Why You Need to Pay Your Employees on Time

There are many uses for accounts receivable factoring. The most crucial of them all is probably meeting payroll. Of all the expenses that any small business owner needs to take care of, it is payroll. Your employees are the lifeblood of your company, and not being able to pay them on time is a nightmare waiting to happen.

What Happens When You Don’t Meet Payroll?

The first thing that happens is that everyone in the company now knows that your business is failing. It’s not just a temporary setback. Your business is seen as a ship that’s sinking… rapidly. And that means many of your employees will jump ship and seek new employment elsewhere.

This is a death knell for your business, because even if you resume paying them the next time with back pay, they now know that you let it happen. And that means there a very good chance that it will happen again because there’s already a precedent.

Then there are legal consequences. Every unpaid employee can file a state wage claim against you. The Department of Labor may impose penalties against you for violating labor laws regarding fair payment of employees. You may also be falling behind on your quarterly payroll taxes, and now you have the IRS on your tail with their own fines and penalties.

Or you can close up shop and declare bankruptcy.

How Do You Avert This Disaster?

The first thing is to check if you have the money in your accounts receivable. If you do and you predict that you won’t be able to meet payroll in a month, then you can still be saved from a potential disaster. That’s because you can still use accounts receivable factoring.

In factoring, you get your money from your invoices (around 80% of the value), except you won’t have to wait for the 30 or 60 days that your customer has to pay in full. You can contact a factor and apply for factoring, and then the factoring line can then be set up. That should take only a week or two, and then you can get your money from your accounts receivables. And other incoming accounts receivable can be turned to cash in a day or two.

Other Methods of Meeting Payroll

There are other things you can do to make sure your employees are paid on time. Go on Facebook and borrow from your friends and family. Use your credit card. Sell things you don’t need. Don’t even think about paying yourself a salary. You can even sell surplus company equipment.

As you can see, you need to do everything in your power to pay your employees. And once you do, you may have to consider cutting down on manpower.

What you don’t do for payroll is to go to a bank get a loan. Even if by some miracle you meet their business loan qualifications, it will simply take too long for you to get the financing you need and by that time it will already be too late.

 

3 Popular Myths about Getting Finance for a Business

If you’re like most small business owners, sooner or later you’ll need some financing for your business to get it started, get it going, or keep it afloat. Unfortunately, not every business owner knows all the pertinent facts about obtaining sufficient finance for a business, and that’s why some businesses close shop prematurely.

So let’s clear the air and get rid of all the myths that are still prevalent in the small business community, even though the Internet can provide a lot of information.

  • Banks are the only viable source of finance for a business. This is obviously not true that sometimes it’s hard to fathom why some people still believe this. Think about it. You can start a small business right now by delving into your savings, getting a second mortgage, and borrowing from your friends and family.

If you can’t get a loan from a bank, you can go to credit unions. You can go online and use crowdfunding. Or you can go to any of the factoring companies that offer surer and faster ways of obtaining additional financing. These alternative ways of getting funds for a business are now so popular that some experts are wondering whether or not small businesses still need banks.

  • If I don’t have a good personal and business credit score, no financial institution will provide me with financing. That’s not true at all, because factoring companies don’t really care all that much about your personal credit score.

In account receivable factoring, the factor advances you the cash while waiting for your customer to pay up in full. It’s all up to your customer whether the factor gets its money back, so it’s the credit score of your customer that’s much more important. The factor has to approve of your customer. So if they think the customer to whom you’re offering generous terms don’t get their approval, then the invoice generated by the transaction won’t be able to get an advance from the factor.

  • Alternative lenders such as factoring companies charge too much for their services. It all depends on what you mean by “too much”. When compared to the interest charged in a traditional bank loan, then perhaps this is somewhat true.

But a simple comparison between financing fees doesn’t paint an accurate portrait of what’s really at stake. What is on the line is your future profit. If you rely on banks and they don’t come through, then you may lose out on a deal that will give you a profit margin of 30%. But accounts receivable factoring is easier and faster to get, so even if you have to pay as much as 10%, then you still have 20% as profit.

In other words, relying solely on traditional bank loans can cost you the entire 30% profit margin instead of just 10%. And that means the bank loan is actually much more expensive for you!

Read up on alternative business to business finance sources and you’ll find that banks aren’t your only option. In fact, in some situations they shouldn’t even be your first option at all.

 

 

How Medical Receivable Factoring Can Save Clinics

Talk to any medical doctor doing private practice these days, and they’re going to tell you that times are tough. That may not seem so for the Mt. Pleasant clinic in Michigan, which was awarded $707,167 in federal funding under the Affordable Care Act. Unfortunately for the rest of us, the $5 million slated for funding for Michigan is only for 8 new health center sites in the state.

The scenario many health care clinics can relate to is the one that’s now affecting the Ellsworth Free Medical Clinic, which may not be able to keep its doors open for the rest of the year. It was in the same situation last year, but $45,000 in donations prevented it from folding up.

If closure is an unpalatable but still very likely result for your clinic, you may be able to stave it off by getting an additional source of funding. But if the banks won’t help and donations aren’t forthcoming, then there’s still another hope: medical receivable factoring.

How It Works

Medical receivables factoring is a bit more complicated than the usual process of factoring. Here there is a third party that must be accounted for—the insurance company. This can be Medicare, Medicaid, or a private insurance company.

As the medical provider, you send your bill to the insurance company while you also give a copy of the invoice to the factor. The factor then buys the invoice from you, and in return you get a large percentage of the value of the invoice. The percentage may differ depending on the factor you choose to work with, but an 80% advance is typical.

The 20% is held back by the factor as a reserve, because as you know the medical insurance company may refuse to pay part of the bill or it may pay later than you expected. When the factor gets the payment from the insurance, it then gives you the rest of the payment minus the factoring fees and any penalties for late payment.

Because of this process, you really need to make sure that you only choose among experienced medical factoring companies. Not all factoring companies will chose to work in medical receivable factoring because of the inherent uncertainty of dealing with insurance companies.

Benefits

The cost of this type of funding can be more expensive than a traditional bank loan, but medical receivable factoring does have its advantages. You can get the funding you need because the factor doesn’t really care about your credit score, and the application process is faster than with a traditional bank loan application.

With the money you have, you can then meet your payroll obligations and pay the salary of your administrators, nurses, and other doctors. You can buy the supplies you need in the clinic such as gloves and bandages. You can even use the money you have to invest in better medical equipment so that you can provide better medical service to your patients.

You don’t have to close down when you’re having working capital problems in your clinic and your bank or donors can’t help. You still have medical factoring companies standing ready to provide their own brand of emergency services.

Other Ways Accounts Receivable Factoring Can Help Your Business

Probably the most notable reason why accounts receivable factoring has become so popular in the US and overseas is that it offers quick funding at a time when banks are reluctant to lend to small businesses. When you apply for a bank loan, it will take you a long time to find one that’s willing to do so and the application process can drag for weeks.

But with accounts receivable factoring, factoring companies are more likely to give you financing and they do so pretty quickly. What’s more, once the factoring line is set up you can get the money you need in a day or two.

But this isn’t the only help you get from factoring companies. By getting your funding by factoring your accounts receivable, you help your business in other ways. Take a look:

Invoice Tracking and Payment Collection

In accounts receivable factoring, the factor takes care of the invoice processing and the payment collection. They give you the advance on the accounts receivable, and your customers’ payments come to them. Then they send you the rest of the money minus the fees the factor charges.

Customer Evaluation

The factor also investigates the credit standing of your customers. That’s standard, because that’s where the money will come from that will cover the factor’s cash advance and fees.

So now you get an additional layer of protection against supplying a company that’s unlikely to pay up in 30 or 60 days. The factor investigates your customers and only gives it approval for the “safe” customers.

Supplier Discounts

With the money in hand, you can now pay your bills. You can meet payroll, hire more people, buy more equipment, pay back any of your outstanding debts, cover the rent, and engage in more serious advertising.

You can also pay for supplies more quickly, and that means you can enjoy discounts offered by suppliers. You effectively minimize your expenses.

More Financing Opportunities

One thing you also have to remember about factoring is that it is not a loan. It’s technically an adance of your accounts receivable. And that means there’s no additional debt reflected in your balance sheet, which makes it more attractive.

And because you don’t carry additional debt and you’re able to use the cash advance to pay any outstanding debts on time, you can improve your credit score.

What that means is that if later on you want to apply for a traditional bank loan or entice venture capitalists to invest in your business, you’re in a better position to succeed. Your improved balance sheet and credit score means you’re a better opportunity for banks and investors.

With accounts receivable factoring, the fact that you can get funding quickly in a business environment where so many small businesses can’t get financing is already an advantage you can’t ignore. Add the extra benefits, and it means you should really consider accounts receivable factoring as a more suitable option than a traditional loan.

Using Purchase Order Finance for Your Start-up Business

When you need additional funding for your new business, you should really consider purchase order finance over other finance alternatives.

Most of the time, you fund your startup with your own seed money. You probably have what you think is a great idea for a product, and now you want to make those products to sell. To do that, you use all your savings, and maybe even get a mortgage on your home so you can have startup money. Perhaps you even borrow from your friends and close family members who believe in you and your idea.

Potential Financing Problems

The problem with these sources of financing is that they don’t have enough to really fuel your growth. You need lots of working capital, and usually you have to start making your gizmos even before you get your purchasing orders. And getting additional financing can be a problem when you deal with traditional lenders.

In general, banks are hesitant to lend money to startups, because they aren’t all that enamored of the risks involved. Banks see small businesses as too risky, and new small businesses are even more fraught with uncertainty. The failure rate is so high that most banks just don’t bother funding small business startups.

And venture capitalists aren’t any better either. While the news media are full of sensationalized stories about new tech startups getting astronomical sums of money for funding from venture capitalists, the reality is that only a small percentage of new businesses get funding this way.

And there’s another disadvantage, in that with venture capitalists you have to give up a share of your company, which means you give up a share of your future profits.

Using Purchase Order Finance

So let’s say you’ve managed to convince a retailer to buy your products in bulk. They think that your gizmo is terrific, it can appeal to lots of people, and it’s profitable for them. So they place a large order, and that means you’ll need lots of working capital to meet that order.

That working capital will be needed to pay the manufacturing plant you commissioned to do a production run of your product. And they won’t do that unless you pay them upfront. After all, you’re a startup. It’s just too risky for them.

This is the stage where most startups have difficulty moving forward. It’s actually a very common situation, where a startup has a large order and no cash to meet it.

And that’s where purchase order finance comes in. They use the purchase order value as the basis for the cash advance. They take care of the manufacturing cost, and then when you fulfill the order and the customer pays, the lender gets back its advance plus the fee for the financing.

Requirements

The lender will have some requirements which you need to comply. Usually the lender will have some say as to which manufacturing plant will produce your gizmo. Then you have to demonstrate that you will earn a huge gross margin, at least 30%.

Finally, it’s a good idea to start negotiating for purchase order financing even before you finally get your P.O. The purchase order usually has a deadline (60 to 90 days), so you should have your financing lined up before the order arrives.

If You Need a Working Capital Business Loan, Avoid These Traps!

With banks so recalcitrant about lending money to desperate small businesses, quite a few unsuitable lenders have come out of the woodwork trying to exploit them. Now if you do your research properly, you’ll find that you have a lot more options than just getting a loan from a bank.

Your options for getting a working capital business loan can include factoring companies, crowdfunding, and other digital sources. But not all lenders are created equal, and some of them may actually do more harm than good for your company.

So when trying to obtain financing for a business, watch out for the following dangers:

Business Plan Providers

If you’ve ever tried asking a loan from a bank, then you know that one of the documents they’ll want you to submit is a proper working business plan. But some small business owners don’t know how to create one nor do they know how to make a financial forecast for their company.

Because of this, some “professionals” may offer to write your business plan and financial forecast for you. They’ll say that these will give you have a better chance of getting that working capital business loan you need from the bank.

But there’s a bigger problem here. You need to learn this skill of developing your own business plans and financial projections. By learning how to do these things, you make sure that as a small business owner you know what you’re doing. You’re familiar with the nuts and bolts of your business and you’re aware of what your goals are for growth.

Developing this understanding will help your business succeed, because you have a more accurate idea of how it works now, and how it should work in the future.

Business Credit Services

Again, it’s true that if you’re asking for a loan then your business credit is going to be very relevant, and you need top rating for your bank to approve the loan you ask for. That’s why there are business credit services offering to help you improve your business credit.

But when getting a loan, your personal credit is actually more important. That’s because your bank will insist that you be personally responsible for the loan, whether your business succeeds or not.

And in some cases, you don’t need business credit at all. Lenders don’t expect startups to have a strong business credit because by definition they don’t have much of a history to go with. And in accounts receivable factoring, your personal credit is much less important compared to the credit of your customers.

Hidden Fees

Some people may use the wrong factoring companies or credit cards to fund their business, and find out later that they’re paying more than they were expecting. When you’re using any lending option, you need to read the fine print and make sure that there are no hidden fees.

Discuss the loan with your lender and get assurances regarding the terms and fees. Make sure to put your agreements into writing.

 

How It Works with Banks and Factoring Companies

If you need additional financing for your business, the first thing you need to do is to take stock of your current situation. For that, you need to ask yourself several important questions which will give you a better idea of which financing solution to seek. That’s because the banking industry and the factoring business do things differently.

How Soon Do You Really Need the Money?

If you can wait for a few months, then perhaps the banking industry may provide the answer by giving you a traditional loan. That’s because applying for a loan from a bank is a protracted process that can take an entire month, even if you apply to the first bank you see.

A bank is quite meticulous when it comes to evaluating and investigating a borrower’s credit worthiness, and it will need a ton of documents to prove that your business can pay back the loan eventually.

On the other hand, if you need the money as soon as possible, then the factoring business may be the best solution to your problem. A factor may offer any of the alternative financing solutions such as invoice factoring, merchant cash advance, or purchase order finance. An application for any of these financing solutions doesn’t take a lot of time.

How Much Money Do You Need?

If you need at least $250,000 or even $1 million, then a bank may be a more suitable source of financing. In fact, the bank prefers that you borrow larger amounts of money because it earns more from bigger loans. Most banks these days won’t lend money to small businesses who need less than $250,000 or even less than $100,000.

Factors however can accommodate smaller sums. These alternative lenders may be able to lend a million or two, but many of them specialize in lending sums in the thousands, and not in the millions.

What’s Your Credit Score?

If you have a stellar credit score, then a bank may be able to lend you the money you need. Your business should have a good credit standing too. Your credit score is an indication of how likely you’ll be able to pay back the loan.

But factors don’t really care much for your credit score. They care more for the credit score of your customers, since they are the ones who will pay them back not you.

What Kind of Collateral Can You Offer?

In general, your business should have some sort of real estate or expensive equipment to use as collateral. And that may not even be enough for banks. Many small business owners may be required to use their houses and cars for collateral as well. With invoice factoring, on the other hand, your invoices are the “collateral” for the cash advance.

 

 

How Factoring Companies Can Help Trucking Businesses

When you’re an owner-driver of a truck or the owner of a fleet, there’s going to be a time when you’ll feel the need for some extra working capital. After all, you make money having your trucks roll through the highways hauling freight for brokers and shippers, and that constant travel can take its toll. And that’s where the factoring companies come in.

What Factoring Companies Can Do for Your Trucking Business

Factoring companies have several ways of helping you in your trucking business, but mainly it’s all about providing you with ready cash as quickly as possible. The financing application process doesn’t take more than a week, and then the factoring begins.

In the factoring process, once you complete a delivery, you provide a copy of the freight bill to the factoring company. The factor then verifies the invoice and you get a large percentage of the value of the invoice in your bank account right away. Some of the best factoring companies offer an advance of more than 90% of the value of the invoice, and you get the money in less than 2 days. The rest of the money goes to you once your customers pay the factor in full, and the factor then takes off its fees before it gives you the rest of the payment.

Factoring isn’t a loan, so it does not affect your credit rating or your balance sheet. So if you’re set on getting a bank loan in the future, you won’t have additional problems because you opted for factoring.

Uses of the Cash Advance

Now that you have money in hand, you can then pay for your fuel costs, and pay for your truck’s proper maintenance. If repairs have to be made, at least you have the money to use right away. If you’re the driver of your own truck, you now have money for meals and incidentals such as motel payments for overnight travel.

And if you’re a fleet owner, you can also use the money to cover payroll and meet other overhead expenses. You can even use the money to expand your business by hiring more drivers or by buying more vehicles.

Find the Best Factoring Company

Your best options for factoring when you own your trucking business is a factor that specializes in the trucking industry. They have the resources to investigate the shipper and brokers that make use of your services, so that there’s no delay in getting your money.

Some of the factors in the industry even offer fuel advances so you’re fully gassed up when you pick up a load. You may also get special fuel cards that give you a significant discount when you refill your gas tank. If you own a trucking fleet, these services can add up to a significant amount in savings.

Consider factoring if you’re in the trucking business. It can help make your operations smoother and enable you to compete with larger carriers. And you can even grow your operations so that you too will have a bigger fleet!