Understanding the Costs of Factoring

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Factoring your invoices is a great way to improve your cash flow. The ability to obtain immediate cash, instead of waiting 30 or 60 days for a customer to pay an invoice can help you grow your business faster, negotiate better terms with your suppliers, and make sure you are able to meet usual business expenses. For business owners, the cost of factoring must play a role in their decision-making process.

Customer Creditworthiness

One of the primary considerations a factoring company will review before determining the amount to advance you, as well as the interest rate you will pay is the creditworthiness of your customers. Keep in mind, since you are factoring the invoices you issue, the type of business they are in, as well as the strength of the customer are key factors.

Size and Term of Contract

Many factoring companies will require you to sign a long-term contract for factoring services. In many cases, the company may insist you factor all invoices to get a better rate. This is often a hurdle for companies who do not want to turn over their entire accounts receivable base to a third-party. There may also be hidden fees which makes the cost higher than originally disclosed.

Typical Costs Associated with Factoring

Generally, you will be able to get 65 to 80 percent of the value of your invoices issued to you within a few business days of the factoring company receiving the invoice. Factoring in these cases can cost between four percent and seven percent of the face value of the invoice. In some cases, if the customer takes longer to pay than anticipated, you could be facing additional fees.

In addition, many companies charge set-up fees and if you work through a broker, you could be paying a brokerage fee as high as three percent. It is important to review the terms of your contract before beginning the process. If you are interested in one-time invoice factoring, long-term invoice factoring, or temporary factoring, these could all play a role in the fees you will have to pay.

Recourse or Non-Recourse Business Factoring

It is important to keep in mind that if you are working with a company that does not require recourse in the event an invoice is not paid, you may be paying a premium for this. When an invoice is paid later than it should be, you could also be charged a premium for the “late” days.

When you are considering factoring invoices, the best thing you can do is work with a company with a proven track record in your field of expertise. Some companies charge more for areas of business they are unfamiliar with, or they avoid businesses they feel are too risky. You should always work with a factoring company offering flexibility in terms as well, the more innovative, the more likely you are to find a true partner.

At Capstone Capital Group, we take pride in offering a variety of programs to meet the needs of customers. We offer innovative solutions to your financing needs. We never tie you into a long-term contract and we always work hard to find a solution that best meets your needs. Whether you are looking for help factoring invoices for one customer, or for all your customers, we can help. Contact our offices today at  347-410-9697 or by Email at: [email protected]. You can also fill out our online form for easy approval for your factoring.

Developing a Strategic Funding Plan for Your Small Business

Every business requires cash to remain fully operational. This is a must, regardless of the size of the business. While most business owners have strategic plans in place for business expansion, marketing, and hiring talent, few of them have a well-thought out plan for obtaining the capital necessary to keep the doors open.

Business Failure and Cash Flow Management

There are numerous studies that indicate the percentages of businesses which fail during the first five years of operation due to a lack of financing. Undercapitalization can be problematic; you are unable to fulfill large customer orders, face difficulties hiring new staff members, and may be unable to pay your overhead costs. This does not have to be the case; having a plan in place to ensure your business finances remain healthy begins with a plan.

Developing a Strategic Plan

As a business owner, you have a general idea of what times of year you may have cash flow problems. This may be because you have already been in business a year or two, or simply because, as a startup owner, you have carefully evaluated the market and understand seasonality. Based on this information, you must make decisions about your financing to ensure your business continues to grow and thrive. This means developing a strong financial plan.

Identifying Realistic Goals

One of the first things you will have to consider is what goals you want to set. This part of your overall plan should include your plans for growing your business; this means you need to decide how many, and how large, your new clients will be, and whether you need new staff members to accommodate new customers.

Once you have identified your goals for growth, you should decide how you intend to finance the growth. Remember, new customers are a great addition to any business, but you must be able to fulfill their needs. This typically requires an influx of cash which means you will need to decide as to how to get access to cash.

Options that are available to small, and medium sized business owners are somewhat limited, and what you do not want is to have a lender dictating how you can utilize the funds you borrow. For some businesses, borrowing money can be challenging; particularly if you are facing a cash crisis, or a growth spurt.

Understanding Your Funding Options

Many businesses turn to traditional bank financing. This can create additional problems for your business because you are taking on debt. Debt tends to weaken your balance sheet, and you are now facing new monthly payments to repay that debt. This could exacerbate your cash flow problems. Additionally, if you need an immediate cash influx to meet the needs of a new customer, you could run out of time before the loan is approved.

Some entrepreneurs feel their best option is investing their own cash into the business. While this is an admirable position, this could put your personal financial status at risk; if you are unable to generate sufficient income to extract that investment from your business, you could face financial difficulties at home.

These are some of the reasons why more companies, particularly a company that is still growing, new to the market, or is facing seasonal slowdowns often turn to factoring for the cash they need to keep their business operational. There are a couple of different options available to companies when they elect to use their accounts receivable to secure the funding they need.

Advantages of Factoring

One of the best reasons to use your existing accounts receivable to obtain the cash you need is you do not incur any additional debt. Basically, you are getting an advance on money that is already owed to you. For some businesses, factoring their purchase orders may be a good option as well; this allows you to meet the needs of a new, or existing client without borrowing money and going into debt. Both invoice and purchase order factoring allow a business owner a great deal of flexibility. Some of the benefits include:

• Nearly immediate cash – factoring is faster than a bank loan; typically you can get the cash you need within a few business days.
• Terms to customers – you do not have to run a cash only business to have the capital you need. You can offer your customers extended credit terms.
• Accept larger orders – when you are facing an internal cash crush, you may not be able to take on larger customers and fulfill their needs; with factoring, you have the cash you need.
• Growth and competition – factoring allows you to grow your business and be competitive in your field.

Factoring should be a part of your strategic plan to both grow your business and have the capital you need to expand your business. Capstone Capital Group is here to help businesses who are ready to learn about the various ways they can finance their business needs. For more information on Capstone, please call us at (212) 755-3636 to speak with a representative today.

Why Staffing Agencies Should Know About Factoring

Staffing agencies need working capital to meet their weekly payroll obligations. In many cases, there is a gap between billing their clients, and paying the workers who are sent to job sites. Staffing agencies have obligations to those workers assigned to outside employers, but this is not where the expenses end. Office expenses including equipment, marketing, and internal employees also require resources.

Working on the Bottom Line

We all understand cash flow is necessary to ensure any business thrives. Staffing agencies have a unique business model — businesses contract with staffing agencies to provide a labor pool for a specific period of time — unlike any other business. When a staffing agency signs a contract with a business, they typically have an agreement to pay invoices 30 to 90 days after an employee has filled their vacancy. This is problematic since it impacts a staffing agencies ability to fulfill their financial obligations. This leaves staffing agencies with few options:

• Pay staff members late
• Pay rent, utilities, and other payments late
• Pay temp workers late, partially, or only after the employer has paid
• Curtail your marketing (no money for staff to seek new clients)
• Take out a loan

These options are frightening; paying staff or employees late means you are going to have issues retaining some of your best staff, and temporary workers. Paying your invoices late could mean you are accruing late fees and penalties. Lack of funds for marketing means you are not growing your business; and finally, taking a loan out is complicated; most temp agencies do not have sufficient capital, assets, or credit scores to support a traditional loan.

Why Factoring Makes Sense

Imagine being able to tap a portion of the money owed to you before your customer pays their bill. This would allow a staffing agency to pay their bills on time, increase the potential for employee retention, and not have to go into debt to meet their financial obligations. This is a win-win for everyone involved; employees are paid on time, your marketing efforts are funded to keep your business growing, and your non-employee obligations are paid without worrying about costly late fees.

Type of Factoring

Staffing agencies have a couple of options for factoring their invoices. How a staffing agency elects to use factoring is largely dependent on how challenging their cash flow is. The first method, involves emergency cash to meet your current. This is known as spot factoring and allows you to select one, or more invoices and “redeem” them for a specific amount of cash based on the amount of the invoices. This method allows you to meet your immediate obligations and can be effective if you are facing a one-time issue.

Spot factoring has many benefits; first, it is generally less expensive than a short-term loan, a staffing agency gets access to capital quickly, and because there is no long-term obligation, you can factor an invoice any time you need a quick influx of cash.

For a long-term solution to cash flow issues, many staffing agencies opt to factor most, or all invoices. This process is often easier since a staffing agency can then turn over the invoice at the time it is issued and get nearly immediate access to cash. There are two methods that may be used for this type of factoring; discount factoring and collection factoring. Let’s examine how these types of factoring work:

• Discount factoring – discount factoring occurs when you sell a block of invoices to a factoring company. The company then provides you an advance against those invoices, which are used as collateral. Once the invoice is paid by your client, the factor then deducts their fees, and the balance is remitted to your company. Typically, this method works well for start-ups, or for those companies with ongoing cash flow needs.
• Collection factoring – when an established company, with positive net worth and profitable operations needs cash, they may opt for collection factoring. This type of factoring is done in two parts. First, the factoring company takes over the collection of your invoices; they basically assume any risk that might be associated with a customer not paying their bills. The factoring company charges a commission for accepting this risk.

Staffing agencies must spend a lot of time cultivating new clients, and attracting new talent to meet the needs of those clients. Worrying about having the necessary cash flow to meet day-to-day obligations is challenging. Contact Capstone Capital Group at 347-410-9894 or email them at [email protected] to find out what type of financing solution would work best for your staffing agency.

How to Write a Simple Business Financial Plan

One of the most important documents you should have is a business financial plan. A carefully crafted, well-thought out plan can help you determine your current, and future cash needs. In addition, most businesses will be unable to borrow money, factor contracts, or establish lines of credit unless they can provide a financial plan to their lender.

What Information to Include in a Financial Plan

Your financial plan is not only necessary, and helpful for potential lenders or investors, but it can also be an invaluable tool for you to determine what steps to take in your business. The ideal financial plan will have multiple sections including:

1. Current Financial Status– business assets, cash on hand, outstanding debts, and outstanding accounts receivable should be carefully recorded. Once you have completed recording all items, you should create a balance sheet showing your current financial status. SCORE (Service Corps of Retired Executives) has a template designed for small businesses, but may be used for a business of any size.
2. Prior Financial Statements– unless this is your first full year in business, your financial plan should also include your prior years’ financials. In most cases, a completed tax return will suffice, but it is also a good idea to have the complete breakdown of the monthly income and expenses available for review if requested.
3. Projected Financial Analysis – it is important to project your income, expenses, and earnings out past the date you are seeking financing. In most cases, a three-year projection is sufficient; although in most cases, business owners are encouraged to look ahead five years. Ideally, your financial projections should contain the following:

Always keep your projections realistic; a lender will ask you the basis of your projections and you should always be prepared to explain why you have chosen the numbers you did. Remember, things like fixed costs of rent, insurance, and real estate taxes may increase over time; take this into consideration when preparing your projections. This section should be based on your current income, expenses, etc. Do not include any projections that would include funds borrowed.

1. Develop a Cash-Flow Statement – using your financial analysis as a starting point, you will also need to develop a cash flow statement. This should cover the same period as your financial analysis but contains additional information. When preparing these statements, you should take into consideration the amount of money you are planning to borrow, changes in staffing, and any new investments you plan to make in equipment, or inventory. If you are planning on pursuing new contracts, any projects you anticipate will be successful should be carefully recorded as well.
2. Breakeven Analysis – hopefully before you seek financing, your business is already profitable. However, if it is not, you should develop a breakeven analysis after you have developed the other parts of your financial plan. This is important; a lender will want to be assured their investment will bring your business towards profitability.

Financial Plans: Not Just Valuable For Lenders

When creating a financial plan, it is important to keep in mind, it is not only useful for lenders. Business owners can, and should review their financial plans from time to time to determine if they are on track with projections, or if they need to readjust their projections. Looking at where your business finances were in the past, and what you anticipate doing in the future can help you achieve realistic goals, and help you set new goals for your business. Business owners who set realistic goals, and have ideas for meeting those goals, are more likely to find long-term success.

Financial plans for your business need not be complex; however, they should provide actual data.

How to Get a Secured Business Line of Credit

A Secured Business line of credit can provide you with capital, but, more importantly, they provide flexibility. Unlike a traditional loan, when you use a line of credit, you are in control of how the funds are spent. In addition, lines of credit typically carry a lower interest rate than credit cards, offer low monthly payments, and can be used repeatedly as you make payments. This makes them an ideal funding option for many companies. However, for some, a lack of credit history, weak credit, or other factors may mean the only option available is a secured line of credit.

When business lines of credit are helpful

If you are doing business in construction trades, service industry or you are a wholesaler, a line of credit can make the difference between winning and losing a contract. Many times, you will need immediate cash to bid on a contract; you cannot do this if you have limited cash flow – a line of credit could give you that option.

A line of credit can also help you through temporary cash flow issues. You may have cash coming within a couple of weeks but need immediate capital to purchase a piece of equipment, make payroll, or purchase materials. Since a line of credit is renewable, you can spend it multiple times as long as you are making your payments, you have readily available cash for any purpose. Unlike closed end loans, you have complete control over how you utilize a line of credit. In many cases, a closed-end loan would result in the lender putting restrictions on how the funds may be used.

Benefits of a line of credit

In addition to being helpful to allow you to fund immediate needs, and address temporary cash flow problems, there are other benefits of a line of credit including:

• Flexible payment terms
• Access to cash on demand
• Building business credit
• Flexibility in using funds
• Lower interest rates than credit cards
• Improvement of cash flow
• Control of cash
• Separation of business and personal credit

As you can see, the benefits are significant and can help you ensure your business continues to thrive in a competitive marketplace.

Obtaining a line of credit

When you are unable to secure a standard loan, or your credit does not warrant an unsecured line of credit, you still may have options. Secured business line of credit are available for those  who may not have established business credit; depending on the lender, you can use various assets for security including equipment, real estate, and in some cases, future income through offering liens on invoices, or purchase orders.

Why a secured line of credit?

Keep in mind, secured lines of credit have numerous benefits; for instance, you may only be required to make interest only payments for periods of time. You may also borrow between 50 and 80 percent of eligible assets; this means more cash on hand to grow your business. There is far less risk when using a secured line of credit; while you are building your credit using this funding option, you are also not going to have to worry about what happens if something goes wrong and you cannot make a payment. This flexibility alone is often enough to warrant considering a secured line of credit. We understand you want maximum flexibilty; in some instances, this is not available with unsecured lines, or with more traditional funding methods.

Capstone Capital Group: Understanding your financing options

Capstone Capital Group, LLC, offers business owners numerous ways to access capital they need for their business. Whether you need to have cash on hand to meet immediate need such as payroll, or you need access to a line of credit to help you bid on an attractive contract, we can help. Contact one of our service representatives today, and discuss the various options we can offer your business. We will take the time to review your immediate, and future needs and find the right solution to those needs.

We help small and mid-sized businesses get the financing they need to ensure their business remains financially stable, and to help spur business growth. We can discuss the various ways Capstone can help. Contact us today, whether you are considering a secured line of credit, or other financing options for your business. See what a difference working with a solutions-oriented lender can make for your business.

The Crisis Facing Community Banks and the Small Businesses Who Rely on Them

Publicly traded banks recently hit record stock prices. The sudden increase in value was dubbed the “Trump Trade” because investors believe his policies will be positive for a growing economy and banks would—and should—be at the center supporting such an economy.

Since the election in November, bank stocks have risen around 24% and continue to remain positive as larger banks remain hopeful of soon to come tax reform and new regulatory relief.

What is seldom covered in the news is the negative impact that Dodd-Frank, aka “Too Big to Fail”, legislation is having on the community banking sector all across America. While activists touted this legislation as a safeguard for consumers, little thought was given to the effect on smaller organizations.

When the law was enacted, there were no provisions that discriminated by the size of a bank. The legislation, which included over 2,000 pages of reforms and regulations that all banks were required to implement, put a huge strain on the community banks to meet these blanket compliance standards.

The regulations were applied evenly to all banks, causing smaller community banks to have a higher regulatory burden than their multibillion-dollar competitors. The cost of compliance for community banks has led to a growing trend of mergers to bulk up and become larger regional banks.

What is Happening to Small Banks?

Midsize and larger banks are experiencing increased positive growth in accumulating assets and increased loan production to companies that meet all of the risk criteria outlined by Dodd-Frank. At the same time, community banks are struggling to meet the cost of compliance with the new regulatory scheme.

In order to cover the cost of compliance, small community banks are merging and are becoming regionally positioned banks to reduce the cost of compliance and overhead. Although this may be good for the banks as they are better able to handle the costs associated with compliance, it is a negative trend for small businesses as it limits their access to banking services and credit.

In most cases, the headquarters of the smaller bank is absorbed by the acquiring entity and the bank loses its proximity to the local business community.

Dodd-Frank made it almost impossible for smaller companies to borrow from the bigger money center and regional banks because of the risk rating system required by the legislation. The last bastion of hope for small businesses was the community bank.

Community banks are generally formed by successful members of a local community who pool their capital together to support and invest in their local community. When these institutions are forced to grow by regulatory forces, they often change their mission as they have a number of competing constituencies throughout their new region. While the merged bank may remain in the community, their mission frequently changes and the loans they make—or are willing and able to make—changes.  All of these changes are negative for the growing small businesses that have historically relied on the community banker for their financing needs like working capital, equipment leases, real estate loans etc.

Dodd-Frank policies have led to numerous mergers, allowing midsize banks to take over the operations of community banks. Larger bank take-overs means a change in business practices for the community banks involved in said mergers. In many instances, there are complete staff turnovers, and larger banks simply do not personally know the local markets and the small businesses previously involved with the community banks.

Currently, President Trump has ordered a review of the Dodd-Frank regulations by Treasury Secretary Steven Mnuchin. Hopes are high in favor of a reform involving less complex regulations, but it is unclear what will actually come of these talks and how any alterations will affect the community banks and, in turn, small businesses.

This Negatively Affects Small Businesses

Historically, small business owners developed long-lasting relationships with community banks and relied on those personal connections to receive desperately needed funding and capital support larger banks would never consider providing.

Community banks have modernized their lending operations—as all financial institutions have—though they rely on the five C’s of credit: Character, Collateral, Capacity, Capital, and Conditions. With the new mergers, the larger banks heavily utilize algorithms that take these variables into account, as well as others, but it is not the same as a loan officer who lives in the community he lends to and who may be aware of a small business, its impact on the community, and the character of the owners.

Displacing small businesses from the bank puts these businesses in difficult situations. Many rely on the attentiveness and support of the community banks they use to maintain their liquidity and competitive advantage in the market in which they compete. However, with the decreasing number of community banks and the lack of access from midsize banks, these small businesses have very few places to turn for help.

This is Where Capstone Comes In

Capstone has seen a significant increase in clients who are seeking factoring and purchase order financing as a result of the community bank merger phenomenon. “The Castaway loans, those where the bank advises its client that it has three to six months to find a new lender, are increasingly crossing our desk”, said Joseph F. Ingrassia, Managing Member of Capstone Capital Group, LLC.

Castaway loans are typically larger than your average factoring transaction and require cooperation from the bank casting off the loan and the client. In many instances, the bank has to convert a portion of the revolving inventory and accounts receivable loan into a term loan to facilitate the client’s exit while Capstone pays off the preponderance of the revolving credit facility with a new factoring facility.

To accommodate these loans, Capstone has skilled staff that negotiates with banks to ensure they cooperate with our new clients and receive the substantial pay-down the bank is seeking. Term loans are rated differently than revolving credit facilities and are in terms of risk ratings under Dodd-Frank. Our staff understands Dodd-Frank regulations and what a cast-off bank can and cannot do. Successful negotiations result in a settlement that ensures the bank gets paid in full, the client’s business is not impaired, operations are not interrupted, and the new facility we put in place is sufficient to support the growth of the company for the next 12 to 24 months.

Thankfully, other options like factoring and purchase order financing help fill the gap and ease the burden of transferring debt to another lender by providing small business owners with vital cash flow quickly.

Capstone Capital Group, LLC specializes in providing business owners with options. Our factoring and purchase order invoicing services allow qualified business owners to gain access to necessary cash flow faster so they can stay afloat and remain competitive.

If you’re ready to learn more about the options available to you, call us today at 212-755-3636 or contact us online www.capstonetrade.com.

Merger articles

https://globenewswire.com/news-release/2017/03/27/945580/0/en/Two-of-the-Best-Banks-in-America-Join-Forces-in-Bank-Merger.html

https://globenewswire.com/news-release/2017/04/11/958795/0/en/Sussex-Bancorp-Announces-a-Merger-With-Community-Bank-of-Bergen-County-NJ.html

https://globenewswire.com/news-release/2017/03/23/943784/0/en/Northwest-Bancorporation-Inc-to-Acquire-CenterPointe-Community-Bank.html

http://www.mbvt.com/about-us/community-bank-merger/

Why mergers are big now

https://www.americanbanker.com/news/bank-m-as-super-shoppers?tag=00000151-16d0-def7-a1db-97f03ca50000

Resulting issues for small businesses

http://www.freep.com/story/money/small-business/2017/02/12/community-banks-hopeful-lawmakers-target-financial-rules/97690526/

https://www.icba.org/news-events/latest-news/2017/05/01/more-than-100-icba-community-bankers-meet-with-president-trump

Getting Business Debt Under Control

One of the many reasons business owners are unable to grow their business is because they have too much existing debt. This can mean they are unable to borrow the funds they need to expand. Whether expansion involves new equipment, hiring new employees, or upgrading facilities, strong cash flow, and lower debt makes a difference.

Evaluate Your Current Debt

The first step in getting your debt under control is to understand the type, maturity, and cost of your current debt. Business owners who have resorted to using credit cards as an additional credit source could be paying in excess of 20 percent in interest. Create a table of the balance, interest rates, and monthly payments so you know exactly what you are facing.

Create a Plan

One of the first things you should consider is speaking with your creditors. Credit card companies, banks, and vendors are often happy to discuss terms with you before you start facing difficulty paying your debts. Here are some common tips:

• Credit card and bank loans — consider asking for interest rate reductions. This may be effective if you have a good payment history, and if you have offers from other companies for your business. Additional offers can be used as a bargaining tool.
• Talk to your vendors — if you have good relationship with your vendors, ask about changing payment terms. If you are currently paying invoices on a Net-15 basis, try to get a Net-30 agreement. This may give you more buying power, allow you to generate extra business, and give you some breathing room.
• Discuss all aspects of financing — bank loans, lines of credit, and other similar loans often have a personal guarantee attached. You may be able to negotiate this out, change the amortization for a loan to reduce monthly payments, eliminate prepayment clauses, or change due dates to be more in line with your cash flow.
• Consolidation of debt — if you have multiple lines of credit, or outstanding loans, look into the possibility of rolling the balances all into one loan. This could mean one monthly payment instead of several, and you may also be able to get a reduction in interest rates, or better terms.

Saving With Smart, Timely Payments

Getting your debt under control involves more than negotiating with your creditors. Another step you can take is managing how you make your monthly payments. First, payments should always be on time; this not only helps preserve your business credit rating, but it also helps you avoid costly late fees which merely add to your debt. Paying ahead when possible can also save you interest over the term of a loan, just be careful of prepayment clauses you have been unable to eliminate.

Boosting Business For Added Cash Flow

While it may seem counter-intuitive to work towards new business while attempting to get your debt load under control, the fact is more cash flow allows you to pay your debt in a more timely manner, and begin operating your business on a cash basis. This may require some creative financing solutions; for example, if you need immediate cash to invest in materials to deliver a large order, you may think you have no options but to borrow money again which seems counterintuitive to what you are trying to accomplish. There are some options however including:

• Receivables financing — if you are like most small and medium-sized business owners, you are probably owed money from customers. Rather than wait the full 30 or 60 days until those invoices are due, consider selling some, or all those receivables for immediate cash. While you will get less than face value, this could provide an immediate influx of cash.
• Purchase order financing — rather than use existing invoices, you may also opt to use purchase order refinancing. This method of financing allows you to get the much-needed cash to fulfill big orders by using the order to borrow money. This allows you to purchase the materials you need to fulfill the order without incurring additional debt.

Think About Your Business Model

If you are maintaining a large inventory for future orders, consider talking to your vendors about optional ways of doing business. Perhaps you can purchase materials as needed, or you can return excess product at the end of a job; remember, inventory on hand may be good, but if it is tying up your cash flow, it impedes your business growth.

Nearly all businesses have some debt, however, debt can cripple a business to the point of leaving you with no options. Capstone Capital Group offers a range of financing options for small and medium-size business owners. Contact us today, call us at (212) 755-3636 and speak with one of our highly skilled representatives and let us see how we can help your business get your debt under control.