Understanding Borrowing Against Accounts Receivables

09:00 16 May in Blog, Business Funding

Small and medium-sized businesses often face temporary cash flow problems, especially if they don’t understand borrowing against accounts receivables. The difference in time between issuing an invoice and getting paid for that invoice is often between 30 and 90 days. This delay in receiving payment can result in a business facing challenges purchasing new material for products, meeting payroll obligations, or meeting monthly expenses such as utilities or rent.

In these cases, meeting cash flow requirements is a necessity and businesses often turn to accounts receivable financing as an option. Some business owners avoid this type of financing because they do not understand what it means or how it works.

Accounts Receivable Factoring

There are two separate options a business owner can use to borrow money against their accounts receivable.

One is to work with a factoring company who takes control of your receivables. Using this method, a company delivers products, sends clients their invoices and the factoring company advances the company a portion of their invoices. The client in turn pays the invoice to the factoring company and once payment is received, the factoring company pays the business the balance of the invoice less their fees.

In most cases, this type of factoring involves a long-term contract between the factoring company and the business.

Spot Accounts Receivable Financing

Another common way to get cash against accounts receivable is known as spot factoring. This method of borrowing against accounts receivables is used when a business needs an immediate infusion of cash for any purpose.

For example, a business may have taken on a new contract and needs cash to purchase materials to fulfill that contract. Instead of borrowing money from the bank, the business owner decides to factor one or more of their client’s invoices.

The advantage of this type of financing is the company does not have to have a long-term contract, they get to decide which accounts receivables to factor, and they get the cash they need, typically within a few business days.

Impact on Balance Sheet

One of the reasons a business owner may opt to borrow against their accounts receivable rather than taking out a loan is the impact on their balance sheet.

When a company factors their invoices, they get an infusion of cash which shows as a positive on their balance sheet, and they do not take on any new debt.

The other advantage of accounts receivable financing is a company typically does not have to sacrifice partial ownership of their company to get much-needed capital as they may have to with other types of financing.

Borrowing Against Accounts Receivables Advantages Over Traditional Borrowing

One advantage a company will find when they opt to borrow against accounts receivables is the time it takes to access funds. A traditional factoring situation means a company often has access to cash within a few days of submitting their invoices to the factoring company. With a traditional loan, borrowers can wait weeks, and in some cases, months before getting approval for a loan.

For most company owners, the other advantage of factoring over typical bank loans is restrictions on how funds are used. When a company applies for a bank loan, the bank may place limits on how the funds may be used which can tie the hands of a business owner. You know best what you need funds for and when you borrow money against your accounts receivable, the factoring company typically does not place restrictions on how the funds you receive are used.

Capstone Capital Groups offers a range of accounts receivable financing options for small and medium-size business owners. Contact us today by email at [email protected] or call us at (212) 755-3636 and let us see how we can help you better manage your cash flow by helping you borrow against your accounts receivable.

Understanding Invoice Lending and How it Works

01:32 09 May in Blog, Business Funding

When you have a need for cash, and you prefer to not borrow money, one option is to get a cash advance on your invoices. Invoice lending, more commonly referred to as factoring, is used by small and medium-sized businesses to help meet their cash flow needs.

How Invoice Lending Works

Invoice lending allows you to provide product to your customers on credit. Once the product has been delivered and the customer has been billed, you can submit the invoice to a factoring company and get cash based on the face value of the invoice.

This method of financing allows you to offer credit terms to your customers, get the cash you need before the 30, 60, or 90-day terms you have offered your customers and turn over the collection of the invoice to the factoring company.

Another advantage of invoice lending is that you typically can determine which invoices you want to factor. Whether you wish to consider factoring a single client, or a specific group of clients, most invoice factoring companies offer that flexibility.

Time to Obtain Funds

One of the most common reasons why a company would use invoice lending is the time between submitting invoices and obtaining funds. In most cases, you can submit an invoice and receive cash within a few business days. This can be helpful to a small or medium-sized business owner who needs immediate cash to make payroll or pay monthly bills.

Unlike a bank loan, or lines of credit which can take weeks to get approved, business owners can get a nearly immediate advance on their accounts receivable. Once your invoice has been approved by the factoring company, you will get a percentage of the face value of your invoice.

Collections of Balance Due on Invoices

When you borrow money against an invoice, you are no longer responsible for collecting the payment for the invoice. The factoring company who made the cash advance will follow up on collections. Once your customer has paid the invoice in full, the balance of the invoice, less the factoring fee will be released to you. Typically, payments will be redirected to a lockbox controlled by the factoring company.

What Type of Companies are Eligible?

One of the many challenges businesses face is having sufficient funding for their day-to-day operations. While banks, and other traditional lenders tend to focus on businesses who have been around for a while, with regular cash flow, a factoring company is often willing to accept more risk. This is because they are loaning you money based on a specific asset, namely your invoices.

Because of how factoring companies work, more businesses are typically eligible for this type of lending. Subcontractors including electricians, staffing agencies, architects and more can benefit from invoice lending. Other types of businesses that often use invoice lending to maintain a steady cash flow include manufacturers, contractors, and suppliers.

Improvement in Cash Flow

Some business owners are faced with seasonal swings in business revenue. This can often result in them being unable to take on new contracts because they do not have the cash flow needed to fund materials for a new customer. Invoice lending can help business owners who are facing a temporary cash flow problem meet their obligations and take on new contracts.

If you are concerned about the cash flow outlook for your business, contact Capstone Capital Group by email at [email protected] or by phone at 347-410-9697. We are a private finance company offering numerous solutions to help small and medium-sized businesses meet their cash flow needs.

Understanding the Typical Types of Factoring

09:13 04 May in Blog, Business Funding

Factoring is a financing arrangement that is typically used by small and medium-sized businesses to help them maintain a steady cash flow. As every business owner understands, cash flow is important to ensure the successful, continuous operation of their business. This is why it’s important to know the different types of factoring.

In general, factoring means a company is turning over their invoices to a third party in return for receiving a portion of those invoices in cash within a few business days. Primarily, there are two types of factoring, recourse factoring and non-recourse factoring.

What is Recourse Factoring?

As a business owner, you are assuming a certain risk when you extend credit to a customer. Typically, the more reliable a client, the more favorable the terms you are offering. Some businesses even offer a discount if a client pays more rapidly. This type of factoring is called recourse factoring.

In fact, it is common for a company to issue an invoice with two separate terms such as offering a 5 percent discount if paid in 15 days and a 90-day net pricing. This means the client has 90 days to pay the invoice in full. Should the client not pay their bill in full at this time, the company would then begin collection activities which may involve refusing to ship additional product, having their accounts receivable department call the company about payment and in some cases, adding on a fee for late payment.

When customers refuse to pay, the business may turn over the collection activity to a collection agent or attorney.

However, if the business has opted to finance the invoice with a factoring company, they no longer must be concerned about collecting payment for the invoice.

The factoring company takes over the risk associated with the invoice, and the client is indebted to them. Om return, your business receives a portion of the face value of the invoice and the balance is held by the factoring company until the company pays the invoice. If the company fails to pay the invoice, the factoring company may ask you to substitute another invoice of similar value in its place.

This is known as recourse factoring.

What is Non-Recourse Factoring?

In some instances when a company borrows money, they are putting up assets such as equipment, real estate, or equity in the business. This allows the lender to seize, and in some instances, liquidate the asset to make themselves whole.

If the agreement between the borrower and lender calls for “no recourse” it means the lender has no option to turn to the business owner for any shortfall between what the company owed the lender, and what the liquidated assets provided.

In the case of non-recourse factoring, however, there is a slightly different meaning. When you deliver product to a customer, you do so under the belief the company will still be in business when the invoice comes due in 30, 60 or 90 days.

However, if you have factored that invoice, the factoring company is assuming that risk since they have given you a portion of the face value of the invoice up front. Should the company go out of business, and you have a non-recourse contract with the factoring company, the company will absorb that loss without any financial repercussions falling on your company. Non-recourse factoring typically only protects you and your business in the event your customer closes their doors before they pay their invoice.

If you are considering entering into any type of factoring contract, it is important to determine what your liability is should other problems occur with your customer. If the contract is non-recourse, talk to the factor to determine how they define non-recourse factoring.

At Capstone Capital Group, we work with small and medium-sized businesses to help them solve their cash flow problems. Contact us today and let’s discuss your needs and discuss your options for recourse, or non-recourse factoring.

An Overview of Factoring Agreements

09:00 01 May in Blog, Business Funding

Factoring agreements are designed to ensure a company who is using their accounts receivable as collateral, and the company who is accepting them as collateral, have a mutual understanding of their obligations. Like any other contract, factoring agreements are legal documents and are binding on all parties. Depending on the depth of your agreement with a factoring company, you will find the following information:

Sales of Receivables

This section of the agreement will include information on what agreement you have with the factoring company pertaining to what receivables will be included in the agreement. You should pay attention to this section, so you understand what you are agreeing to. For example, if you have agreed to only certain invoices, you do not want this section to be a “blanket” sales of accounts.

Credit Approvals and Withdrawals

This part of the contract will state what the company expects from you in terms of documentation to support an invoice. The factoring company may also have specific requirements you must meet if you want to change the terms offered to a company you are factoring invoices for.

Invoicing Assignments

This section of your contract will specify how you are to deal with payment for invoices you have assigned to the factor. Language must be included on the invoice issued to the client indicating they are to make payment to a lockbox controlled by the factor.

Fees and Commissions

There may be one or more sections of the contract that explain what fees and commissions are due to the factor. Before signing any factoring agreement, make sure you understand all the fees and commissions involved.

Advance Information

Your contract should specify how much the factor will advance against invoices. There may be different amounts for specific customers’ credit levels, and there may also be a maximum you may be allowed to have outstanding at any given time. This portion of your agreement should be reviewed carefully to ensure you understand the limits of the advance the factor is granting.

Warranties and Representations

You will be required to acknowledge that your company is duly authorized to do business, that you are solvent enough to enter into an agreement, and the invoices you are factoring are legitimately owed debts to your company. The factoring company will make similar warranties about their solvency and authorization to enter into a contract with you.

Defaults and Termination of Agreement

This section of the contract deals with when a contract may be terminated, what events could result in your being in default of your contract, and what notices are required to inform the factor of your intent to terminate the contract. This is typically done only when a long-term contract is necessary and may not be included in spot factoring contracts.

Security Interest in Receivables

The contract will spell out the factoring companies interest in your receivables. This section of the contract will prohibit you from factoring the same receivables with another company or using the same receivables as a security interest in any other type of loan arrangement.

Conclusion of Factoring Agreements

Whenever a company has decided to borrow against invoices, there will be a contract involved. Your contract will be unique to the agreement you reach with the factor including what the term of the contract is, what fees are paid, and what will occur should your client default on an invoice. Be sure you understand the terms and conditions you are agreeing to.

If you are considering working with a factoring company to help improve your cash flow, contact Capstone Capital Group today. You can reach us by filling out our online contact form, by calling us at 347-410-9894, or by email at [email protected]

Understanding Non Recourse Factoring

12:21 16 April in Blog, Business Funding

Like any type of financing, accounts receivable factoring is a risk taken by the factoring company. In most cases, accounts receivable factoring is based on the creditworthiness of the underlying customer. Therefore, a factoring company does not provide financing for invoices that are made to an individual customer, instead they provide funding against invoices made to other companies, or to government entities. This is why we need to understand non recourse factoring.

Collection Activities and B2B Transactions

Typically, when businesses are completing transactions, they offer terms that may give a company up to 90 days to make payment.

In some instances, they offer discounts if an invoice is paid sooner. In the case where a company has opted to factor their accounts receivable, they turn the risk, and collection activities over to the factoring company. However, what happens when the customer does not pay their invoice?

If a company is managing their own accounts receivable, they may put forward demand notices, and hold the company responsible for paying the invoice with certain late charges which are normally laid out in their contract. Many contracts also have a recourse clause which may hold the company owners accountable personally for unpaid bills.

If payments are not made as agreed, you would typically stop doing business with the company until the invoice was paid in full. Chances are, you would likely require a deposit or full payment before doing additional business with the company. This is known as full recourse.

Meaning of Non Recourse Factoring

But, what happens if you are working with a factor and they have offered to factor your receivables with no recourse?

First, it is important to understand what no recourse means. In most factoring contracts, no recourse usually means that the factoring company will not seek payment from you under certain conditions.

The typical condition is the insolvency of the customer that occurs during the time of the factoring period.

For example, if you have issued an invoice that is due in 90 days, and a factoring company has advanced you cash against that invoice, the company would have to go out of business during the 90 day period between issuing the invoice and having the payment due.

What Non Recourse Factoring Does Not Cover

Even if your factoring company has agreed to factor your receivables without recourse, there are certain exclusions which you should be aware of. For example, in most cases, factoring advances will not be considered without recourse if:

  • There is a dispute over an invoice – if you have issued an invoice and your customer disputes the invoice, chances are, the factoring company will not allow you to walk away from the debt you incurred because of factoring.
  • You deliver products to non-paying customers – if you have a customer who has been consistently late paying invoices and you are still delivering product to them, you are increasing their outstanding amount owed, meaning the factoring company is at even more risk of losing money. Most of the time, you will be held responsible for these invoices.
  • You owe the company money – if you have a reciprocal arrangement with a company you do business with, and the company credits amounts you owe them against amounts they owe you, the factoring company may not grant you the ability to factor those invoices without recourse.

When entering into a factoring contract, it is important to understand the terms you are agreeing to abide by.

We make sure our contracts are easy to understand and you understand whether you are accepting funding against your receivables with or without recourse.

Capstone is a private finance company offering various solutions to businesses to provide them with more consistent cash flow.

Contact us today to request funding or to speak with one of our representatives to learn more about how Capstone can help your business grow and flourish.

Brokers & Lenders

Understanding the difference between brokers and lenders

10:30 07 November in Broker Resources, Business Funding

Oftentimes, when a business owner is seeking financing, they do not understand the difference between dealing with brokers and lenders. There are advantages, and disadvantages to working with each; however, one must understand how each functions to understand what type of deal they will be getting in the end.

Dealing with financial brokers

When you are dealing with a broker for a financing deal, there are some benefits. The broker can review your proposal, and then try to match your needs up with the right lender. This often means the broker will contact numerous lenders on your behalf; while this may seem like a good approach, it could be problematic if the broker is not familiar with the various loan programs offered. Sometimes working with a broker means significant delays in getting the financing you need.

Dealing with lenders

When you deal with a direct lender, you are dealing with the decision-maker. This is good news on one hand but may cause you additional problems. If you deal directly with a lender, you are limited to the programs offered by that lender. In other words, if you go to a company who only factors invoices, you may not be able to obtain a line of credit, or other financing vehicles. This can be problematic if you need various sources of capital.

Understanding financial broker fees

When you are searching for financing through a broker, it is important to understand how they are paid for their services. In some instances, the broker will receive a one-time finder’s fee; in other cases, an ongoing commission. There may also be instances where you pay a higher interest rate because you went through a financial broker instead of going directly to the lender. Make sure before you agree to have a broker work on your behalf, you understand how they are paid, and what their fee will cost you immediately, and over time.

Benefits of working with brokers

Even if you are paying a finder’s fee, or a commission, there are some valid reasons to consider working with a broker who handles business financing. By working with a broker, you will have access to numerous loan programs; a well-trained broker will review your needs, discuss your options with you and then match your unique needs to the right lender. They can also facilitate the paperwork, help with the application process, and answer questions as they arise.

Relationships matter with financing

For those business owners who have an existing relationship with a financial broker, you should maintain that relationship. While many lenders discourage such relationships, at Capstone Capital Group, we encourage them. We know that when your broker comes to us for financing options for your business, they are looking out for your interests. We take pride in offering those brokers who are interested in doing business with Capstone a wide range of training materials so they understand our products better. We believe in building relationships; and nurturing existing relationships.

Finding the right brokers and lenders

The most important thing you can do for yourself, and to ensure your business continues to grow is find the right brokers and lenders to work with. Well-established businesses, with excellent cash-flow and a record of success often can go to their commercial bank and get whatever products they need. However, small, and medium-sized businesses face unique challenges: they need different types of financing, they may not have reliable cash flow.

Business owners need solutions that work for them; this means working with a financial partner who is willing to take the time to review their business model, review their current finances, and understand their future goals. If you are currently working with a broker, or a lender who does not seem to ask the right questions, or continues to try to fit you into a “one-size-fits-all” loan, you may be working with the wrong person.

If you are small or mid-sized business owner seeking a relationship to help your business secure the financing you need, contact Capstone Capital Group today. We are a private financing company who works tirelessly to find funding solutions for our clients. Brokers, who are interested in working with a lender who puts the interest of their clients first should also contact us. We offer innovative solutions to a wide range of financing challenges for small and midsized businesses; call us today and see how we can help.

Business Financial Plan

How to Write a Simple Business Financial Plan

10:30 31 October in Business Funding

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:
Sales
Cost/ Goods Sold (COGS)
Gross Profit
Operating Expenses
Salary (Office & Overhead)
Payroll (taxes etc.)
Outside Services
Supplies (off and operation)
Repairs/ Maintenance
Advertising
Car, Delivery and Travel
Accounting and Legal
Rent & Related Costs
Telephone
Utilities
Insurance
Taxes (real estate etc.)
Interest
Depreciation
Other expense (specify)
Total Expenses
Net Profit Before Taxes
Income Taxes
Net Operating Income

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.

Secured Business Line of Credit

How to Get a Secured Business Line of Credit

10:30 24 October in Business Funding

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.

Factoring Company

Avoid These Four Mistakes When Choosing A Factoring Company

10:30 17 October in Business Funding

Factoring is one of the financing methods you can use to get the working capital to grow your business. However, like any other type of financing, it is important that you avoid some of the common errors made when you are selecting the company you will work with. Remember, while the process of factoring may be the same, there are some things you should avoid while choosing a factoring company.

Working with a company who does not understand your business

One of the most important things you should verify is whether the factoring company understands your business. Keep in mind, many times, you need more than simply invoice factoring; if you need additional services, finding the right company is more important. Take the time to discuss not only the field you serve, but also discuss your business model with the factoring company. Remember, the right company may be able to offer you additional services. Find a factoring company that does not take a one-size-fits-all approach; it could be important later. Do not hesitate to ask a factoring company for references; most companies will not hesitate to provide you with the names and contact information of satisfied clients.

Ignoring the fine print in your factoring contract

While you may be tempted to accept an offer from the company that offers you the lowest fee, remember, you could be surprised by hidden fees. Review the contract completely and determine exactly what the company is offering, and what you are being charged for their services. You should also be wary of a company who asks for a long-term contract; remember, if you are tied to a long-term contract and the financial situation in your company changes, you could be tied to a contract that you no longer need, or want. Read the fine print; having an understanding of what you are agreeing to is imperative when you are working with any type of financing.

Not discussing customer service aspects of collection

When you enter a factoring relationship, you will be turning a portion, or all your accounts payable collections to the factoring company. You want to ensure your customers are treated with professional courtesy; remember, you could lose business if the factoring company staff members who are handling collection activities are not well-trained. Make sure the factoring company has well-trained staff; staff who uses best practices for collection, and customer service matters. This makes a difference.

Not understanding the terms of the contract

Once you have signed a contract with a factoring company, you are obligated to take certain actions. For example, you are required to ensure your customers are sending their payments to the factoring company, if you fail to do this, you could incur additional fees, or face other penalties. Additionally, you want to make sure you are forwarding the proper paperwork to the factoring company; if you are factoring invoices, do not send a purchase order and if you are factoring purchase orders, do not send invoices. Discuss all your obligations under your contract with your service representative so you fully understand what you have agreed to; this will prevent problems later.

Capstone Capital Group Has the Right Solution

We offer a broad range of products designed to suit your specific needs. Whether you need spot factoring of invoices, purchase order factoring, or lines of credit, Capstone has a solution designed to meet your needs. Because we offer such a broad range of products, we also work with a broad range of clients. We will take the time to ask you about your client base, your current payment schedules, and what your cash needs are going forward. Once we understand your specific needs, we will create a customized solution designed to provide you with the financial products that best suit your needs. We have also helped customers who need logistics assistance; and other customized services.

While you are looking for financing, contact Capstone Capital Group. Let us review your business, determine what products work best to meet your needs, and help you avoid many of the problems our clients have indicated they have had to overcome when working with other financing companies. We are happy to meet with you, review your invoices, and show how our products are superior. We also have a dedicated, well-trained team of customer service representatives; you will never have to be concerned about damaging your important customer relations – we believe the better your relationship with your clients, the better our relationship will be over time.

Factoring Decision

When Factoring is the Right Decision

14:20 05 September in Blog, Business Funding

Some business owners are uncomfortable about the idea of factoring their invoices; however, they are more uncomfortable about taking on debt. This means when a company is facing a cash flow problem, wants to hire additional staff members, or needs material to fulfill a large order, they may not know where to turn. One of the first things to do is identify the problem, determine what you need, and then find a solution.

Problem: Short-Term Cash Flow Problems

Immediate business expenses, such as rent, utilities, and payroll cannot be ignored. Let’s face it, if you are unable to pay your employees, you stand a chance of closing your doors; most people are not willing to wait until you get paid to get their paycheck. Your options are limited; you need a way to get immediate cash to meet your obligations.

Your solutions include borrowing money from your local bank, taking a cash advance against your credit cards, or factoring your invoices. Borrowing money from your bank, unless you have an existing line of credit, is time consuming and will likely not occur fast enough to assist you. Credit card advances are seldom a good idea; you will pay high upfront costs for the privilege, and the overall interest rate could be as high as 25 percent. This means factoring is likely your best option and here is why:

  • You can use spot factoring – business owners need not turn over all their accounts receivable for immediate cash needs. Instead, you have the option to factor only sufficient invoices to meet your immediate needs.
  • Timely cash disbursement – generally, receiving cash against your invoices occurs within a few business days. This can be very helpful if you need to have cash. Unlike a bank loan, once you have signed the proper documents, and have your invoices approved, you will have the cash you need to meet your obligations. Since factoring does not involve a bank loan, your company does not incur any additional debt.
  • Cost effective solution – unlike credit cards where you pay a fee to access cash, or loans where you may have to pay application, and other fees, factoring is a cost-effective solution. You can collect on your accounts receivable before they are due, and you pay a fee to the factor. Businesses of all sizes, and in all industries, have used this method of getting working capital when they are facing short-term cash flow problems.

Problem: Long-Term cash Flow Issues

Spot factoring is the ideal solution when your cash flow issues are temporary. However, some businesses have ongoing issues maintaining a sufficient cash balance to meet their obligations. In these cases, options are more limited; options include bank lines of credit, reducing the terms you offer customers, or factoring your accounts receivable. It is important to understand the pros and cons of each option.

While bank lines of credit can be helpful, you will have to accept the fact your company will be in debt. To compound this, chances are, if you seem to be facing regular cash flow issues, it may be very expensive, and potentially impossible to get a loan, or line of credit. Banks typically look for a strong balance sheet, excellent cash flow, and a proven track record. This means if you have a start-up, you may not have the option.

Reducing your customer terms is risky; if your customer base is accustomed to a 30, 60, or 90-day period to pay invoices, and you cut the time in half, or begin a cash-only process, you could negatively impact your bottom line. This means, over the long-term, your cash flow will be worse, not better.

Using accounts receivable factoring, can provide you the long-term solution you need. In effect, you reach an agreement with the factor, and they take over the collection of your accounts receivable. There is an added benefit to this as well; since you do not have to worry about collections, you can focus your efforts on building your business. Rather than having a staff member dealing with collections, you can use their talents elsewhere; this can provide numerous benefits for your business.

Nearly every business will face a cash-flow problem at some time; particularly in the early stages. Some businesses need short-term cash solutions because of seasonal business swings, or because they have just landed a significant contract. Think about the possibilities; and if you think that factoring may be the right decision to help you meet your cash-flow needs, contact Capstone Capital Group by phone at 347-410-9697 or by email at [email protected] and see how we can help you find unique funding solutions.

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