Tag: invoices

A Bird in the Hand is Worth Two in the Bush

factoring invoices, factoring company
Accounts receivable financing is like that. It gives you ready cash now and removes the risk that you might not be able to obtain the full amount at some later date.

There is a story behind this famous English idiom which dates back to the 17th century.

The gist is that a sure thing right now beats a promise of better things in the future.

 Accounts receivable financing is like that. It gives you ready cash now and removes the risk that you might not be able to obtain the full amount at some later date. And it’s that uncertainty that can disrupt your company’s strategies.

All bank loans require some form of collateral. In most cases, it’s the item itself for which the money is advanced. So if take out a mortgage so that you can buy a house, then the house itself is the security. If it’s for a car or a boat, then the same principle applies.

 

The title on the item, that piece of paper that shows that you are the rightful owner, is held by the bank so that if you are unable to repay the load, then can sell that security and get their money back.

 

Sometimes, banks will loan what they decide is the value of the item, regardless of how much you have paid for it. And in the case of a house, they normally require you to have some skin in it, to the tune of about 20% of the purchase price. In that way, they feel that you are more likely to honor your commitment because if you failed to do so, then you would lose not only the house, but your money as well.

 

I’ve reminded you of how bank loans work in order to help you understand the benefit of using accounts receivable financing instead. Instead of borrowing against your invoices, you can sell them instead. In other words, it’s a sale, rather than a loan. That means you won’t have to pay it back, ever.

The accounts are sold at a discount. The seller gets ready cash, and the buyer makes a profit on the debts when they are fully paid. It can be a win/win for both parties.

If the debts are old, then the value of the accounts is likely to be less than if they were current. That’s because they tend to be more difficult to collect. Each company will have its own policies for this, and you should check with yours beforehand.

 

The “bird in hand” is cash today. The “two in the bush” are found in the hope that you might be able to collect the full amount in the future.

 

Let me ask you something.      Is it worth the risk?

 

Rather than write off the outstanding debt now and receive nothing, wouldn’t you rather get something for it instead? Wouldn’t you prefer to shift that risk onto another firm?

 

When you’re bills aren’t paid, it’s difficult to concentrate on the really important things. But, if you sell your accounts receivable, that will free up your mind for what matters the most.

Why Should I Use Factoring?

By: ChrisLanchech

There are a number of benefits that you can obtain by factoring your invoices. I’ve talked about one of them already.

It’s cash flow. It doesn’t matter how successful your business has been, if cash stops coming in, then a time will come when you don’t have any.

Think of it like this. If you have a basin filled with water and you pull the plug, you have to pour in the same amount as is flowing out of the bottom. Otherwise, there will come a time, perhaps sooner than you think, when there won’t be any left.

But instead of water, it could be cash.And it’s something that can take you by surprise, especially when everything else seems to be going as well as it should.

For example, you could be filling orders and shipping them to your customers. Your customers could be delighted with your prompt service.

Or, you’re employees could be the most productive they’ve ever been.

Or your suppliers could be giving you exactly what you need just-in-time.

 

But, if there’s a delay for any reason in the payment of your invoices, you could suddenly find that there’s no cash left in the company to do any of that.

 

How would you feel if that happened to you?

 

Factoring can do more than just keep your firm going. It can also help you to maintain your creditworthiness.

The news today is replete with examples of people who have been thrust from the homes they’ve lived in for 30 years, because when they started missing mortgage payments, the banks foreclosed on them.

 

What does that teach us about how much the banks trust the firms we own to help us when we need it? If nothing else, it demonstrates that when the chips are down, they won’t.

 

Whatever they were willing to do for us in the past, matters not a jot.

 

And so that means that we have to look for other options and have them in place before we need them. Because, as much as we dislike them, banks are still the place where we have to go, in most case, to get loans for capital expenses.

We can’t live with banks, and yet we can’t live without them. If your creditworthiness has been damaged, for any reason that you care to name, your bank simply will not loan you the money that you need when you need it.

If truth be told, they may not anyway. But, your chances are greatly diminished if your credit rating is poor.

And so, rather than waiting until the last little bit of cash is about to drip out of your company, my suggestion is that you make factoring a part of your firm’s strategy.

In today’s economy, you simply don’t know when you might need some extra money, just to tie you over. And you can’t afford to leave something as important as the survival of your business until the last minute.

 

The Necessity of Cash Flow

Banks are notorious for offering you money when you don’t need it, but demanding it back when you do.

If you add to that the growing propensity of customers to pay on the last day of the grace period . . . or later, then you’ll know that even the healthiest businesses can find themselves in dire straits before they know it.

 How did we get into this mess?
To a certain extent, it doesn’t matter.

But for the record, we can still remember when the banks were bailed out. Some thought they were too big to fail. (Pride goes before a fall.)

Others preached ethics, but went for big profits instead.And still others decided that the laws applied to everyone else, though not to them.

But probably the most frustrating thing to come out of the financial debacle is the fact that when the government handed over the billions of dollars required to keep them from going bankrupt, they made no attempt to hold these same companies accountable for the way they spent that money.

And so instead of providing financial support to businesses, they simply paid themselves the bonuses that they couldn’t have afforded beforehand.Whatever the causes were, it’s businesses like yours that have been left to suffer.

I remember someone telling me that he was property rich, but cash poor. And I imagine that you could be in the same situation. You have the plant and equipment, you have people with the skills you need, and you even have a relatively full order book. But, your cash flow could do with some help.

There’s just too much time between when you send out your invoices and when you get paid for them. Cash flow is an indispensable part of any successful business. And shutting it off in a firm can have the same effect as staunching the flow of blood in the body. Neither can survive for very long.

Factoring is one means that you have available to fight back. And I use the term “fight” for a reason. Business is something of a war.

Some will argue certainly it always has been and always will be. But I don’t think that’s the case at all. There is still a lot of collaboration and cooperation going on to this day, and social media may help to make it even more so.

But there is something of a fight involved, especially when it comes to getting the money you need to keep yourself going. The war, however, seems to be against the whims of your bank and economic pressures, rather than that of your customers.

In case you’re unfamiliar with the term, factoring is nothing more than a means through which you can obtain cash quickly via your invoices. It’s not a loan. It’s a sale.

You sell your invoices at a bit of a discount to another company. That company pays you cash for them, and then you’re able to put that money directly into your business.

And by doing so, you can keep your cash flow going.

Factoring Websites Claim Unreal 1% rates?

 A quick online search shows that you will find a number of factoring companies that offer what appears to be very cheap factoring rates. Based upon what you search online, you will find claims saying you can factor your invoices for only 1%. Sometimes, the rates are even lower. How can this be? And in some advertised websites, the rates appear to be cheaper than traditional bank financing.
cheap factoring rates
Just how can factoring be cheaper compared to a conventional business loan that’s only reserved for prime customers with plenty of assets?

Let us explain this for you:

The key is to recognize how nearly all factoring rates work. Even though the rates might seem to be cheaper than bank financing, often they will not be.

Why?

Well first we need to evaluate how factoring fees are commonly evaluated. Factoring company’s commonly charge you a fee that will increase the longer that a invoice remains un-paid. This is sensible, the more time an invoice goes unpaid = the greater the cost.

Below are 2 popular techniques for determining factoring fees:

1. Ten Day Fee: This is certainly the most popular factoring fee structure. In this case, the factoring company prices a fee for a 10-day period. For instance, 1.00% for every 10 days the invoice remains unpaid, this fee adds up until the customers pay the invoice in full. The fee for the first 10 days is 1.00%. The fee for the second ten days is 2.00% and etc.

2. Daily fee: This is the most basic factoring fee model you are charged a daily fee for each day that the invoice is unpaid by the customer. An example of this would be a 0.30% fee per day. This equals about 1.00% for ten days and about 3.00% for every 30 days the invoice remains unpaid.

These illustrations have got one thing in common = the cost of factoring a invoice for ten days is 1.00%. Using this information, you could say factoring is provided at rates “as low as 1%” Definitely, just make sure your invoice are paid very quickly and in ten days or less.

in the event that you are evaluating factoring proposals, you should contemplate looking at the fee structure carefully to recognize what the total cost of factoring is going to be for you. The best way to find out – check with your factoring company for the cost of factoring invoices for thirty or sixty days. That will provide you with a good measure of the actual factoring fee cost.

If your business is experiencing cash flow issues and is in need of funding, give us a call 1-888-382-3766 or visit us online by clicking here