Accounts Receivable Factoring

Accounts Receivable Financing

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Accounts Receivable Financing is a type of business loan where a company is able to borrow money using there accounts receivables as collateral. Accounts Receivable Financing is available to both large and small firms, and this website will explain how these loans work.

1. Accounts Receivable Financing - Info

2. Factoring versus Bank Loan

3. How it Works

4. Benefits

5. Which Companies Are Eligible?

6. Commercial Invoices versus Government Invoices

7. Possible Problems

8. Recourse versus Non-Recourse

9. What to Look For in a Factoring Company

Accounts Receivable Financing - Info

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Accounts Receivable Financing is essentially the selling of invoices to receive immediate income and capital for a business. Also know as Invoice Factoring , it is a billion dollar industry. Unbeknownst to most small companies, invoice factoring has been around for years and is often utilized by larger companies. It is only recently that this service has been offered to small companies which have a great deal of trouble getting funding from banks and financial institutions.

Accounts Receivable Financing is based on the overall credit rating of the invoiced customer and not solely on the credit rating of the client company. This allows client companies with less than two years of history. It also allows companies in financially difficult times to utilize accounts receivable financing.

The overall funding process is simple enough. Your company invoices your customer for services or goods you provided. Your company sends in the invoice to the factoring agent. Funds are then either wired or deposited directly into your account. The process takes about 48 hours to receive the funding. Once the invoice has been paid by your customer, the factoring agent takes out the factoring fee, generally 2% to 3% from the 20% to 25% of the invoice face value not funded. Any remaining funds are then transferred directly to you. Again, this process takes about 48 hours.

Small Business Factoring involves the act of selling of outstanding invoices to other companies that then take on the debt owed. Companies that offer accounts receivable financing solutions buy invoices at discounted rates and the money serves as a source of fast cash for businesses in need of cash.

Factoring versus Bank Loan

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Many small businesses have difficulty acquiring loans or a Line of Credit from traditional financial institutions. There are a number of reasons for this. Credit history, length of time in business, collateral, and the type of industry all play heavily into a bank's decision to loan or not to loan money.

Additionally, banks may be ill equipped to handle the job of monitoring invoices and inventory of a particular industry. They may not want to take on the risk associated with that type of funding option. Furthermore, they may not fully understand the industry that your company competes in. To a banker, a lack of understanding equals greater risk and greater risk often times equals a denial.

By contrast, Factoring Companies rely on the creditworthiness of your clients. There are no rigid standards to meet on your company's part. New business and old businesses alike can benefit. Furthermore, some factoring agencies actually offer factoring solutions to companies under bankruptcy protection.

There are a number of benefits derived from the use of Accounts Receivable Financing solutions. First, the company that is selling invoices can rid themselves of the hassle of handling various debts-the debts become the problem of the company offering accounts receivable financing solutions. Also, a company in need of money can get their hands on some fast cash, thanks to Accounts Receivable Financing services.

How it Works

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The initial application process is completed relatively quickly. The paperwork is minimal for the world of corporate finance. Most of the paperwork should already be on hand or easily obtainable. Paperwork includes a two year history, if applicable, of the company P&L, balance sheet, and income statement. Prior invoices may need to be submitted so that the factoring agent may get a better understanding of the invoicing process and format used in your industry and by you and your clientele. The packet is then reviewed by the factoring agent. Upon approval, a Letter of Intent (LOI) is submitted to the client company. This LOI is then signed by the company and returned. A contract is submitted. Due diligence is performed one last time by the factoring agent. Final approval is granted. The invoice factoring begins. The entire application process takes as little as two weeks. If open invoices are submitted during the application process, funding for these invoices generally takes a few additional days due to the newness of the account.

A R Factoring AR Factoring

The funding process takes 24 to 48 hours. This is the amount of time from submission of the invoice until funding is received into the business account. As any business owner can tell, this is a fraction of time when compared to waiting 35 to 45 days for payment of an invoice.

Small Business Factoring Receivable Financing

Funding amounts vary depending on the terms of your businesses loan. Typically, the factoring is done at 80% of the face value of the invoice. Say for example the invoice your company submits to the factoring agent is for $200,000. The amount of funding your company would receive initially would be 80% of the face value which would be $160,000. Once payment is received by the factoring agent, the factoring fee is taken out of the remainder. This can be anywhere from 2 to 3% of the funding amount. At a 3% funding rate the fee would be $4,800. This amount is then deducted from the $40,000 and the remainder is transferred directly into the account.

Benefits

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Accounts receivable financing offers the client company numerous benefits which help ensure the growth and the stability of the funded company. By factoring invoices, money can be obtained more quickly and provide much needed capital for the day to day operations of the company. The client company may actually be able to reduce overhead by paying some of their own invoices early enough to receive any discount offered.

A R Factoring AR Factoring

The client company enjoys the benefit of an increased credit rating by having the funds available to make payments on time and even ahead of schedule. In addition, since the client business now has the capital to operate on hand there is no reason to seek outside funding such as venture capital. Such funding options often require the relinquishment of equity in the company. Equity now can remain with the business owner.

Small Business Factoring Receivable Financing

Client companies also can reduce the amount of early payment discounts they offer their customers. This saves the client company money while still allowing that company to receive the funding needed to operate. Additional savings can be realized by volume discounts on purchases due to increased cooperating capital.

Which Companies Are Eligible?

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While any company can benefit from accounts receivable financing, some company's find the experience more fruitful than others. Industries such as construction, trucking, manufacturing, textiles, staffing, and engineering companies utilize accounts receivable financing on a daily basis. As well, any business which has customers with a solid rating or contracts with the government and doesn't want to wait for 30 to 90 days for the invoice to be paid can reduce cash flow stress through this type of funding option.

Invoice Factoring Line of Credit

Companies that do not meet the traditional criteria for a bank loan often find that this type of funding is able to meet their needs. Additionally, businesses with credit problems or less-than-perfect credit enjoy the fact that the funding is based on the credit rating of their customer. This takes a great deal of pressure off the client company.

Invoice Factoring Line of Credit

Furthermore, companies that are experiencing a period of hyper-growth and are having trouble keeping up with the financial needs of the business tend to do well under these types of programs. This allows the company to continue on with the growth without acquiring vast amounts of debt.

Commercial Invoices versus Government Invoices

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It would stand to reason that an invoice is an invoice regardless of whether or not the client is a commercial entity or a governmental agency. This, however, is not the case with invoice factoring. Factoring government invoices requires much more forethought and planning on the part of the business owner than say an invoice to Coca-Cola.

Accounts Receivable Factoring Accounts Receivable Financing

The reason this is true is because of the government regulations required to complete the initial funding requirements are monumental. It is best to go ahead and negotiate the idea of factoring invoices before award of the contract. Doing so will alert the contracting officer ahead of time so that fewer problems arise later on during the fulfillment of your contract to the government.

If however, your company has already been awarded the contract and has begun performing the services required, you may be in for more of a challenge than you'd hoped. It is not a simple matter of faxing the latest invoice off to the factoring agent and waiting on the funding to arrive. Speak to the factoring agent ahead of time about the contract. Additional forms need to be submitted to the contracting agency of the government department you are contracted with. Essentially, a modification must be completed prior to factoring the first invoice. As with most things dealing with government contracting, this process may take several weeks to complete. Be patient and work with both the factoring agent and the contracting agent. It can be worked through for long term results.

Commercial Factoring Discounting Factoring

Another issue to be concerned about with factoring government invoices is the businesses Cage Code. In the paper reduction world of the government only one account is authorized in conjunction with this code. Once the payment is sent it will go directly into that account. Hence, once the factoring has begun for your company and you modify your CCR registration to go directly to the factoring agent, as required by the factoring contract, all government invoices must then be processed through the factoring company. Say, for example, your business was awarded a $1 million contract which required your company to go out and begin accounts receivable financing in the first place. In the meantime, during the life of this big contract, your company continues to sell smaller items to the government. The average invoice amount for these projects is $20,000. After a few invoices under the bigger contract have been funded, you've been able to shore up your reserves to a point where you don't particularly need to factor the smaller invoices, especially at a 3% funding fee of the invoice value. Whether you choose to factor the invoice or not, the payment from the government will still go to the account on record for your business's Cage Code. If the factoring agent has not funded the invoice they will then transfer the funds directly to you. This process will add at least 48 hours to your payment being received.

Possible Problems

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One of the pitfalls with factoring and one not readily discussed by factoring agents can occur, and usually will occur at the worst possible time for the business and produce a situation where the invoice in question is simply not funded or funded at a fraction of the face value. The problem is not with the invoice, but with the company to which the invoice was issued. Likewise, this typically happens with factoring accounts that have little activity or are at the beginning of the relationship.

Commercial Line of Credit Small Business Financing

Accounts receivable financing is based primarily on the credit rating of the company being invoiced. This allows for the client business to establish credit in their name without having to meet overly stringent regulation. The situation arises when the company invoiced does not meet the requirements of the factoring agent.

Say for example, you've created a teaming arrangement with an 8(a) company in Anchorage, Alaska. Your headquarters are in Atlanta. Your factoring agent is in Florida. Chances are the factoring agent has never heard of the 8(a) company and has no prior knowledge of their services of reputation. The factoring agent then researches the invoiced company. If he is not satisfied with the information he gets back, perhaps he pulled an incomplete file, there is a good chance that the funding will not happen.

Commercial Line of Credit Small Business Financing

On the flip side of this coin is a company the funding agent does know a good deal about. Unfortunately, everything he knows is negative. The company has recently lost major contracts. The company has a habit of paying late on most invoices. In this case, you will have a great deal of trouble getting any invoice sent to this company funded by the factoring agent.

Recourse versus Non-Recourse

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Unfortunately, businesses do fall on hard times and the companies your business deals with may be no exception. What happens if the company invoiced is unable to make payment on the invoice in question? The answer depends on the terms and conditions of the factoring line. It's a difficult situation to deal with, but one which must be addressed early on in the factoring relationship. This will help avoid nasty surprises if and when the situation arises for your company.

Factoring Companies Factoring Company

Recourse factoring allows the factoring agent to come back to the client company for payments should the invoice go unpaid. This can come as quite a shock to the client company if this situation is unforeseen. The client company must then pay back the funding or submit another invoice of equal or greater value. This type of funding holds the least amount of risk for the factoring agent thereby reducing the amount of fees charged.

Non-Recourse transactions transfer the entire amount of solvency directly to the factoring agent. Should the invoice go unpaid, the factoring agent cannot come back to the client company for payment for any reason. The risk for this type of factoring is the greatest for the factoring agent causing the fees to be at their highest level.

A third option has emerged to the recourse dilemma. This is the option of Modified recourse factoring. With this option the client company purchases insurance which covers all parties should the invoice go unpaid. In the event of the invoiced company filing for bankruptcy, the insurance would cover the amount of the funding.

Factoring Companies Factoring Company

Choosing which factoring recourse option is best for you depends greatly on your individual situation. If you feel very confident in your clients ability to repay the invoice, then there may be little question of recourse in your mind. If however, you are unsure of your client and their ability to pay timely or at all, you may want to consider your options. Many factoring companies do not offer non-recourse factoring so shop around for the company which offers the best value for your particular situation.

What to Look For in a Factoring Company

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The use of accounts receivable financing services is a way for a business to clear up any debt they may have in addition to providing the business with money that it requires to continue to be successful. There are literally hundreds of companies nationwide which offer the service of Accounts receivable financing or Invoice factoring. Many will claim to offer the fastest turn around time on funding or the lowest rates available. Be cautious and take your time to find the right company for your individual needs.

Factoring Companies Factoring Company

First and foremost, become your own expert in the matter. Investigate local companies which offer this service. Is it possible to have a face to face interview with a representative? If so, what information are they willing to provide you with up front? Factoring company representatives should be able answer all the questions you will have before and during the application process. A face to face meeting can help determine whether the relationship will be a beneficial one for both parties involved.

Avoid high pressure sales techniques when seeking accounts receivable financing options. Your business is not buying a used car after all. The invoices you submit to your customers are the very heartbeat of your company. You should not feel pressured into this type of funding option. You may find that after a thorough review of all of the issues involved that invoice factoring is not a good fit for your situation. That's a perfectly legitimate position to take. No one should make you feel guilty or pressured into signing up for the funding if you are not comfortable.

Working Capital Management Comercial Finance Broker

Lastly, remember than the company you choose to use for invoice factoring will be one with whom you will develop a long term relationship with. Make sure that this is a company that you can trust. You need to do some research. Contact the Better Business Bureau and make sure that there are no complaints. A company should always research the accounts receivable financing company they plan to work with long before they enter into any negotiations. Contact the state business license office and make sure that it is a reputable company that has been around for awhile. Finally, ask for local references that you can call and inquire about the quality of service and the support through the overall process. No one can give a bird's eye view like a current customer.

International Factoring Services

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Factoring for Distributors

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Factoring for Distributors

Having trouble fulfilling purchase orders due to cash flow shortages?

1st Commercial Credit offers receivable finance for distributors experiencing working capital shortages. Our Receivable Factoring and Letters of Credit service provides the utmost flexibility for enhancing your company’s capacity to grow without having to worry about pledging additional collateral. We leverage your credit line solely on your customer’s financial strength, not your company's.

Receivable financing rates as low as 1.59%

Receivable Financing Program for Distributors

- No financials - No monthly minimums - No invoice minimums

- No facility fees - No audits - No up-front fees - No hidden fees

- Set up account in 3 to 5 working days - 24 hr funding thereafter

- Receivable credit lines starting at $5,000 & up to $10 million

- Customer referrals upon your request

WE MAKE SAME DAY DECISIONS!

We Make Receivable Finance a Simple Process!

A two page application
An accounts receivable aging report
A customer list with credit limit request
Copy of articles of Incorporation or DBA filing
Rate confirmation agreement
Invoices to factor

That's It, its that simple:

View Recent Transactions

Most of our clients are either:

experiencing cash flow shortages due to a slow turnover in accounts receivable
fast growing companies whose past earnings and sales histories will not justify traditional bank loan financing
start-up businesses with no financing base
companies with seasonal or uneven sales patterns
principals with good or bad credit and cannot obtain traditional financing
have lost their line of credit due to covenant violations

All your Business Needs is Receivables

Distributions facilities that need to offer credit terms to customers utilize our funding program. Resellers and distributors can easily tap into their receivables asset for immediate cash flow. You may offer credit terms to new and larger customers at an affordable cost, take advantage of early pay discounts offered by your suppliers, buy larger quantities with additional discounts, and countless other opportunities that your distribution business is missing out on.

Financing Staffing Firms

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Meeting staffing payroll during growth can be a challenge. 1st Commercial Credit can help you grow your company with unlimited payroll funding , whether you're a start up or a multi-million dollar operation. Call us now and get initial funding in 3 to 5 working days. No financials needed, No up-front fees to set up, it is that easy. We can accommodate factoring credit lines to new staffing companies with minimal funding needs and up to $10 million for large staffing agencies.

Temp-Staffing Receivable Financing

- Receivable financing rates at 1.59 for 30 days.

- No financials - No monthly minimums - No invoice minimums

- No facility fees - No audits - No up-front fees - No hidden fees

- Set up account in 3 to 5 working days - 24 hr funding thereafter

- Receivable credit lines starting at $5,000 & up to $10 million

- Customer referrals upon your request

WE MAKE SAME DAY DECISIONS!

We Make Receivable Finance a Simple Process!

A two page application
An accounts receivable aging report
A customer list with credit limit request
Copy of articles of Incorporation or DBA filing
Rate confirmation agreement
Invoices to factor

That's It, its that simple:

View Recent Transactions

Most of our clients are either:

experiencing cash flow shortages due to a slow turnover in accounts receivable
fast growing companies whose past earnings and sales histories will not justify traditional bank loan financing
start-up businesses with no financing base
companies with seasonal or uneven sales patterns
principals with good or bad credit and cannot obtain traditional financing
have lost their line of credit due to covenant violations

Financing the Staffing Industry

Is your business growing faster than your operating capital?

At 1st Commercial Credit, our accounts receivable financing service is a flexible source of funds for Staffing Companies. We simply utilize your accounts receivable as the collateral and advance funds against the face value of your invoices. The receivable credit line grows proportionately with your sales cycle and we can fund as little as $5,000 a month and up to $10 million for larger companies.
and see if this financial method will work for your business.

What kind of staffing companies come to us for funding?

Young companies experiencing growth and need cash today. In most cases they have been turned down by traditional banks.

Mature companies that have capped their working credit line established by a bank and need more leverage.

Companies that are experiencing lack of service from another factoring company.

Financing Staffing firm Invoices for as little as $5,000 a month and up to 10 million for larger companies.

Credit line based on percentage of eligible accounts receivable.

Easy to understand financing fees.

Invoices funded within 24hrs.

Eliminate the need for bank loans or SBA loans.

Funding can take place in 3 to 5 working days.

Start up staffing companies welcomed.

Why do Staffing firms benefit by financing account receivables with us?

The use of back-office support for collections and mailing out your invoices sometimes offset the financing fees or decrease internal overhead related cost.

Free credit analysis and collection assistance to prevent bad debt.

Free Reports and statements of your account status via internet.

Optional full service available with payroll and tax services.

What is needed to finance an Employment Staffing and IT Consulting Firms.

1. You send the original invoices with proof of performance (time sheets). The service must be performed before funding.

2. The invoice is verified and then the advance is funded, typically 90% of the invoice depending on the credit worthiness of your customers. Funds will be advanced within 24hrs. following verification of the invoices. This is usually completed the same day that they are received. The balance of the advance is called the "Reserve". The reserve is held back until the customer pays the invoice in full.

3. Payment of the invoices are made directly to us from your customers. Once received, the reserve is paid to you minus the discount fee.

4. At your option, the funds are sent via wire transfer, ACH or check.

5. Credit approval for new accounts is easy. All is needed is the name and address of the customer.

6. Due diligence of liens and pending lawsuits of your company will be performed prior to funding.

We service the following Staffing Industries.

Professional

Twin Plant Management and Engineers
Sales - Marketing - Sales Managers
Accounting - Controllers - CPA's
Healthcare - PTs - RNs - CNAs - OTs - MDs
Data Processing - I.T. - Web Design
Mid Management - Administrative - Technical

Office Services

Office Managers - Administrators
Full Charge Bookkeepers - Accounting Clerks
Admin Assistants - Executive - Legal Secretaries
Clerical - General Office - Data Entry
Doctor's Office Assistants - Medical Secretaries
Call Center Phone Attendants and More

Manufacturing

Assembly - Warehouse - Quality Control - Quality Assurance
Plastic Injection Molding
Warehouse distribution
Skilled - Unskilled Labor
Light Industrial - Machine Operators
Fork Lift Operators - Loaders /Unloaders
Electronics Assembly - Packers

Factoring Service Providers

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Factoring Service Providers

Service providers benefit the most by factoring receivables. If you review most businesses that are providing a service to commercial accounts, they rarely can offer tangible assets to pledge against a loan. Banks prefer to lend against land or property, inventory and auctionable assets that can easily be liquidated. It is for this reason, that many service industries are turned down for a loan or are approved with limited funds for working capital.

Service Industries benefit by factoring rather than borrowing form a bank.

Offering credit terms to commercial accounts can get your business in a cash flow shortage. At 1st Commercial Credit, we can assist your business by allowing you to offer credit to commercial accounts and grow your business. The extension of credit is evaluated by the financial strength of the customer (Buyer), not our client (The seller). This method allows our prospective clients to acquire funds within days of completing an application with minimal paper work.

Receivable Financing for Service Providers

- Receivable financing rates as low as 1.59%

- No financials - No monthly minimums - No invoice minimums

- No facility fees - No audits - No up-front fees - No hidden fees

- Set up account in 3 to 5 working days - 24 hr funding thereafter

- Receivable credit lines starting at $5,000 & up to $10 million

- Customer referrals upon your request

WE MAKE SAME DAY DECISIONS!

We Make Receivable Finance a Simple Process!

A two page application
An accounts receivable aging report
A customer list with credit limit request
Copy of articles of Incorporation or DBA filing
Rate confirmation agreement
Invoices to factor

That's It, its that simple:

View Recent Transactions

Most of our clients are either:

experiencing cash flow shortages due to a slow turnover in accounts receivable
fast growing companies whose past earnings and sales histories will not justify traditional bank loan financing
start-up businesses with no financing base
companies with seasonal or uneven sales patterns
principals with good or bad credit and cannot obtain traditional financing
have lost their line of credit due to covenant violations

Medical Accounts Receivable Financing

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Providing Medical Financial Services Nationwide.

What is Medical Accounts Receivable Financing? Medical receivable financing is a means by which the healthcare provider is granted an asset based credit line that is based on the net realized value for his/her billings to third-party payors (i.e. commercial insurance companies, HMO’s, Blue Cross-Blue Shield, Medicare and Medicaid).

For medical providers that have accounts receivable with a net realized value (NRV) of $500,000 or less, we offer our medical factoring program which is a funding program that purchases your billings (net realized value) at a discount. Clients that exceed $500,000 in accounts receivable (NRV) and meet our criteria for financing will be proposed an asset based receivable financing program that is priced at a prime plus schedule.

1st Commercial Credit provides medical receivable funding for two types of medical provider clients. If you are a Medical staffing agency invoicing to a commercial account (i.e. Hospitals, Nursing Homes, etc.) please go to this web page " Medical Staffing Finance".

1st Commercial Credit realizes that a successful health care practice depends as much upon effective financial management as it does on quality care. For this reason, an increasing number of health care providers are looking for finance companies that can help them handle their cash flow requirements. 1st Commercial Credit can facilitate financial funding of medical receivables and has a well seasoned staff that was created specifically to handle this unique financial niche.

The long delay between the time you perform a medical service and the time you are ultimately paid, coupled with a bureaucratic and very cumbersome third-party billing structure has resulted in diminishing your business cash flow. Our mission is to provide capital to a nationwide network of healthcare providers including, but not limited to sole practice physicians, group practice physicians, nursing homes, hospitals, home healthcare companies, rehabilitation -physical therapy companies, durable medical equipment providers, MRI, radiology centers, ambulance service providers and laboratories. While many industries are very familiar with the use of accounts receivable financing to improve the consistency of their cash flow and increase their bottom line, the overwhelming majority of health care providers have never heard about this service, and do not realize what accounts receivable financing can do for them.

Frequently asked questions about our healthcare provider financing program

Our Clients:
- Too new to obtain bank financing (under 3 years old)
- Needs accounts receivable financing for payroll
- Needs expansion and/or working capital
- Needs acquisition financing
- Growth strategies, including new facilities
- Restructurings, DIP and post -bankruptcy financings

Asset Based Revolving Line of Credit Terms

Minimum of $500,000 of eligible receivables based at NRV. Receivables must be payable by Commercial Insurance companies, Medicare-Medicaid, Blue Cross-Blue Shield, HMO-PPO, Municipalities and Institutions aged no more than 150 days from the service date. Terms are 1 year minimum. Rates and fees may be fixed fee financing or prime based. Typical 4 to 6 weeks from receipt of initial underwriting package.

Mainstream Accounts Receivable

The "mainstream" types of accounts receivable that we will consider for funding are accounts receivable which are generated by a healthcare service company and are due from third party payors which include the following payor categories: Medicare, Medicaid, Commercial Insurance, Private Insurance, HMO/PPO, and Managed Care. The average time to collections for most of the Accounts Receivable that we fund range from 90 - 150 days (we will also consider receivables which collect in longer time periods). Request a proposal online

Accounts Receivable Which Are Non-Mainstream, But Are Acceptable:

We will also consider funding accounts receivable whereby the payors are actually healthcare facilities themselves, such as a nursing home or a hospital, whereby the healthcare provider client is contracting to provide its services to the healthcare facility. Other types of accounts receivable that we will consider funding on a case by case basis may include the following: non-litigation worker's compensation. Request a proposal online

Accounts Receivable Which Are Not Acceptable:

We presently do not fund accounts receivable that are owed by patients directly (also known as self-pay). In addition, we do not fund certain types of longer turning worker's compensation, personal injury, or no-fault accounts receivable.

Nurse Registry (Medical) Temp Staffing Receivables Factoring:

We currently can establish factoring programs for temporary employment staffing agencies for as little as $5,000 to 10 million a month volume. Temp-Staffing businesses generate commercial receivables and fall under our commercial receivables program so long as the receivables are not owed by Medicare, Medicaid or individuals. New business start ups are welcomed. Request a proposal for Medical Temp-Staffing Factoring

Factoring Government Contract Receivables

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We know your government contract cash flow problems.

- Big contracts use up all your operating capital and pay net 30 to 60 days later.

- Cash flow shortages in weekly payroll and fixed overhead.

- Passing up new contracts and sometimes can't even fulfill the ones you have on hand.

At 1st Commercial Credit, we can provide immediate funding for your business. The invoices to your customers for goods delivered or services rendered can be converted into a "Business Credit Line" from which you may draw cash to better manage your business.

We have experience in financing receivables to companies whose primary business is performing technical services or manufacturing for the federal government. Technical service companies may include those that provide computer-related services, communications systems, computer systems maintenance, programming support, facilities management, logistics, engineering, and military related products, temporary staffing, distributors and other types of manufacturers.

The most common problem that businesses find in trying to find funding for government receivables:

Most factoring companies do not want to fund receivables that contain high concentration in a few customers which is very common in the government contract industry. One recent transaction funded in the range of $736,000 for just one invoice.

Some receivable finance companies do not have the knowledge in dealing with government receivables. We have specialized experts that are familiar with the "Assignment of Claims" which is a federal law which allows and specifies the procedures for assigning financial rights to invoices of government contractors. The Federal Acquisition Regulation (FAR) also governs how we carry out our responsibility for effecting the assignment.

Any Business can qualify for a factoring receivables credit line if:

- Any Business can qualify for a factoring receivables credit line if:

- Sell credit worthy businesses or local, state or federal agency so long as a notice of assignment is accepted.

- Have not pledged accounts receivable as collateral.

- You have completed the work or delivered the product and your customer has accepted the invoice.

What kind of government contractors come to us for funding?

- Young companies experiencing growth and need cash today. In most cases they have been turned down by traditional bank loans due to a lack of a financial track record.

- Companies that are experiencing lack of service from another factoring company.

- Mature companies that have capped their working credit line established by a bank and need more leverage. This situation may require to pay the financial institution off so the client can establish an unlimited factoring credit line that will be based on the customer's credit worthiness.

Is your business growing faster than your operating capital?

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Facility Structure	Collateral Accepted	Industry	Funding Type	Min and Max Monthly Volume	Country
Business and Finance	Account Receivable	Trucking	Invoice Factoring	$10,000 to 25 million	USA, CANADA
Business and Finance	Account Receivable, inventory, Real Estate	Trucking	Asset Based Line of Credit	2.0 million to 25 million	USA, CANADA
Business and Finance	Account Receivable	Temporary Staffing	Invoice Factoring	$10,000 to 25 million	USA, CANADA
Business and Finance	Account Receivable	Temporary Staffing	Asset Based Line of Credit	2.0 million to 25 million	USA, CANADA
Business and Finance	Account Receivable	IT Consulting	Invoice Factoring	$10,000 to 25 million	USA, CANADA
Business and Finance	Account Receivable	IT Consulting	Invoice Factoring	2.0 million to 25 million	USA, CANADA
Business and Finance	Account Receivable	Hospitals	Invoice Factoring	100k to 25 million	USA
Business and Finance	Account Receivable	Medical Physicians Practice	Invoice Factoring	50k to 25 million	USA
Business and Finance	Account Receivable	Transportation	Invoice Factoring	$10,000 to 25 million	USA, CANADA
Business and Finance	Account Receivable	Nursing Homes	Invoice Factoring	50k to 25 million	USA
Business and Finance	Account Receivable	Cable Installation and Telecommunications	Invoice Factoring	50k to 10 million	USA Only
Business and Finance	Account Receivable	Air Conditioning and Heat Maintenance	Invoice Factoring	$10,000 to 25 million	USA, CANADA
Business and Finance	Account Receivable	Advertising Company	Invoice Factoring	$10,000 to 25 million	USA, CANADA
Business and Finance	Account Receivable	Aerospace Repair	Invoice Factoring	$10,000 to 25 million	USA, CANADA
Business and Finance	Account Receivable	Environmental Measuring Service	Invoice Factoring	$10,000 to 25 million	USA, CANADA
Business and Finance	Account Receivable	Computer Manufacturer	Invoice Factoring	$10,000 to 25 million	USA, CANADA
Business and Finance	Account Receivable	Packaging Manufacturer	Invoice Factoring	$10,000 to 25 million	USA, CANADA
Business and Finance	Receivables, Inventory	Moving and Storage	Asset Based Line of Credit	2.0 million to 25 million	USA
Business and Finance	Receivables, Inventory and Real Estate	Agricultural Equipment	Asset Based Line of Credit	2.0 million to 25 million	USA
Business and Finance	Receivables, Inventory and Real Estate	High Tech Temp Agency	Asset Based Line of Credit	2.0 million to 25 million	USA
Business and Finance	Receivables, Inventory and Real Estate	Business-Critical Printers	Asset Based Line of Credit	2.0 million to 25 million	USA
Business and Finance	Receivables, Inventory and Real Estate	Telephone Answering Devices	Asset Based Line of Credit	2.0 million to 25 million	USA
Business and Finance	Receivables, Inventory and Real Estate	Linens for Waterbeds	Asset Based Line of Credit	2.0 million to 25 million	USA
Business and Finance	Receivables, Inventory and Real Estate	Forrest Products	Asset Based Line of Credit	2.0 million to 25 million	USA
Business and Finance	Receivables, Inventory and Real Estate	Apparel	Asset Based Line of Credit	2.0 million to 25 million	USA

What to Look for in a Factoring Company?

2009-01-20T18:35:00.000-08:00

There are six major attributes you should look for in choosing the right factoring company for your business. A successful factoring company should have a quality credit department, a professional collection staff, a long track record, industry specialization, financial strength, and up to date technology in keeping their customers informed with real time data.

Unlike a bank or a finance company, a factoring company has a day-in, day-out relationship with its client, so choosing the right factoring company boils down to who can you get along with. Sometimes, the answer to this question is the factoring company with the lowest discount fee and sometimes it will be the factoring that meets some other need better than the one with the lowest fee. Ultimately, determining the overall cost can prove difficult, so you might want to consider other important variables. In the final analysis, factoring is not a commodity item like a mortgage loan. There are many variables besides just the stated discount fee that will come into play when selecting the factoring company best suited to your company’s needs. These distinctions are seldom pointed out in the factoring proposal, so here’s your opportunity to pick the perfect factoring company for you.

Does the factoring company have a credit department?

A factoring company that has a great credit department, for example, might be your pick if you are looking for a factoring company that will help you make prudent credit limits for your customers. A factoring company that does not have a fully staffed credit department, likely will not approve appropriate limits and as a result, may expose your company to inappropriate levels of risk. On the other hand, a factoring company that doesn’t approve enough credit to accommodate your needs may unnecessarily restrain your company’s ability to grow.

Does the factoring company have a collection department?

On the other hand, a factoring company with a fully staffed collection department might be your pick. Most factoring companies assign the task of collections to the account representative. It might surprise you to learn the many factoring companies don’t even have a collection department. If you are serious about finding a factoring company that takes its job of collecting receivables seriously, the factoring company will assign two points of contact to you—an account representative AND a collection specialist (accounts receivable management). One person cannot perform both functions as well as two.

Does the factoring company have a long track record?

A factoring company that has been in business more than ten years likely has the experience you need to provide an adequate level of service. A factoring company that has weathered multiple business cycles demonstrates staying power, but not necessarily solid capitalization. If in doubt, ask your factoring company or a factoring company you are talking to for bank references or a thumbnail sketch of their financial condition. Most importantly, ask your factoring company for client references—preferably clients in your industry.

Is the factoring company a specialist in your industry?

You may be looking for a factoring company that knows your industry. Industry specialization is extremely important. If you own a trucking company, you should seek out a truck factoring company –in other words, a factoring company specialist for trucking and transportation. For example a trucking factoring company will be familiar with your freight brokers and shippers, because likely, a truck factoring company will already have its own first-hand experience with tens of thousands of freight brokers. If a truck factoring company already knows your customers, you will save money, because you won’t have to spend money on credit reports.

If you own a staffing firm, you should be considering a staffing factoring company or a factoring company commonly referred to as a full service factoring company that not only can provide you with traditional accounts receivable factoring, but also many back office functions such as payroll checks, payroll deposits, payroll reporting, payroll software, invoicing and invoice mailing. Often, full service factoring (companies) for staffing firms provide all these services under one roof and for one fee. Sometimes the factoring company will outsource some back office functions to an affiliate or strategic partner with greater expertise. These third-party arrangements are common and perfectly acceptable, provided the client is informed about all work that is outsourced to third parties and the client approves.

Is the factoring company the right size for your company?

You might be interested in a small or a large factoring company, depending on your philosophy. Your best bet may be a factoring company that is somewhere in between—small enough to provide personalized service and access to top management, but large enough to provide financial stability, the ability to accommodate your needs, and the ability to weather tough economic times.

A factoring company that sends an executive officer, or top manager out to visit you may be of interest to you. Very few factoring companies do so. If it is important for you to know who you are dealing with, ask the factoring company you are talking to if they will send an officer or top manager out to visit you. A very large factoring company likely will not be able to comply with such a request (unless they are located right down the street). If you are lucky, you might get a visit from a salesman. It is unlikely that the factoring company that sends a salesman to visit you will give that salesman any operational authority, so it’s best if you can get an executive, officer, or top management person.

A factoring company that is too small may not have the financial resources to satisfy your needs or may be too conservative in making decisions that effect your business. A factoring company that is too small may be too restrictive on which of your customers they will approve and for how much. A small factoring company also may not have the capital to purchase all your receivables.

Does the factoring company embrace technology?

More and more, clients are demanding factoring companies to provide them with the most technologically advanced reporting systems. You may want to avoid a factoring company that does not provide access via Internet to your factoring data. You may also seek out a factoring company that allows you to obtain credit decisions on line via Internet. A factoring company that embraces new technologies will ultimately save you money. For example, if you have to send all your invoices and a full set of copies to your factoring company via overnight courier, you are probably picking up the tab. If your factoring company can accept digital copies via e-mail or can scan your originals, your packages will be less costly to send. A factoring company that can handle your customers’ EDI system is also a plus.

In summary, there are numerous variables to consider when selecting a factoring company. Sure fees are important, but often, the Devil is in the details. Ask lots of questions. Here are a few questions we have addressed in this article:

1. Does the factoring company have a credit department?

2. Does the factoring company have a collection department?

3. Does the factoring company have a long track record?

4. Is the factoring company a specialist in your industry?

5. Is the factoring company the right size for your company?

6. Does the factoring company embrace technology?

If you feel that your business would benefit by setting up an account receivable factoring program.

Commercial Truck and Trailer Financing - Leasing

2009-01-20T18:34:00.000-08:00

Need transportation equipment to grow your business?

Have you exhausted your efforts at the bank?

If you have found a truck that you want, we can finance it for you.

1st Commercial Credit, LLC provides Commercial Truck and Trailer Financing for start up owner operators and existing owner operators with less than perfect credit.
View Pre-Qualify check list.

In addition, we can also provide freight bill factoring for all trucking companies.

If you are adding trucks or trailers to your existing fleet and have been turned down by other lenders, then 1st Commercial Credit may be the truck finance source for you.

Truck Dealer Finance Program or Owner-Operators looking for truck financing:

Typical monthly terms

2001 to 2002 year model trucks 18– 24 months (C Program only)

2003 year model trucks 30– 36 months (A, B, and C Program)

2004 year model trucks – 42 months (A, B, and C Program)

2005 to 2006 year model trucks – 48 to 60 months (depending on credit and mileage- A, B, and C Program)

2007 year model trucks – 60 months (A, B, and C Program )

2007 Trailers up to 72 Months (A, B only)

How do trucking companies benefit with our truck equipment funding program?

We can finance your owner operators
Higher profits for dealers
Constant referrals
We act as your in house credit and finance department

Are you looking for an easier way to liquidate used equipment? Tucking companies are always looking for a financing program for trucks & trailers that are coming off their fleet. Liquidating equipment in the past involved either wholesaling their trucking equipment or selling equipment at auction.

1st Commercial Credit can accommodate an in house financing program which trucking companies can use, at no cost to them. Simply stated, trucking companies can now retail their truck inventory while we can approve their retail customers and help them retain more profit on each sale.

PLEASE NOTE: We do not provide truck and trailer financing in Louisiana or Canada.

We currently do not approve applicants that have:

Delinquent child support
Bankruptcies that have not been discharged (case by case)
Tax Liens
Delinquent installment loans
Bank statements showing bounced checks
No past history of installment loans
No CDL
No experience in the trucking industry

"A" & "B" Credit Program: Financing program for Trucking Fleets with good financials or owner operators with good credit.

Very competitive rates and terms available.

- Fast credit decisions – usually within 48 hours. Credit scores 640+.

- 100% non-recourse to the dealer.

- 5 year old or newer Class-8.

- Dealer reserve available with volume targets.

- Application only up to the $150,000.

- Standard terms from 24 months to 60 months. 72 months on trailers.

Typical program calls for 1st monthly payment to start, plus standard processing fee of $550.00

Medium duty / Off-road and Construction equipment a specialty.
Vocational equipment gets special consideration.

News Update - Now you can offer you’re A and B credit customers even lower payments with TRAC deals and residuals from 15% to
35% on most equipment – NEW AND USED!

"C" Credit Program: Start-ups, First Time Buyers and Challenged Credits

This program is specifically designed to help you obtain financing for credit challenged customers that may have been turned down already.

1st Commercial Credit will work to make the deals happen when others will not. We can handle you’re A – B and C deals.

- Fast credit decisions – usually within 48 hours. Credit scores 585 and up. 100% non-recourse to the dealer.

- Class 8 trucks 2000 or newer,

Vocational vehicles 1998 or newer.
Medium duty – no age restriction.

- Loan amount up to the NTDA wholesale value and all are $1 out leases ($101.00 for challenged credits).

- Standard terms from 24 months to 60 months.

- Typical program calls for 10% cap-reduction plus 1st and last monthly payment to start, plus standard processing fee of $550.

- Medium duty / Off-road and construction equipment a specialty.

Flexible trucking leases for drivers and small fleets

Start up Owner Operators (Must have CDL with 6 months min. experience)
Past bankruptcies (If discharged)
Lower credit scores acceptable
Renters will qualify
Co-Signers accepted

Bank Factoring of Accounts Receivable

2009-01-20T18:33:00.001-08:00

Bank Factoring of Accounts Receivable

Until recently, banks have stayed out of the factoring business and for the most part, they still prefer tangible assets to collateralize their lines of credit. Banks realize that receivable finance requires high overhead, professional credit analysis, technology updates and substantial maintenance.

More often than not, bankers find themselves referring out clients that wish to use or require a “Bank Factoring” program. Government regulation pressures on the banking industry have tightened lending parameters, and banking clients with rapid growth will inevitably cause the borrowing leverage to grow to levels which are unacceptable to most banking institutions.

A good banker knows the bank's limitations and will work to preserve at least part of the relationship. Our factoring solutions benefit the bank by keeping a long term relationship with their clients. The customer's business benefits by accessing receivable finance that their bank can no longer provide or extend.

View recent transactions

1st Commercial Credit has become a great outsource for bankers that want to help their clients establish a receivable finance program while still maintaining a close relationship. The process is simple with a more basic credit analysis focusing on the quality of the account debtors (your customers). Most funding transactions (depending on the industry) may take only 3 to 5 working days vs. months by another lending institution.

We are not in the banking business, banks will not have to worry about us competing for their business. 1st Commercial Credit specializes in providing domestic and export receivable finance, purchase order financing, letters of credit, credit analysis, credit protection, collections and accounts receivable management.

Bankers a Referral Source: A good banker knows the bank's limitations and will work to preserve at least part of the relationship. Our factoring programs benefit both the bank by keeping a long term relationship with the customer, and the customer in need of receivable financing that the bank can no longer provide or extend.

While banks typically need a history of profits and audited financials, 1st Commercial Credit provides factoring facilities with much more flexibility with regard to documentation, credit, and record keeping issues. In some cases, companies that qualify for a bank credit line today, may find themselves with inadequate funds for growth in the near future.

1st Commercial Credit can accommodate businesses that have outgrown their bank line by (a) buying out the bank credit line using the receivables to leverage out the buyout or (b) the bank will subordinate the accounts receivable to us in order to provide a factoring arrangement with the prospective client.

Factoring companies establish credit limits by evaluating your customer’s ability to pay, not yours. Your factoring credit facility will be virtually unlimited for future growth and will be based on accounts receivable owed by credible clients.

Business Factoring

2009-01-20T18:32:00.002-08:00

Business Factoring

The primary advantages of “Business Factoring” for small to medium size companies over lending institutions is that factoring facilities are much easier and practical to put in place.

View recent transactions

For the most part, factoring companies establish credit limits by evaluating your customer’s ability to pay, not yours. Your factoring credit facility will be virtually unlimited for future growth and will be based on accounts receivable owed by credible clients.

Factoring of Businesses is available in days, not weeks.

The process is simple with a more basic credit analysis focusing on the quality of the account debtors (your customers). Most funding transactions (depending on the industry) may take only 3 to 5 working days. At 1st Commercial Credit, we make receivable financing easy to obtain with minimal paperwork. This financial solution involves very little underwriting. Our clients can enjoy the benefits of our prompt service and begin to use their funds within days of completing an application.

Using Accounts Receivable as Collateral

Businesses that sell on credit terms have a hidden asset that most owners do not realize can be used for collateral. 1st Commercial Credit specializes in collateralizing and financing accounts receivable. The receivables are pledged as collateral and the business may draw cash against the eligible accounts receivable at any time. Factoring, also known as business receivable financing is not a loan, so there is no need to make payments or create debt to your business.

Business Qualifications for Business Receivable Financing

Our financing programs can accommodate companies with seasonal or uneven sales patterns or start-up operations with no financial base to rely upon. Any business can qualify for receivable financing if it generates sales on open credit terms to customers with financial credit strength. Most of our clients are trying to find a solution to finance their growth or whose past earnings will not justify a traditional loan or credit line increase.

What Industries Qualify for Receivable Factoring?

Every industry is evaluated differently because no industry invoices the same method. Not all factoring companies accept every industry. As a rule of thumb, your business must sell to a good credit worthy account debtor (customer), a receivable or invoice that can be verified or has an acceptance (signed off) by the account debtor. Receivable financing is available to all industries that provide services, or deliver products to commercial accounts. The sale must be "final sale" with no contingencies or disputes. The service or product must be completely delivered in order for an invoice (receivable) to be eligible for funding.

Invoice Factoring

2009-01-20T18:32:00.001-08:00

Invoice Factoring

If you offer credit to commercial accounts, then invoice factoring is a flexible way to replenish the cash flow gap that is caused by slow paying customers. At 1st Commercial Credit, we make factoring easy to obtain with minimal requirements and usually can have a same day decision. If your business sells to commercial accounts on credit terms, then your business may qualify for this type of financing. The approval process is simple to evaluate and we can expedite initial funding in 3 to 5 working days. Factoring accounts receivable has become the preferred financial tool in obtaining flexible working capital for small to medium size businesses.

What is Factoring of Invoices?

Receivable Factoring converts invoices sold on credit terms for immediate working capital. It has become a simple, fast and easy way to access business cash flow. 1st Commercial Credit is a factoring company that specializes in evaluating accounts receivable and can make a prompt approval decision. The credit is determined by the financial strength of the customer (Buyer or Account debtor), not the client (The seller of the invoices/receivables). This method involves very little underwriting and allows our prospective clients to acquire funds within days of completing an application.

Business owners realize that there is no need to borrow money from a bank in order to offer credit terms to customers. Factoring receivables is similar to a receivable loan offered by a bank. It is considered a purchase of the receivables at a discount and not a loan. This enables the business owner to obtain immediate cash flow collateralized by the outstanding receivables without going through cumbersome paper work and waiting weeks for a decision.

Invoice Financing is available in days, not weeks.

At 1st Commercial Credit, we make invoice finance a simple process with minimal paperwork. We make decisions primarily on the invoicing process and the credit strength of the account debtor (buyer). We specialize in evaluating and financing receivables and can make a prompt decision within a day. This financial option involves very little underwriting. The approval process is fast and we can employ funds within 3 to 5 working days after completing an application.

The Hidden Collateral: Invoices Generated on Credit Terms.

Companies that invoice on credit terms have a hidden asset that most business owners do not realize can be used for collateral. 1st Commercial Credit specializes in collateralizing on invoices sold on credit. Usually Net 30, 45 or 60 day terms. The receivables are pledged as collateral and the business may draw cash against the eligible invoices at any time. Invoice factoring, also known as accounts receivable finance is not a loan, so there is no need to make payments because your are using collateral that already exist or create debt to your business.

How can I borrow money using my invoices as collateral?

2009-01-20T18:28:00.002-08:00

If your business is in a cash flow crunch due to slow paying customers, then welcome to the club. There are thousands of business owners going through everyday challenges trying to keep their business afloat. You would think it would be lack of sales, but you would be surprised to know that many small businesses start with a small business loan, savings accounts or credit card and later realize the much more operating capital is needed than originally planned.

The number one failure in business today is the lack of working capital. There is a cash flow cycle that many business owners are not aware of if they sell on a credit bases. If you do not plan ahead, you will run into a brick wall once you are out of money to continue day to day operations. If you can think of the last time you drove for a long road trip, you probably planned where you would fuel up and how much money you were going to need for fuel cost. An 800 mile drive may require 3 fill ups. The same planning should be done in a business selling credit sales, it is going to need cash fuel to fill up the checking account more often than you think. If you offer net 30 day terms on your invoices, then plan to get paid in 40 to 50 days on good paying accounts and 51 to 75 days on slower paying customers.

How much money will you need for financing your customers? That’s right, you are now becoming the interest free bank for your customers. In addition to financing your customers, you will need cash flow for payroll, inventory replenishment and fixed expenses, your business adventure should plan to have enough working capital for 120 days before receiving your first payment. Add up 4 months of your total cost of goods and fixed expenses based on the planned sales and you should be able to figure out how much money you should have to sustain a successful business.

If you don’t have access to more working capital, what’s the other alternative? If your business today is increasing sales, has credit worthy commercial customers that owe you money and your business is free and clear of any liens. Your business may qualify for invoice factoring.

Invoice factoring is a financing method used by many fast growing businesses. Factoring companies specialize in purchasing your invoices and advance you cash the same day or within 24 hrs of verification. The process to set up takes about 5 to 7 working days and the business owners do not need good credit scores for approval. Factoring companies rely mainly on the credit worthiness of the customer because the invoice for delivered product or service is the collateral used to fund, not your credit score or financial statements.

With this type of financing, your business growth is unlimited. Your sales are converted to immediate cash and can pay your vendors with early payment discounts, make payroll and pay your bills for every day operating expenses.

How much does invoice factoring cost? Factoring companies charge discount fees based on the value of the invoice. If your business accepts credit cards, then you are already factoring to a degree. For example, your credit card merchant charges you a discount fee of 3% and you receive 97%. A factoring company works almost the same way but the advance and discount fees may vary depending on volume and industry.

Learn how some companies find creative ways to improve cash flow without alienating their customers or stringing out their suppliers.

2009-01-20T18:28:00.001-08:00

A prospective client of ours (a CEO) was having cash flow problems (due to growth in his business). His CFO presented him with two options:

1. Pressure customers to pay more timely, which might cause them to go running to a competitor.

2. Pay suppliers more slowly and increase payables outstanding by another 15 days. This option would negatively affect the Company’s excellent rating with Dun and Bradstreet.

The CEO contacted us to see if there was an alternative financing method that we could suggest. He did not want suppliers to carry the cash flow burden. They were already providing a great value-added service and played an important strategic partnership role in the production of inventory. They provided in-house inventory (raw materials, etc.) without cost, until it was used. This increased the company’s cash flow because the cost of goods sold was invested in finished products only, not raw materials. Since the cost of inventory was calculated on finished goods only, inventory turns were exceptional.

In an effort to keep his suppliers current and still accommodate new customer growth by extending credit, he opted for debt free financing. He did not want a traditional line of credit that would require audit fees, personal guarantees, a pledge of hard assets (as collateral), appraisal fees, monitoring fees and other fees that are usually involved with conventional credit lines.

So what did we offer him? Accounts receivable financing - a debt-free type of financing that many companies are turning to. It allows them to convert accounts receivable into a working line of credit (without the debt) and increase cash flow without pressuring customers for collection.

Unlike larger banks that focus on large corporate customers, accounts receivable finance companies have emerged to help smaller companies that need receivable factoring. Accounts receivable financing can be established with as little as $10,000 a month in sales for smaller companies, and with as much as $10 million in sales per month for larger companies. Not all factoring companies accept every industry.

Is Accounts Receivable Factoring Right For Your Business?

2009-01-20T18:27:00.001-08:00

Is Accounts Receivable Factoring Right For Your Business?

Small to medium size businesses find themselves struggling to finance the growth of sales on net 30 day credit terms. Too much growth to charge accounts will put a cash flow shortage and may cause problems in meeting payables to vendors, payroll and other fixed expenses.

The first thing that naturally comes to a business owner is to go to the local bank for help. Due to the highly regulated bank industry on business loans, if you are lucky enough to meet all the requirements, you may go out of business or lose out on business opportunities by the time your loan gets approved. Then you find out later that the amount of the loan seemed substantial at the time but your business growth exhausts the funds and now your back to square one, only this time the bank will not extend you more credit.

In summary, you are now in the finance business for your customers, paying interest on money tied up in receivables, and no more funds available to sustain future business growth.

So where do businesses that have this problem get their financing?

Factoring companies specialize in financing accounts receivable. Accounts receivable factoring is the selling of outstanding invoices or receivables at a discount in exchange for immediate cash to your business. Imagine if you could convert your receivables to cash flow in 3 to 5 working days, and then collect all future invoices within 24hrs. This is a financing tool that many business owners are taking advantage of everyday.

What are the benefits of accounts receivable factoring?

- Funding of accounts receivable usually can happen in 3 to 5 working days.
- No financial statements are needed.
- No up-front fees to set up an account.
- Converts dead money in receivables to instant cash flow.
- Credit limits are determined based on your customers ability to pay, not your business credit.
- Eliminates the need to borrow money or give up your ownership to private investors.
- Provides professional credit analysis of your accounts and new customers that are going to be sold on credit terms.
- Loans create debt on your balance sheet whereas factoring does not.
- Provides the ability to pay vendors with net 10 day cash discounts which will offset some of the cost.

How to hurdle fast growth financing without adding debt to your business?

2009-01-20T18:26:00.002-08:00

Debt Financing or Off Balance Sheet Financing?

In this article, we will discuss two types of financing: Debt Financing and Off Balance Sheet Financing.

Debt Financing describes a traditional or conventional loan issued to a business that creates a liability on the balance sheet. Due to the nature of this type of financing, it affects debt-to-income ratios that are usually considered when applying for future loans or gaining access to capital.

Off-Balance Sheet Financing has no affect (as the title implies) on the Balance Sheet. There are two types: Equipment Leasing and Factoring.

Equipment Leasing allows a business to buy equipment with rental payments, and the balance sheet is not affected with debt-to-income ratios that may defer future access to capital. (You may want to ask your accountant if Equipment Leasing is the right choice for your business). The key point is this: There is no reason to tie up your working capital when you can rent to own the equipment. Even if the cost of the funds is higher than a traditional loan, the rent payment to the leasing company is 100% tax deductible, and sometimes, that alone may offset some of the additional cost.

Another type of Off-Balance Sheet Financing is “Factoring” (Accounts Receivable Financing). Factoring is the purchase of a company’s accounts receivable. The factoring company converts the accounts receivable to cash and leaves the business with cash on hand and no receivables. Factoring is not a loan, so there is nothing to pay back. See Factoring (below) for more information on how it works.

Who uses Factoring? Business owners who face exponential growth can find themselves short of the cash they need to meet everyday operating expenses. Many business owners (during their first financing stage) never anticipate accelerated growth. Small businesses can access capital by tapping into a personal savings account, using credit cards or taking out a home equity loan but they may fall short of cash when uneven sales patterns occur.

Fluctuating sales can interrupt the working capital needed for supplies, rent, payroll and routine expenses. This is a common scenario that is usually not anticipated in the financial planning of the business. When business growth outpaces working capital, few options are available.

Business owners, who frantically seek financing, normally go to the most obvious source: Banks (that offer Debt Financing). They may hit a brick wall after they visit 20 banks and realize that the maximum amount of their loan can only match the collateral that their business has to offer. Most start-up businesses do not have enough assets or equity to meet the loan requirements. In addition, conventional loans are very slow in processing and may not be approved in time to meet current obligations.

Factoring (Off-Balance Sheet Financing) is available for fast growing businesses that offer credit terms to their customers or commercial accounts. It is the easiest and most flexible type of financing available. It involves establishing a credit line by advancing money to a business by pledging its accounts receivable as collateral. The invoice created by the business (for services or products accepted by a customer) is considered (by the factoring company offering funding) to be a realized asset.

How does it work?
A business issues an invoice (receivable) to its customer. The factoring company purchases the receivable (from the business) at a discount. The factoring company then transfers funds to the business and mails the original invoice to the customer. Then the factoring company waits to get paid. It is that simple! The process to set up takes about 5 to 7 working days and the business owners do not need good credit scores for approval. Factoring companies rely mainly on the credit worthiness of the customer because the invoice for delivered product or service is the collateral used to fund, not your credit score or financial statements.

How much does factoring cost?
Factoring companies charge discount fees based on the value of the invoice. If your business accepts credit cards, then you are already factoring to a degree. For example, your credit card merchant charges you a discount fee of 3% and you receive 97%. A factoring company works almost the same way but the advance and discount fees may vary depending on volume and industry.

Factoring Receivables is an Alternative Form of Business Financing

2009-01-20T18:26:00.001-08:00

With the ongoing consolidation of the banking industry, financing options previously available to small businesses are becoming fewer. The few remaining independent banks and large banking chains have credit standards that are often to restrictive for small businesses.

As a result of an increased amount of bad loans, and regulatory pressure to avoid high-risk loans, fewer banks exist today that are able and willing to provide accounts receivable financing to small and medium size businesses. The commercial bank’s inability to provide this type of loan has created a need for an alternative form of finance know as “factoring”. Invoice factoring is one of the oldest forms of working capital financing that, until recently, was unavailable for small to mid size businesses.

A factoring company differs from a banker in many respects. A banker extends credit based on the financial condition and cash flow of the borrower. The borrower is expected to make monthly or quarterly payments to the bank on good times and bad. Therefore, the borrower must meet rigorous financial requirements and have a long, successful track record before obtaining a bank loan.

Factoring companies do not require the client to have a strong balance sheet or demonstrate years of profitability. Factoring companies in general are more interested in the credit worthiness and financial strength of the client’s customers. If the client’s customers are strong, the factor is usually able to provide financing by factoring (purchasing) the client’s accounts receivable.

A factor recognizes an invoice as an immediate asset for purchasing so long as the service (or products delivered) has been provided and accepted by the customer. The invoice is verified and then the advance is funded, typically 75% to 95% of the invoice value. This is usually completed the same day that the invoices are received.
The balance of the advance is called the "Reserve". The reserve is held back until the customer pays the invoice in full and the invoice transaction settles. The fee is deducted from the reserve and the balance is available for withdraw.

For example, your company factors an invoice for $1,000 and you get a 90% ($900.00) advance, 10% ($100.00) is held in reserve. When the invoice is paid the transaction settles with a 3% ($30.00) fee and the balance 7% ($70.00) is placed in your withdraw account. In this example the total fee was $30.00 for factoring a $1000.00 invoice.
Factors often work in conjunction with banks. Occasionally a bank customer may have a sudden need for working capital that exceeds the bank line of credit. The factor, in such instance may negotiate an agreement with the banker which will allow the factor to finance a specific invoice account while the bank holds the rest of its borrower’s accounts receivables collateral.

In summary, factoring receivables is an alternative form of finance widely used by small businesses. It is a very flexible financing mechanism which can assists all kinds of businesses in meeting payroll, taking trade discounts with suppliers, or simply increasing liquidity to sustain growth.

Why should I go with a full service factoring company instead of a bank that offers factoring services?

2009-01-20T18:25:00.001-08:00

Like with most other financial services, you have choices when it comes to factoring your accounts receivable. It used to be that when you needed a home mortgage, you went to a mortgage banker. When you needed a line of credit, you went to your bank. When you needed factoring, you went to a factoring company.

Not true any more. You may now obtain your line of credit from your stock broker, your car loan from your insurance agent and your home mortgage from an Internet company that makes as many car loans as it does home mortgages.

One of the latest trends is for banks to offer accounts receivable factoring. Let’s examine the difference between banks offering factoring and a factoring company offering factoring. As you are about to see, they offer two entirely different experiences, often for the same price.

First, let’s examine why banks began offering factoring a few years ago. To understand, you must first realize that banks have never embraced the concept of financing accounts receivable. Banks tend to favor loans secured by assets they can touch, hold, or walk on—like machinery, inventory, equipment, and real estate. Obviously, you cannot “touch” an account. It is an “intangible” asset with real value. Typically, banks require a borrower to put up other “tangible” assets when lending against accounts receivable. Moreover, to qualify for a credit line or a loan, you must demonstrate to the bank your profitability, solvency, and a successful track record in business. You must also have good credit. Most new companies will not qualify for a loan of sufficient size to support receivable growth.

A few years ago, private factoring companies began proliferating, because they saw a niche. Banks lent too little against accounts receivable and tied up all their borrower’s assets in the process—if they could qualify at all. Besides, lending against accounts receivable was a side business for banks that were more interested in lending against hard assets. Factoring was an industry on the rise.

It’s not that factoring companies are a new idea. In fact, the contrary is true. To understand the history of factoring, you have to understand some basic U.S. history. Factoring companies began to first populate the colonies shortly after the British began colonizing New England. Back then, a factoring company was a company or individual that facilitated trade between sellers of goods in Europe and buyers of goods in the colonies. The factoring company (also known as Factors) would “vouch” for the buyer, essentially ensuring the seller in the old country that the buyer in the new country was good for the money.

A tea producer in England might seek out a factoring company in the colonies to vouch for a tea merchant in Plymouth, Massachusetts who wanted to buy tea from England. The factoring company, became an expert in knowing who was good for the money and earned a fee for its expert credit advice. At some point, factoring companies cornered the market in credit underwriting and saw another business opportunity. In addition to charging a fee for its credit advice, factoring companies became trade merchants themselves and facilitated the sale by acting as the buyer and reseller of goods.

Now, the factoring company could also earn a small spread between what the bought goods in England and what it sold the goods for to the merchant in the U.S. The factoring company was now also assuming some risk by laying out cash. If the factoring company was unable to collect from the buyer, the factoring company took the hit. The seller of the goods (the client of the factoring company) received the benefit of increased cash turnover and avoidance of a potentially uncollectible or risky debt. The only real considerations in the transaction for the factoring company were 1) would the factoring company get paid by its client’s customer; and 2) could the factoring company make a spread between the selling price and the purchase price of the goods.

A lot has changed since the pre-Revolutionary War factoring company that acted as a trade merchant, but the basic services offered by modern-day, full-service factoring companies have remained largely unchanged: Offer credit advice to help the client minimize bad debt, offer cash advances against the client’s accounts receivable; and offer collection expertise. Many modern factoring companies also specialize in industries where factoring is most prevalent: apparel, furnishings, textiles, trucking, IT staffing, temporary staffing, Nurse Staffing, and manufacturing.

This is where it is important to distinguish between the modern-day factoring company and banks that offer “factoring” as a side line. Indeed, factoring has become a side business for banks that view factoring as an opportunity to obtain higher fees from a company seeking to obtain funds against its accounts receivable rather than charging ordinary interest on a credit line or loan.

Remember what you learned earlier, banks are fee driven. The fees to “factor” with a bank are likely four or five times higher than the cost of borrowing the money from the bank—and likely you have received none of the services typically offered by modern full-service factoring companies. You received nothing of value over and above what you would have received from the bank if the bank were to have lent you the money in the form of a credit line or loan.

So the real question is, “What do you get from a modern-day full-service factoring company that you don’t get at a bank?”

1. A receivable specialist. With a factoring company, you are getting a specialist. If you needed a heart transplant, would you go to doctor that specializes in skin disease? Probably not. You would seek out a cardiovascular surgeon. Why, because the cardiovascular surgeon is specially trained in heart transplants and has lots of experience. Same goes for a factoring company. Factoring companies are accounts receivable specialists. They are comfortable advancing you funds against your accounts receivable.

2. Speed, Simplicity, and Efficiency. The first thing you will notice when applying for factoring with a factoring company is how quickly you are set up and funded. You will not be asked for piles and piles of paperwork. Remember, a true factoring company is only really concerned only with the credit strength of your customer(s). Therefore, you will likely not be asked for your own financial statements, tax returns, profit and loss statements, or bank statements. In fact, you don’t even have to have good credit. Your customers must have good credit. Your factoring company will check out your customer’s credit for you and advise you what credit limits are appropriate given their financial strength. Your factoring company should be able to get you set up and funded within three to five business days.

A good factoring company will limit your exposure to poor credit risks and allow you virtually unlimited credit for the strongest accounts. Most factoring companies have no overall limit for you as a client. You are eligible for as much money as your eligible accounts warrant.

Banks like to make their decisions based on your credit and therefore applying is slow, tedious and unpredictable. If your credit is not perfect, you may not qualify. If your balance sheet is not strong, you may not qualify. If you are not profitable, you may not qualify. If you are in an industry the bank finds too risky, you may not qualify. It takes time for banks to dig around and identify all the risks. In other words, be patient and don’t wait for the last minute to apply.

Banks tend to set arbitrarily low or high credit limits for your accounts based not on the credit strength of your customer(s), but on your own credit strength or on the strength of additional collateral the bank may require you to pledge. Credit limits set too low restrict how much business you may do with your customer(s). Credit limits set too high expose you to unwarranted risk.

3. Collection Expertise. A full-service factoring company will supply you with your own collection specialist. This individual will act very much like an extension to your company. Your collection specialist will obtain and maintain a status of your customers’ payments once they become past due. You may call your collection specialist and ask him or her to make collection calls for you and report back to you of their progress. Banks typically offer no collection assistance much less your own personalized collection specialist.

4. Flexibility. Banks have loan committees, executive loan committees, in-house limits, regulatory limits, auditors, and bank regulators. Everyone wants to have a say. They must all be satisfied that your factoring transaction fits within the bank’s and regulator’s definition of “acceptable risk”. Your factoring company is not subject to regulatory oversight. A factoring company makes decisions it deems appropriate. A factoring company is motivated to buy your invoices. As a result, increases are automatic. No approval authority is needed by a loan committee. Decisions are made same day in most cases and some factoring companies will allow you to factor as many or few accounts, as many or few invoices as you desire.

Most banks will require a senior secured position in all your assets as security. Likely, they will limit your outstanding balance equal to only a fraction of the collateral value. If you need additional funds and wish to refinance or sell some of your equipment to raise cash, you are at the bank’s mercy to release its security interest in the equipment. Likely, the bank will require you to pay them some of the proceeds of any such refinance or sale. Most factoring companies will require only a pledge of your receivables, leaving you the flexibility to finance your other assets elsewhere. Most banks will require you to maintain your operating (checking) account at the bank. This gives the bank additional leverage over your company’s finances. Factoring companies will allow you to maintain your checking account where ever you wish. Your factoring company will wire your advances into any accounts you direct them.

The factoring company is an accounts receivable specialist. If your goal is maximizing flexibility, funds availability, credit protection, and cash flow, you need an accounts receivable specialist. Your full-service factoring company is waiting to help you.

How to use Accounts Receivable Financing in an Acquisition of a Business.

2009-01-20T18:24:00.000-08:00

Considering buying your competitor? Unless you have been in business for ten years and established an incredible track record of strong profit and cash flow, have lots of equity on your balance sheet, or have a seller willing to tote the note for you, you will likely be seeking some type of creative financing. In the following pages, we will assume you already have a business, that you have good-quality, unencumbered accounts receivable in your existing business, and that you are seeking to acquire another company.

The fact is, most sellers of businesses want all or a good chunk of the sales price up front. Some sellers may finance a small portion of the sales price for you. Often, sellers want to sell their companies at multiples of book value, cash flow, revenues, net income, or all of the above. The value of a business over and above the book value of the tangible assets is known as goodwill. The more goodwill, the more difficult it is to finance by conventional means.

Nearly every seller of a business thinks their business has more goodwill than everyone else. It’s called human nature. Naturally, you build a business, put in all the sweat equity and the long hours to get to a point where the business has value. Now you want to cash out and you want someone to pay for what’s dear to you.

The most common items making up goodwill include accounts (the customer list), trade marks and trade names. Consider that a fast food operator who hangs a “KFC” sign in front of his store is sure to attract more business than his neighbor who hangs a sign, “Jack’s Fried Chicken”. Assuming Jack’s chicken is as good as the colonel’s, the difference in their sales is attributable to goodwill associated with the trade name, “KFC”. KFC franchisees pay a royalty to the colonel for bringing in all those customers.

Likely, a company you acquire won’t have the kind of name recognition that KFC enjoys, so you can’t justify paying an excessive premium for the name. The name may have some value, but besides the equity in the assets you are purchasing, most of the goodwill lies in the customer relationships or in the assets’ ability to generate above-market ROA (return on assets).

When purchasing the assets of a company, the accounts or customer list will probably be included in the acquisition. The value of that customer list can only be determined with time. This is what makes business valuation so difficult. There are several variables that affect the value of the customer list. Customer retention after an acquisition is key. Following are some questions to consider:

1. Are you going to retain the owner and/or old sales staff of the old business that had the primary relationships with the customers or are they going to defect and take all their customers with them?

2. Can you enforce a non-compete against the old owner and can you get the old sales persons to sign one?

3. Are you prepared to pay the old sales persons a “stay on” bonus in order to get them to sign a non-compete agreement?

4. Will your competitors use aggressive tactics and use the sale of the company as a reason for the customers to switch to your competitor?

5. Are the customers contractually bound to continue doing business with you?

Generally speaking a buy/sell agreement will contain a non-compete provision that the old owner will have to sign. But you cannot control the other variables.

The prudent solution is not to pay more than book value for the assets at the time of closing and to pay for goodwill, if any, over time in the form of a royalty or monthly installment tied to revenues generated by the accounts existing at the time of closing.

Bear in mind, the seller has the very reasonable expectation that you will work hard to maximize the value of the customer list by providing excellent service and pricing if you expect the seller to accept part of the sales in deferred or installment payments tied to future revenues. Some negotiating skills are required.

If your acquisition target’s primary assets are receivables, and the seller is demanding a cash payment, you have a dilemma. Try to structure an asset acquisition without the accounts receivable or, if you are buying the existing accounts receivable, do not pay cash for them and set aside a reserve for uncollectible accounts from the proceeds in escrow until all pre-closing accounts receivable are collected.

If the existing accounts receivable are included in the sale, the seller should give you credit towards the purchase price for any collections he receives which relate to the pre-closing receivables or credit for any uncollectible accounts after a pre-determined number of days. This can be done through use of an escrow as described in the preceding paragraph or as a credit.

Let’s look at a simple example:

Assume you want to buy a business reporting the following:

Cash:	$ 5,000
Accounts Receivable:	$100,000
Inventory	$ 25,000
Equipment (net of depn)	$100,000
Machinery (net of depn)	$ 60,000
Vehicles (net of depn)	$ 50,000
Goodwill	$160,000
Total Assets	$500,000

Liabilities
Accounts Payable	$ 40,000
Notes Payable	$160,000
Total Liabilities	$200,000

Net Worth (Equity)	$300,000
Tangible Net Worth	$140,000

Annual Sales	$1,200,000
Net Income	$ 100,000

Assume the seller is asking $500,000 for all the assets, including the accounts receivable. That would be a premium of $160,000 over and above the tangible book value of the assets. Now there are two important questions. Is this company worth such a premium and if so, how do you structure payment to minimize your risk.

Here’s a model:

Cash down payment of verifiable tangible assets minus accounts receivable	= $240,000
Owner Collects the pre-closing accounts receivable over the 30-60 days following closing	= $100,000
Goodwill paid in 48 monthly installments equal to 3.3% of monthly revenues, not to exceed $160,000	= $160,000

Total Sales Price	= $600,000

Is $500,00 a fair price for these assets? You may want to consider other business valuation measures:

$500,000 is:

<.5% of annual sales
= 6 times earnings
=150% of market value of tangible assets

For simplicity sake, we have ignored other capital requirements, such as the debt and equity that the old company carried on its books to finance these assets. Consulting an experienced accountant and lawyer are critical at this stage.

Now, you might consider factoring your own company’s accounts receivable to come up with the $240,000, then continue factoring both companies’ accounts receivable in combination with some traditional equipment financing (i.e. leasing, or borrowing) to satisfy your ongoing working capital requirements. Over time, if you are profitable, you should be able to retain enough earnings to wean yourself off factoring or otherwise qualify for a bank line of credit at a later date.

Do not structure the purchase to include a cash purchase of the pre-closing accounts receivable without the personal guaranty of the owner that they are 100% collectible. Even if you verify 100% of the accounts receivable, you are subject to many risks if you buy those receivables. Risks include later-discovered fraud, disputes with customers, credits, returns, and other dilutive variables. There are also practical and legal issues concerning how the customers are notified of a change in remittance instructions. Anything short of 100% collectibility of the accounts receivable by the buyer within 60 to 90 days post closing should be credited against the purchase price in some fashion.

Is An SBA Loan Your Best Answer?

2009-01-20T18:23:00.002-08:00

If you own a small, growing business and you are in need of financing real estate, equipment, or machinery, where do you turn? Perhaps you go to your local bank. But what if your business lacks the type of tangible, “hard assets” that banks favor as collateral. “Hard assets” is a banking industry slang term meaning anything you can touch or see that has value to a lender as collateral, like a building or a tractor or a machine.

The reason banks like to lend against “hard” assets is easy for anyone to understand. If things go wrong, like the borrower becomes unable to repay the bank, it is easy for the bank to go to the borrower’s place of business recover its collateral. Once the collateral is in the possession of the bank, it may sell the collateral to recoup its loss on the loan. Of course, there are some legal hoops they may have to deal with like foreclosure or obtaining an order from local law enforcement to enter your property to recover property, but in any event, the collateral can be recovered and sold.

Banks do an admirable job of lending money to small businesses in need of financing hard assets. Generally, these loans are term loans—repayable to the bank in equal monthly installments of principal and interest over two to five years. To encourage banks to make these types of loans to small businesses, the U.S. Government provides incentives like loan guaranties through the U.S. Small Business Administration (“SBA”).

Essentially, the thinking goes like this: Investment by businesses in machinery, equipment, trucks, tractors, and construction stimulates the U.S. economy and generates employment. Since banks finance the bulk of this type of investment for business, the U.S. government, through the SBA, provides incentives for banks. The SBA tells banks that if a borrower meets certain minimum standards—generally lower standards than banks would otherwise require, the SBA will guaranty the bank repayment of a large percentage of the loan—even if the borrower defaults.

In other words, borrowers who may not otherwise qualify for a bank loan in the absence of an SBA guaranty, may qualify for a loan if guarantied by the SBA. Everyone wins. The government has done its job to stimulate the economy, the bank earns interest on a loan it otherwise may not have otherwise made, and the borrower gets to expand its business.

Before you start thinking that an SBA loan is perfect for your small business, let’s examine the loan requirements a little more thoroughly. First, when banks act alone, they are free to underwrite their loans in any way it make sense to them, provided they don’t run afoul of the regulators. Generally, if a bank wants to lend a borrower 80% of the value of a new tractor, the bank will usually secure the loan only with the vehicle’s title. No additional collateral is necessary. But a bank that is relying on an SBA guaranty for additional security has to play by SBA rules. The loan, while easier to qualify for, may be much more restrictive when it comes to its terms.

For example, the SBA may require the bank to obtain a “blanket lien” on all the borrower’s assets, including even assets which are not even remotely related to the loan request. A blanket lien is a “pledge” of all assets to secure a loan. It may not be unusual therefore, for an SBA guarantied equipment loan to be additionally secured by your inventory, accounts receivable, vehicles, machinery, land and buildings. Blanket liens often lead to situations where the bank is “over-collateralized”.

While being over-collateralized my be great for the bank and the SBA, it is bad for you and your business. The bank being over-collateralized puts the bank in control of your business and makes it quite difficult (and in some cases impossible) for you to convert equity you have built up on your assets (or should we say, the bank’s assets) into cash to further expand your business, make payroll, purchase additional inventory, take on larger accounts…you get the picture. Sometimes the only relief is to find the money elsewhere to pay off the bank and obtain a release.

You can protect yourself against this scenario. First, realize that everything is negotiable. Ask lots of questions. Don’t assume that because you are borrowing money to buy a truck, that buried in the loan documents, you are not also giving the bank a security interest in your accounts…or your inventory. Ask up front what the collateral requirements are going to be and don’t give the bank any more collateral than is absolutely necessary.

The reason for being stingy with what assets you offer as collateral may not be clearly evident to the novice business owner, but those who have been through several business cycles understand all too well. By giving a bank too much collateral, you lose the flexibility to sell the underlying assets or refinance them elsewhere to generate emergency cash. Typically, if you want to sell any assets that the bank holds as collateral, you must take part or all of the sales proceeds and pay down the bank with it. But don’t forget to get the bank’s permission first, or you might be accused of conversion—a legal term referring to improperly disposing of assets that are subject to a lien.

Emergency cash isn’t only needed when times are bad. You may need emergency cash to expand your business quickly to take advantage of an immediate opportunity. When times are good, and if you are really, really nice and you beg your banker, he or she may release a particular piece of the bank’s collateral so that you may sell or refinance it to generate cash. But have you ever asked a lender to release its collateral when times are tough. You can forget about even asking.

Let’s examine an entirely different twist. Perhaps you are a service business like a temporary staffing firm, a nurse staffing firm, or an IT Staffing firm. You don’t have any “hard” assets like a manufacturer or trucking company might. Business is good and expanding. You need expansion capital to hire more people or to finance accounts receivable. You will find that most banks, despite what they may say publicly, are not thrilled about lending money to companies that don’t have lots of hard assets. Why? Remember early on when we talked about the bank liking to lend against assets they can see and touch? Service businesses usually have few of those types of assets. More typically, service businesses’ largest asset is their accounts receivable.

Will banks lend against accounts receivable? Certainly, if you qualify. Will they lend you anywhere near their value? No. How do you know if you qualify? Wait for weeks or months while the banker pours over reams of paperwork he or she required you to supply. Then wait for the loan committee to meet. Chances are they will ask for more collateral, more restrictive terms, a higher interest rate, or more information. Your banker will come back to you with this information and begin the process again until loan approval is granted or denied by the loan committee.

So let’s examine the pitfalls we were discussing two paragraphs ago. Let’s say business is pretty good, you go to your bank and qualify for an SBA guarantied (or non-SBA guaranteed) line of credit secured by your accounts receivable. Perhaps you have $100,000 of accounts receivable and the bank feels generous by offering you a $50,000 revolving line of credit secured by a blanket lien on all your assets.

Six months later, business really starts to take off. Monthly sales are increasing 10% per month and now you have $160,000 in accounts receivable, but no cash. All your cash is tied up in the hands of your customers and you are having a tough time making payroll. What’s more, a large, new, profitable order just came in and you’re afraid to take it, because it would mean having to hire another employee—and you don’t know how you’re going to pay the employees you already have.

You jump in your car, go down to the bank and say, “How about an increase in my line of credit to $100,000 to help me expand my business?” When your banker stops laughing at you, you will then realize what millions of service business owners already know and I explained earlier. If accounts receivable are your business’ primary asset, don’t expect your banker to be thrilled to borrow money against them, much less to increase the amount already committed. Remember, your banker cannot see or touch your accounts receivable—so likely, he or she won’t want to lend you (much) against them.

Here’s where the real trouble begins. You have an asset worth $160,000 today, but you borrowed $50,000 against it six months ago. Now, if the bank is unwilling to lend more against your accounts, your have to make some decisions. If your lack of working capital is causing real pain like being unable to expand further, you must consider factoring your accounts receivable.

A good factoring company will analyze your accounts in 24 hours or less and determine whether or not you are eligible. If you are eligible, the factor will make a lump sum advance to you against your entire book of accounts receivable, segregating the amount necessary to pay off the bank and obtain a release of the bank’s rights in the collateral. It is not uncommon in these cases for the borrower to walk away with 50%, 100% or even 200% more net cash availability under a factoring scenario than a borrowing scenario.

To generate the most working capital, consider factoring accounts receivable rather than borrowing against them. Not only is factoring fast, flexible, and more affordable than you’d expect, but as you experience growth in your accounts receivable, there is no nasty confrontation with a banker when you need additional funds. As your eligible receivables grow, so does the amount of cash available to your company. In factoring, there are no loan committees, regulators, government bureaucrats or auditors determining your fate. Access to cash is fast and premised only on the quality of your customer’s credit—not yours.

Credit Expertise = The Hidden Value in Factoring Accounts Receivable

2009-01-20T18:23:00.001-08:00

Many of our clients qualify for other forms of financing sometime during the course of our factoring relationship with them. While factoring is sometimes viewed as an interim form of financing, the choice to replace a factoring relationship with a banking relationship is not always an obvious one. Freight factoring is a financial method used by trucking companies to convert sales on credit terms for immediate cash flow.

True, factoring provides growth capital that allows companies to grow to the point where they can obtain credit from more traditional sources of financing, like commercial banks. Often however, the choice is not clear cut.

Recently, a large factoring client in a small, rural community informed me that they had been approached by their local independent banker, who had approved a line of credit for them. The client is a trucking company running a fleet of 70 tractor trailers, generating about $1 million per month in revenues.

The client has been consistently factoring about $1 million per month and have about $1.4 million in outstanding factored accounts receivable against which they have outstanding advances from us of about $1.2 million.

One of our client’s larger accounts was Delphi, the large auto parts manufacturer that filed for Chapter 11 bankruptcy protection the second month of October. They had been hauling Delphi freight since before becoming our client and continued to haul Delphi freight until we contacted our client in July and warned them of Delphi’s dire financial condition.

Although Delphi’s troubles had been widely reported in the financial press, our client, so focused on obtaining loads, was unaware that they were doing business with a shipper that soon, would be deemed insolvent.

In most reorganizations, general unsecured creditors like our client would expect to receive ten to twenty cents on the dollar for all their pre-bankruptcy petition accounts receivable. Understanding this, we counseled our client to begin reducing its exposure to Delphi by reducing lanes it was covering. During the period between July and the October filing date, our client reduced its Delphi exposure to only $16,000 from well over a quarter million dollars.

Now, consider what may have happened if our client was borrowing against its accounts receivable from a commercial bank instead of factoring its accounts receivable. True, the cost of funds may have been less, but would the lender have provided the credit guidance our client received from us? Doubtful.

In the final analysis, our client made up the difference in the cost of funds five fold by heeding our advice, reducing the volume of business it was conducting with Delphi, and staying a loyal factoring client.

By: 1st Commercial Credit,
Account Representative

What to Look for in a Factoring Company?

2009-01-20T18:22:00.001-08:00

Does the factoring company have a credit department?

Does the factoring company have a collection department?

Does the factoring company have a long track record?

Is the factoring company a specialist in your industry?

Is the factoring company the right size for your company?

Does the factoring company embrace technology?

1. Does the factoring company have a credit department?

2. Does the factoring company have a collection department?

3. Does the factoring company have a long track record?

4. Is the factoring company a specialist in your industry?

5. Is the factoring company the right size for your company?

6. Does the factoring company embrace technology?

If you feel that your business would benefit by setting up an account receivable factoring program.

How To Increase Your Business Credit Lines By Factoring Receivables.

2009-01-20T18:21:00.000-08:00

Businesses have access to five types of Business credit. The first one is the most obvious, and that is your bank credit line backed by business or personal assets and personal guarantees. The second is non-asset based like credit cards used by many small businesses and start-ups. The third is trade credit, like vendor-supplied, unsecured lines of credit for purchases of their product. The fourth is equipment leasing and the fifth is tapping into your customers’ credit strength. The last one is the most important one that many business owners do not know exist.

The third, trade credit will only apply to businesses that purchase raw goods or inventory for resale. It is much easier to grow your vendor credit lines than asking a bank to extend credit. Most businesses purchase 80% of their goods from a few vendors. Is your business able to take advantage of 2% net 10 day terms? Most businesses are not taking advantage of early pay discounts due to money being tied up in receivables.

Why is it important to manage your business credit with vendors? Your business credit can save you money or cost you money. Presenting your business in the best light can directly increase your bottom line. Your company may look financially unstable or unhealthy when you continually pay past your credit terms and this can cost you money!

It is standard in most industries to offer 2% net 10. Some industries offer more but will not print it on their invoices. You may want to call and ask the comptroller and see if they will offer a 4% net 10. Call competitive vendors and see what their terms are to make sure you are getting a good offer for paying within net 10 days. We have seen as much as 10% for net 10 day terms. But be careful. If not, you might just be giving away a price reduction you might have been able to negotiate anyway.

By factoring receivables, you will be able to take advantage of early payment discounts from all your vendors that offer these terms. In order to increase your credit lines with your vendors, you need to be in very good credit standing before you ask. Businesses that take advantage of these terms every month are far more noticeable by the credit department.

Vendor credit lines can grow faster than a bank credit line if you play your cards right. In addition, vendors rate customers by volume and ability to pay. Some business owners have a better edge when it is time to negotiate better prices by having a history of paying their bills on time.

The fourth credit line is off-balance sheet equipment leasing. When you can provide bank statements with good cash flow and establish four trade references you can brag about. You should be able to buy equipment at very low rates. Equipment leasing offers advantages over a bank loan because it shows up on your balance sheet as rental equipment and not a liability like a bank loan. The key is to reflect as little liability as legitimately possible on your balance sheet.

So how do you tap into your customer’s credit strength?

The fifth credit line is one that many businesses do not know about. By factoring your accounts receivable, you will be able to tap into your customers’ credit strength by obtaining advances against funds your customers owe you. A factoring company establishes accounts receivable
credit lines based on your customer’s credit or ability to pay, not yours. Factoring is not a loan, and the funding of invoices is viewed as a purchase of a company's invoices. For example, let’s say you have 10 large customers with good credit ratings, and each is assigned a credit facility of $250,000 based on their ability to pay. Factoring your accounts receivable enables your business to sell on net 30 day terms for up 2.5 million dollars. At your option, you can ask the factoring company to fund your invoices daily or what ever meets your needs.

With the increased of cash flow, you can take advantage of early payments to vendors with 2% net 10 terms and offset some of the cost of factoring. It is that simple. This is far more leverage than a bank will ever assign.

In summary, By increasing cash flow through factoring, you might be able to negotiate better terms from suppliers and vendors, qualify for preferential pricing, and keep your balance sheet debt free.

Banks should consider Export Trade Finance Outsourcing

2009-01-20T18:20:00.000-08:00

If you’re a bank with a limited international presence, you may be struggling to deliver accounts receivable finance to your large corporate customers involved in foreign export trade. If so, then international accounts receivable outsourcing may be your answer.

According to an October 1997 article in Business America: ”One of the first decisions companies face when contemplating global trade is how to address the attendant credit risks and administrative responsibilities involved ------ international factoring offers small- and mid-sized companies a practical, cost-effective strategy for penetrating global markets. By giving exporters the protection they need, and by extending open credit terms to their customers, international factoring provides a solid foundation for profitable new trading relationships that keep businesses on track for greater growth”.

As a bank offering these services in international markets, you may be facing certain challenges. According to Jeremy Shaw, head of trade services for JP Morgan Treasury Services, there are three things that prevent banks from keeping up with international trade finance: increasing costs, competitive technology and globalization. Because of these factors, many banks now turn to outsourcing their export trade finance to international banks or finance companies that specialize in foreign trade. 1st Commercial Credit specializes in providing export receivable finance, purchase order financing, letters of credit, credit analysis, credit protection and foreign collections for U.S. export trade companies.

Increasing costs
It’s a fact: offer continuous service, and your costs keep climbing. Offer newer more competitive services, and your costs skyrocket. At 1st Commercial Credit, we offer consistent, competitive rates and you don’t have to worry about the rising cost of doing business in each country. Our financial services only incur fees to the client when a transaction is funded. The fee is bundled into one package that includes, credit protection and mitigation of foreign receivable risk, 24/7 online reporting and tracking to help manage activities, funding of accounts receivable, collections, and access to a team of credit professionals and operation specialist.

Competitive Technology
With the media constantly revealing what’s available in banking, it’s easy to see why more and more customers expect the latest, most advanced technology from banking institutions. At 1st Commercial Credit, we offer cutting edge technology and competitive services available online 24/7 and credit approvals within 48 hours.

Globalization. – As more manufacturing companies move their plants into Asia and India, international accounts receivable trade is growing. At 1st Commercial Credit, we have experienced account representatives who can meet operational needs of our customers in 60 different countries (including Asia, Europe, Latin America, India, Africa and the Middle East) and are able to finance transactions in over 17 currencies.

When choosing an outsourcing partner, consider 1st Commercial Credit for your outsourcing needs. One thing is certain: you will never have to worry about us competing for your business. Our service is trade receivable financing; not banking, and we are committed to your success.

In summary, 1st Commercial Credit can offer the following:

Accounts Receivable Funding provided around the world with clients and representation in every major world market
Purchase order finance, trade finance, letters of credit and credit insurance
Credit protection and mitigation of foreign receivable risk
Access to customer credit ratings online 24/7
Credit approvals for new buyers and distributors in any country within 48 hours
Access to online reporting and tracking
Collection services

1st Commercial Credit, a factoring company headquartered in El Paso, TX, provides accounts receivable financing in the US, Canada, and the UK; offers export trade finance to clients in every major world market and can convert receivable finance transactions in 17 currencies.

Invoice Factoring Facts

2009-01-20T18:18:00.000-08:00

Accounts receivable funding is a widely used financial solution for all types of businesses that extend credit terms to their customers. Here are some common questions our customers ask.

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1. How is accounts receivable funding different than a loan from a bank? When making an accounts receivable funding decision, we will focus on the creditworthiness of your customers while banks will focus on your company’s financial history and cash flow. Accounts receivable funding is not a loan, therefore provides you with less debt on your company’s balance sheet. we can make a quick funding decision, while banks may take weeks—even months—to approve a loan.

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2. Will my company be eligible for accounts receivable funding if it has a bank loan or line of credit? If a bank has a lien on your company’s accounts receivable, you should let us know right away. We will ask the bank to subordinate that lien. Some banks will accommodate the request and others may decline depending on your circumstances. Our number one referrals come from loan officers willing to help out the client in cash flow needs. They are very familiar with this kind of interim financing. The other alternative is to pay off the loan if there is plenty of receivables to leverage the buy out.

3. My company owes back taxes. Can I still apply for accounts receivable funding? Tax problems are handled on a case-by-case basis. Please let us know immediately so that we can discuss a lien subordination with the tax entity or request a payoff amount. We can use the initial funding to payoff the tax entity if there is enough leverage.

4. If my company is considering bankruptcy, is accounts receivable funding still an option? Please note that Chapter 11 is the only form of bankruptcy that we will consider.

5. What information will you need from my company to begin the accounts receivable funding process? A short application, your company’s most recent accounts receivable and accounts payable aging reports, Articles of Incorporation or d/b/a/ filing, a master customer list and a sample invoice.

Small Business Factoring Receivable Financing

6. Which customers would be good candidates for accounts receivable funding? Usually 80% of your business comes from 20% of your customers and these would be the most likely to factor, however, we will factor 100% of your customer base so long as they are credit worthy. In order to approve your customer base, we will need their names, addresses, phone numbers and the amounts of credit desired for each client. This will save you time when submitting invoices to us.

7. Can you purchase only a portion of my company’s invoices or one customer? Yes, so long as it is not a one time deal.

8. How long does it take to receive the first funding? The initial funding takes between 3-10 business days after we receive your signed agreement. If you wish, you can send some invoices to be funded with the signed contract in order to expedite your funding. After the initial funding, your company can receive funds within 24 hours after invoice verification.

Invoice Factoring Line of Credit

9. How much of my company’s accounts receivable can be funded? We can fund up to 100 percent of your company’s creditworthy accounts receivable and depending on the industry, we may fund up to 92% advance.

10. What should I do if my customer mistakenly sends the payment to my company? The answer to this question will apply to any factor you deal with. This is very common especially with the first initial funding. If this occurs, the check must be sent to us immediately. Your company should never deposit invoice checks that were already purchased by a factor. Your customer will be notified to pay us directly in the future.

11. How can I be certain that your company will treat my customers well? The last thing we want is for you to lose a customer. We are not a collection agency. We will never harass your customers for money. Maintaining your customers’ goodwill and confidence are of utmost importance to us!

Accounts Receivable Factoring Accounts Receivable Financing

12. What should I tell my customer when they find out I am financing my receivables? Should an account debtor (customer of our client) who is unfamiliar with factoring question the notice of assignment and ask what is going on, the business owner only needs to tell them they have chosen to use a company to manage and finance their accounts receivable.