Companies
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Increase Your Cash Flow Employing Account Receivable Financing
Compared with a bank loan, the factor validation process can take short of a week. The secret to a quick approval process is a comprehensive and precise customer history. You can spare the factor hours, even days, when you are forthright and hones about the relevant information asked for. You should give specifics about your customers and the age of their accounts. Apart from a client profile, you may have to supply specifics regarding your business for example, a record of the clients, duration of time in business, monthly sales volume, and a depiction of your operation.
When accepted, you can expect to negotiate terms and conditions with the factor. The arrangement process takes a variety of parts of the agreement into things to consider. Say, if you wish to factor $10,000, you just cannot count on as great a deal as a business who wants to factor $500,000.
Through the negotiation process, you will become well aware of precisely what it costs to factor your accounts receivable. Depending on the discount schedule you negotiate, a factor may hold on to between 2-10 percent of the invoice's stated value as a charge. But, when weighed against the cost of lost business or giving up you business completely, the value of the cost associated with factoring diminishes greatly.
After you get an agreement with the receivable factoring company, the finance tires begin to spin. The receivable factoring company performs due diligence by analyzing your customers' credit and any liens placed against your company. The factoring company also validates the authenticity of your invoice right before purchasing your receivables and advancing funds to you.
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Factoring- A Visit With A Businessmen
I've owned 11 businesses and still own four of them and in the event that you 'd like to find out one of them has an Letter Of Intent to Buy in hand and reached profitability taking advantage of INVOICE DISCOUNTING ONLY and is completely - as in completely - debt free. Precisely why? They never needed to borrow.
Concerning having used or not used factoring: With three of them and soon to become a fourth I have used invoice discounting. Just why? You can capitalize the business without borrowing because receivables factoring is not borrowing. FYI: One of those businesses fulfilled orders it could only have hoped for carrying out had it not used invoice factoring. It's the one with the LOI in hand in fact.
Invoice factoring, like it or not, is really a front end transaction that capitalizes a company without their having to borrow. It's not complicated and only dates back to the Eqyptians ... and still gets the job done. As to it not opening the flood gates? If you have a million dollars in invoices and can not borrow against them nor convert them to cash your business (my businesses were any way until I factored) are dead in the water until you get in some cash. If you have some alternative to that then God Bless you . An invoice is a non-performing asset until you can convert it into cash but I am sure that I'll stand corrected.
QUESTION: If you as a business owner could employ a sales person and they would help you access sales you typically could not BUT you had to pay them a 2 % - 3 % - 5 % commission BUT they would increase your business 10 or 20 or 30 % would you hire that person? If you say yes to this then you are endorsing invoice discounting. It's not different than a credit card transaction. The business owner is selling the transaction to a third party to get the payment so how is receivable factoring different from cc transactions?
As to the cost of invoice factoring? It seems that forfeiting 2 % on the front end of a credit card transaction is fine (on a daily basis and using your method in your reply by the way that computes annually to 760 % incidentally but we both recognize that this isn't true now don't we?). Why should a retailer accept cc processing? More business maybe? Larger sales? And what are doing? They are selling the transaction to the credit card company. Yes? No? FYI: I offer that service too ... not rocket technology.
Factoring can be be used by a company that is turning away sales and can not grow otherwise and note: The only time that they factor is when they need working capital to satisfy an order that they would normally lose. It's like the sales commission: The only time you pay the salesman is when he sells i.e. it's a sale you either didn't have with the salesman or it's a sale you can't fulfill because your money if locked up in your invoices and you can't get it out.
That said it's pretty simple equation when you can not access liquidity:.
1.) Use invoice factoring and surrender 3 % of the sale OR dismisses the sale and disappoint the customer and lose my profit margin ... 10 %? 20 %? 30 %?
2.) Use invoice factoring and give up 3 % of the sale OR dismiss the sale and disappoint the customer and lose my profit margin ... 10 %? 20 %? 30 %?
3.) Use invoice factoring and surrender 3 % OR kiss off the sale and disappoint the customer and lose my profit margin ... 10 %? 20 %? 30 %?
What part of being in business to maximize a profit am I overlooking?
As to the 24 % annually(or as above it would be 36 %) let's always remember that the owner of the business above got to complete transactions that he or she otherwise wouldn't have had the ability to. Not a lot different than the retailer that get's to close a sale with a customer comes in with their cc is it?
Also please explain this: A bank loans someone money ($100,000) at 9 % annually. A factoring firm delivers $100,000 a month at a 2 % discount and does this 12 times over the course of a year. Hmmmmnnn ... the bank provided $100K for 9 % BUT the factoring company actually delivered $1,200,000 for 24 % so which is the far better offer? The bank? It owns you: Invoices, inventory, equipment, your house and your signature ... the factoring company has a right to your invoices: End. Which is better?
Additionally: Precisely what happens with the bank when you need $200,000 and you are only approved for $100K? If you have invoices the invoice factoring company funds you and you make the sales and get the profit ... the bank informs you, "Let's see how you do over the next year and come back" or the well known reply, "We don't like your collateral and your credit is weak" and the bottom line is that they don't have ability to take the risk or perform the work that a factor does.
ALWAYS REMEMBER: MONEY IS NOT LOANED IN A FACTORING TRANSACTION. If you can not accept or understand that then there is no sense in conversing anymore on this ...
In closing: To connect to the last statement that invoice factoring at 2 % monthly in discounted interest costs 24 % in interest margins annually then I'll accept that but only if it can be acknowledged that a company that sells product with a 30 % monthly margin herewith makes a 360 % annual profit to which you will yell back "They're not the identical" and to that you 'd be right: Factoring and borrowing money from a bank ... Are definitely not the same.