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.

Telling Customers about Factoring

Explaining Your Decision to Use Factoring to Customers  

10:22 22 August in Blog, Business Funding

Once you have decided to use factoring for your cash-flow needs, one of the most important things you will have to do is communicate with your customers. Once you have turned over your invoices to a factoring company, your customers will receive a document called a Notice of Assignment indicating you have turned over the collection of their invoices to the factor.

It is important to ensure you have addressed this prior to this notification being received, and ensure that your customer’s questions are answered. Some of the common concerns your customers may have include:

Will this impact the quality of service and products I receive?

It is important to let your customers know that outside of invoicing, your relationship will not change. You will still be providing the highest level of quality products and services. Remember, customers, want to be assured their business is not impacted by your decision. The more you can do to assure customers that most things will not change, the more likely they are to be comfortable.

Is your financial status in question?

Make sure your customers understand that your decision to factor is designed to improve your finances. Improved cash flow means more access to materials, ability to hire new staff for upscaling, and ability to pay your bills on time. Remind them that factoring is not a loan, that you are not taking on additional debt, and discuss the benefit of not having to track down payments; factoring allows you to continue offering the same terms they currently enjoy, versus cash and carry.

What changes does this make to my billing?

Your customers should be aware they will get their invoices from the factoring company, and they should remit payment to the address on the invoices. Explain to them the factoring company is merely taking over the function of accounts receivable management; this will help put them at ease. Customers will still contact you directly for new products, or services.

Offering Understanding of Factoring Benefits

Chances are, if you are a small, or medium-sized business involved in an industry unfamiliar with factoring, you may be asked about the benefits of factoring. There are some simple ways to educate your customers about these benefits including:

  • Ability to grow business— because you do not have to worry about waiting 30 to 90 days to receive payment, you are able to go after additional contracts and still offer payment terms to customers.
  • Regular cash flow— because you do not have to wait for payment from customers, you have cash when you need it. This means your suppliers are being paid, your employees are being paid, and you can meet your obligations without going into debt.
  • Freeing internal resources— when an external company is handling your accounts receivable, your internal staff is freed up to handle other tasks. This may include customer service, marketing, or help with research and development. This is a bonus; freeing up internal resources also means lower overhead; you need not hire additional staff members to handle tasks.

After Factoring Begins

Once you have addressed the initial concerns of your clients, it is important to let them know how payments will be made going forward. Ask if there are any documents they require from you to ensure the process goes smoothly. Address any concerns about changes in due dates, or other concerns they may have. Should any questions arise you are unable to answer, contact your account manager at the factoring company.

Keep in mind, you will still be in contact with your customers for many issues, including new orders, service needs, etc. Make sure they understand ahead of time, that billing issues, payment issues, or any issue related to payment or invoices should be directed to the factoring company.

Should You Change Methods

Just as is the case when you start factoring, if you should decide to end your relationship with a factoring company, it is important you speak with your customers. Any change in how they receive, question, or pay their invoices must be communicated to your customers.

Factoring your invoices can result in new growth, and a more stable cash flow you’re your business. If you have questions about factoring, or how it can work for your company, we encourage you to contact Capstone Capital Group today at (212) 755-3636. We are here to help you grow your business to its full potential.

 

Accounts receivable financing

Help Your Business Thrive with Receivable Financing

15:29 01 August in Blog, Business Funding

Your vendors, employees, or landlord are unlikely to wait until your customers pay their invoices to get paid. Business owners who are just starting up, have just made an investment in new equipment, or are in the process of attracting new customers all have one thing in common: they need cash.

When Input and Output Collide

There is little doubt you need cash to keep your business operational. You must be able to hire additional staff members, invest in equipment, and make sure you deliver product to your customers on time. These matters require available cash; unfortunately, most business owners do not have a ready supply of cash when they need it most. This is why today, more business owners than ever before are turning to accounts receivable financing; better known as factoring.

Benefits of Accounts Receivable Financing

Cash — nearly immediate cash is the most significant benefit you will gain when you factor your receivables. Readily available cash can prepare you to land a new customer, pay your current debts, or help you expand your business. Receivables financing is a much different option than bank financing; specifically, it is faster, and depends on your client’s credit rating rather than yours.

Improved Options for Business Growth

Many business owners believe if they intend to use accounts receivable financing, they must do so with all invoices. This is inaccurate; there is a method called “spot factoring“, allowing businesses to get cash against specific invoices any time they need an influx of working capital. It is also important to note that while typical bank financing may have strings attached, telling you, a business owner, how you can spend the money they loan you. There is no such restriction with factoring; you can use the cash anyway you deem appropriate to ensure your business stays operational.

Avoiding Month to Month Money Crunches

Too much month left at the end of the money? Need to pay your business invoices, or employees? Chances are, you have customers who have not paid their invoices; many times, you have offered 30-day payment plans and they use every single day. This may work well for your customer, but it may not work as well for you. This is why spot factoring may be the answer to your problems. You can get nearly immediate cash when you spot factor; in most cases, you can get cash within 24 to 48 hours of submitting an approved invoice.

Time For Growth? Get Cash Fast

Expanding a business can be very exciting; the problem is it is often costly. Too many business owners must often decide between paying their regular bills, and growing their business. Our goal is to make sure you have the capital you need to expand your business. Whether it is time to hire new staff members, invest in new equipment, or you have a new client who has placed a large order, you may be suffering a cash crunch. We know you cannot wait until your customer invoices are paid, the opportunity could slip through your fingers. This is why spot factoring, or regular invoice factoring could be the answer for your business.

Invoice Factoring Versus Bank Financing

One of the biggest challenges business owners face is establishing a line of credit with a local bank. This is because banks often have lengthy applications, stringent credit requirements, and want businesses to have an established track record before making a loan. We often are told by small businesses that banks only want to help them when they least need the money.

Borrowing money from a bank often means onerous terms. You may face prepayment penalties if you are doing well and want to pay ahead, your bank may dictate how the proceeds from the loan will be spent, and you may have to provide a personal guarantee. Most of these issues can be avoided by factoring your invoices; whether you want to factor the invoices of one client, or every client, we can customize a solution to meet your specific business needs.

When there is forward momentum that means growth for your company, you need to maintain that momentum. This is why Capstone may be the answer to your financing needs. We work quickly, and we offer a range of business financing options, Contact Capstone Capital Group, LLC today and learn more about how we can help you grow your business.

Download: Infrastructure Investment & Jobs Act – Contract Opportunities and Funding Analysis

Capstone wants your business to take full advantage of the opportunities (or use projects) available through the Infrastructure Investment & Jobs Act recently signed into law.

Download

    Logo

    Submit your information to be directed to the download page.

    Privacy & Terms