Author: Chris Lanchech

Hi everyone, my name is Chris and I am a junior analyst at Neebo Capital and an inspiring blogger. We enjoy speaking with business owners and entrepreneurs who come to Neebo Capital looking for cash flow solutions. Give us a call toll free at 1-888-382-3766 or Visit us online at www.neebocapital.com

How Does Food and Beverage Factoring Work?

How Does Food and Beverage Factoring WorkThere are many reasons why food and beverage companies often need an infusion of capital. They have to adapt to constantly changing markets, comply with ever stringent food safety and marketing regulations, and pay increasing labor costs. But banks are no longer reliable when it comes to loans, and that means alternative forms of financing. For many small and mid-sized companies involved in food and beverage business factoring is perhaps their best option.

How Does It Work?

The way food and beverage factoring works is very simple. First you need to find a factor to help you, and preferably you get a factor with extensive experience in the food and beverage industry. You then negotiate how much you get in advance for your invoices, and how much you pay for the factoring service.

Once the details of the agreement are set, you then have your additional capital. You just submit the invoices to the factoring company, and in return you get more or less 80% of the value of the invoice almost immediately. The factor then takes over the administration of the invoices, and they also handle the collection as well. When the customers finally pay in full, you get the rest of your payment, after the factor deducts the fees for its factoring services. This is usually in the 2% to 4% range.

It really is that simple.

Benefits of Factoring

With food and beverage factoring, your own credit doesn’t matter. So if you were denied a bank loan due to your poor credit, in factoring that’s irrelevant. Only the credit of your customers is relevant. So if you deal with reputable companies in the industry, then you can use their excellent credit to boost your own working capital. With factoring, the entire application process may take no longer than a week or two, and the chances of getting your money are very high.

There are other benefits in addition to getting more working capital. Factors investigate your potential customers, so you will now know which companies are credit-worthy. You’ll know which ones pay fully and on time. You no longer have to investigate them yourself.

You also save yourself the trouble of hiring people to collect your payments. Your factor does this for you as well, so that you can concentrate on coming up with new and exciting food and beverage products that can boost sales.

Conclusion

Food and beverage factoring is now one of the more popular forms of financing, simply because banks are not always eager to grant borrowers a loan. They have too many requirements such as collateral, and their loan application process is simply too time-consuming. Often they even need to know what you want to use the money for.

With factoring, you can use the money in whatever way you see fit, and you don’t have to pay any monthly loan payments. Factoring is not a loan at all, and that means your own credit isn’t affected as well.

 

The Immeasurable Value of International Receivable Lenders

The Immeasurable Value of International Receivable LendersOne of the many benefits of the Internet is that you no longer need a physical presence overseas in order to become an international business. The Internet enables you to communicate and deal with other companies from other countries much more easily.

But of course, selling overseas can be challenging. You have to think about shipping and delivery. You have to convert currency, and even small changes in currency can affect your profits. The rules about taxes and duties are different in other countries, and you may have to change how you market your products to work more effectively with different cultures.

If most of your business is B2B, one way of getting all the help you need is by enlisting the help offered by international receivable lenders.

  • As an international seller, you’ll need to compete with local suppliers. That may require you to offer more attractive prices and terms. You don’t have to insist on getting cash on delivery, because with international receivable lenders you may get about 80% (or even more) of the value of the invoice in a day or so.
  • Every business needs financing at some point, but many lenders won’t accept international accounts receivable as collateral. But with international receivable lenders, you get the financing you need quickly. As a bonus, these lenders can even provide the money you need in the currency you want, for your convenience.
  • These international lenders can also help you find out which foreign companies deserve credit. These experienced lenders either have the knowledge about the companies, or they already have the tools in place to make an accurate evaluation of their credit worthiness. You will then know which foreign companies pay on time, and which ones pay late or don’t pay at all.
  • When the companies are credit-worthy, you may then be able to offer generous terms. But for those companies who have poor payment histories, you can insist on cash deals to protect yourself.
  • These lenders may also have the infrastructure and personnel in place so that they can collect from your clients much more effectively. You don’t have to hire and train collectors of your own, and this saves you a lot of trouble, time, and money. The collectors of the lenders already know the language and the customs, and this can help you avoid cultural misunderstandings.
  • Some lenders may even offer a form of insurance against bad debts and late payments. With this service, you no longer have to worry about getting your money at all. Either your customer pays you, or the lender will.
  • There are several types of international receivable lenders. Some will offer straight loans with your invoices as collateral, while others may offer factoring. If you are in the B2B industry, and you give your clients payment terms, factoring may be a viable option. Tapping the international market has its opportunities and challenges, but with the right lenders you can navigate international business waters much more safely.

What Affects 30 Day Factoring Rates?

Factoring is a very popular method these days of using invoices to get the funding you need. Basically, instead of having to wait for 30 days for a customer to pay fully, you get 70% to perhaps even 90% of the value of the invoice in just a day or two. When the customer finally pays after 30 days, you get the rest of the money after the factor has deducted its fees. These fees often depend on the agreed upon 30 day factoring rates.

There are several considerations which can affect these rates:

  1. The credit-worthiness of your customers. One of the reasons why factoring is so popular these days it that it’s easy to get approval for the funding. That’s because your company’s credit history and your own credit is immaterial. You can have lousy credit and you can still get your funding through factoring.
  2. What matters most here is your customers’ ability to pay. So if it seems that these customers are always paying in full and on time, you can expect lower 30 day factoring rates. It can get higher if there is greater risk that your customer won’t pay at all.
  3. The value of the business you give them. When factors negotiate a factoring agreement with you, they will take note about how much business you decide to bring their way. If you just want a one-time deal, then the 30 day factoring rates can be very high.
  4. But if you enter a lock-in contract for a couple of years, then the rates can be much lower. It can also be lower if the volume of the invoices is very large. If you bring in a million dollars’ worth of invoices a month, then the 30 day factoring rates can get very low. This is especially true of the invoices involved are few with high amounts, rather than thousands of invoices with little amounts for each.
  5. The percentage of the advance. Some factors may offer a large advance, but they may charge higher 30 day factoring rates. But if you are satisfied with a lower cash advance, then you may enjoy lower rates.
  6. Recourse or non-recourse. With regular recourse factoring, the factor can demand that you return the advance if your customer does not pay for any reason. With non-recourse factoring, the factor can’t go after you if the customer is unable to pay due to bankruptcy.
  7. Since the factor is assuming a greater risk for non-recourse factoring, that means higher 30 day factoring rates.
  8. The experience of the factor in your industry. If you are a staffing company, for example, what you need is a factor who is already familiar with staffing invoice procedures and the need for time stamps. Since they already know how to set up the factoring line, the rates may be lower than what a newbie to the industry will demand.
  9. Obviously, you want the lowest 30 day factoring rates you can get. So get a factor with experience in your industry, and submit only the invoices which involve credit worthy customers.

AR Factoring Terms: What are Your Options?

Many businesses these days solve their cash flow problems through accounts receivable factoring. You get about 80% of the value of your invoice in advance, and then the rest of the money will be given to you when your customer pays in full.

There are several advantages to this approach: you have a better chance of getting the money you need and the entire process is very quick when compared to bank loan applications. But to maximize the benefits, you have to make sure that you get the best AR factoring terms.

As a business owner, you’ll probably be more concerned about how the AR factoring terms specify how much money you’ll get and how much you have to pay for the factoring service. All these are crucial, but there are several options in factoring which you have to consider.

Non-Recourse Factoring

Factoring isn’t a loan. Essentially, you sell your invoice at a discount to the factor so that you don’t have to wait for 90 days to get your money. Instead, you get your money right away.

But if the customer doesn’t pay the factor for any reason, then you’ll be required to pay back the money you received as an advance. This is called recourse factoring.

But if you want, you may avail non-recourse factoring if the factor offers it. In this type of factoring, factors absorb the loss of the advance money should the customer declare bankruptcy and default on the payment. However, this may mean that the advance you get may be smaller and the fees you pay can be greater.

Selective Factoring

In many factoring cases, every invoice is submitted to the factor who then chooses which invoices to advance money on. If one of your customers is notorious for nonpayment and the factor has agreed to a non-recourse factoring, then the factor may refuse to advance you the money for the account receivable.

But you may negotiate for a factoring service in which you choose which invoices to give to the factor. You can choose just enough of the invoices to generate an amount which should suffice for your needs. Your other invoices will then retain their full value and you won’t have to pay fees for having them processed by the factor.

In a way, this is like having a line of credit.

Many AR factoring terms lock you into a long-term agreement, but the duration may be too long for your business. You should only get the factoring service while you need it, and you can negotiate this with the factor.

This is why some agreements may enable you to choose when to end the factoring agreement, although factors can vary as to what kind of warning time they need. Some factors may ask that you give a year, while others may only ask for three months’ notice.

Factoring can help your business. By agreeing to the right AR factoring terms, you can make sure that everyone’s a winner.

An Example of Factoring for Flooring Companies

factoring for flooring companiesFactoring is not a new concept in modern finance. In fact, some say that this practice has been around for hundreds of years. Today, many companies have taken advantage of factoring as a way to get cash for operational expenses and to spur growth. Factoring is very useful for all business sectors and there’s factoring for flooring companies as well.

One of the more notable cases of factoring for flooring companies happened in the late 1990s. At the time, factoring was growing out of its garment industry roots and factors were beginning to offer their financial services in the health care, IT, and construction industries.

Floor Concepts

Floor Concepts is a commercial flooring company based in New Jersey. In 1998, the partners in the company needed more funds for their business. They had numerous businesses opportunities, but they did not have the cash to fund new projects.

And they knew perfectly well that banks would not help them. They had tried to get a loan from First Union Bank the previous year, and their loan application was rejected. The partners did not have the collateral the bank needed, as they didn’t own their own building. But without an infusion of cash, Floor Concepts would be unable to hire more workers and they could not buy the supplies needed for new projects.

Factoring to the Rescue

So what Floor Concepts did was approach a factor in New York. The flooring company offered invoices totaling $220,000 to the factor. The factor advanced them 60% of the value immediately, which amounted to $132,000. The factor also took responsibility for collecting the payment from the company’s customers. When the customers finally paid in full, the factor took 3% of the total invoice ($6,600) as fee for its services, which is called the discount. The flooring company then got the remaining $81,400.

The factor was a true help, because it was able to offer financing without requiring collateral. It didn’t matter that Floor Concepts at the time did not have excellent credit. To the factor, what was important was the credit-worthiness of the flooring company’s customers. And those customers were trusted by the factor, because they included Hackensack University Hospital and Barnes & Noble. It seemed clear to the factor that these customers could be trusted to pay the invoices.

The flooring company got their much needed capital and as a result it was able to bid and win many contracts. The profits from the new projects were much greater than the cost of the factoring services.

Additional Considerations

There are several ways of negotiating the advance rate and the discount, which varies depending on the factor you talk to. You can promise them more factoring deals in the future, as well as give them invoices from customers who always pay in full promptly, and the advance money may go up while the discount goes down. Overcome potential problems, and factoring for flooring companies can work for you.

 

Factoring for Technology Companies

Factoring for Technology CompaniesFactoring for technology companies is becoming more popular, because many technology entrepreneurs won’t allow the lack of working capital to prevent them from growing. They look to Alabama and feel that they can do just as well.

Alibaba, the Chinese ecommerce firm, has just debuted on Wall Street, and it was a whopper. The technology company raised $29.7 billion, which made it the largest IPO of all time. The previous record holder was Visa back in 2008, and it raised only $17.9 billion.

Alibaba achieved a market cap of more than $228 billion, and that has made it the 4th most valuable tech company in the world. The only companies ahead of it are Apple ($611 billion), Google ($400 billion), and Microsoft ($384 billion). Alibaba is now more valuable than Facebook.

With such a dramatic entrance, many other tech companies are dreaming of a big IPO payoff as well. Perhaps you too are dreaming of this, or maybe you just want to be moderately successful first. But whether you are aiming high or have more reasonable expectations, you will undoubtedly need capital and lots of it. If an IPO is not practical for you, then you need other arrangements.

Bank Loans

This is perhaps the most obvious way of getting financing, but it has its share of drawbacks as well. The loan application process takes too much time, and even the chances of getting a loan is 50-50 at best. Banks require a lot of security, and for many tech companies the problem is that they may not have the assets to use as collateral.

And if you already have borrowed from a bank, you need to go through another long process if you want to get more money.

Venture Capitalism

Here, you raise capital by selling chunks of your company to venture capitalists. But this can be very expensive in the long run. For example, if your company is worth a million dollars, you have to sell 10% of it to get $100,000 in capital. But when your efforts to grow your business succeed and now your company is worth $3 million, that 10% is now worth $300,000. You essentially paid $200,000 to get $100,000 for your working capital.

And if you sell a large chunk of your company, you may end up losing control of it in the end.

Factoring

With factoring for technology companies, the benefits are quite significant. The application process is much quicker. The chances of getting finance are also quite good, because your credit is irrelevant to the factor. The most important consideration is that your customers are credit-worthy.

If they are, then the factor advances you anywhere from 70% to 85% of value of the invoices almost immediately. You then get the rest of your money (minus the fee of the factor) when your customers finally pay in full. You can then use this money to pay overhead and payroll, or invest in research or better equipment.

With factoring for technology companies, you can make sure that your company is still yours. You don’t have to explain to a bank about your overall business strategy, and you don’t have to risk losing control of your business.

Why Should I Let a Factor Purchase My Invoices?

Why Should I Let a Factor Purchase My InvoicesAs a small business owner, every now and then I would need an extra infusion of cash. Sometimes it’s about needing working capital to cover expenses such as overhead and payroll, as well as paying for supplies. Other times I need the money to fund my company’s growth by taking advantage of certain business opportunities which require money upfront. For example, a certain piece of expensive equipment becomes available at a considerable discount. The financing can get me that equipment to boost my business.

But nowadays, I don’t go to the bank anymore if I need to borrow money. I just let a factoring company purchase my invoices. It’s not just an alternative form of financing, but it’s actually one of the main forms of financing for me.

So why do I let a factor purchase my invoices? Take a look:

  1. I can get the money I need. Banks are nice, and they can actually help when you start a business. But the problem is that many banks are not really all that happy to lend money to small businesses these days. The rejection rate is appalling, and what’s frustrating is that you waste a lot of time in the process.
  2. I can get financing more quickly. Banks take a long time to decide whether to give you money or not because they have to check your company’s finances. They use this info to set how much they will lend you and at what rate. With that kind of speed, you can take advantage of many more opportunities than before.
  3. But with factors, the process is much quicker. At first you’ll probably need about a week to set up a factoring system. But after that, you’ll need as little as 24 hours and you’ll get your money.
  4. I can get only the money I need. The worst part of taking out a loan is that often you borrow more money than you actually need. This means that you’re paying interest for something you didn’t have to. It’s just plain wasteful.
  5. But a factor will only purchase my invoices. I choose which invoices to give to them, and the factor agrees to buy them when they confirm that the customer has a reputation of paying back on time on a regular basis.
  6. I can get the extra services that I need. When I have a factor purchase my invoices, I get several additional benefits than just an infusion of cash. For example, I no longer have my own collection department, because the factor does the collecting for me. It saves me a lot of headaches, since I don’t have to oversee and pay collectors. With all these benefits, it helps me to sleep better at night, knowing that I can get extra cash flow for my business whenever I need it.
  8. The factors also investigate new customers to see if they pay up consistently. I don’t have to do it on my own. And now I also don’t have to risk offering credit to new business customers who may not pay me at all.

Accounts Receivable Financing is Based on Customers’ Ability to Pay

As a small business owner, sooner or later you’ll need a loan. You may want to use the money to help solve your cash flow difficulties such as paying overhead and payroll, or you may need some funding for your business growth. And obviously, you’ll turn to banks for a loan. But many businesses these days are turning towards alternative lenders who can provide accounts receivable financing.

In this method of financing, you use your accounts receivable—you get 70-80% of its value right away, instead of waiting for 30 or even 60 days to get your money. And one of the most notable features of this method is that accounts receivable financing is based on customers’ ability to pay.

Why is it important that accounts receivable financing is based on customers’ ability to pay? Here are some reasons why:

  1. It speeds up the financing application process. Banks are notorious for acting slowly on loan applications. There are loan application papers which may total up to three inches thick. You have to disclose your business model, your revenues, your expenses, your assets, and everything else simply to provide the bank with the answer to one crucial question: will you pay back the loan?
  2. Since accounts receivable financing is based on customers’ ability to pay, your credit has nothing to do with the approval for the financing. Everything is much faster, because the lender just checks how often and how quickly your customers pay. If they have a consistent history of paying fully and on time, then the financing is good to go.
  3. The approval rate is higher. This is why the approval rate for bank loans is not that encouraging: banks want your credit history to be absolutely pristine and your business should be efficient and doing well. It actually seems that they only want to lend you money only if you don’t need the money in the first place.
  4. If you show signs that there is a possibility that you won’t be able to pay back the loan, then your loan applications will probably be rejected. Banks are very wary these days and they don’t want to take part in risky loans.
  5. You get assistance in researching customers. It’s hard to run a business when customers don’t pay promptly. But it’s also difficult to run a business successfully if you insist on getting paid up front every time. If you require that all customers have to pay when you deliver the goods or services they need, you won’t have too many customers.
  6. So you have to extend some form of credit to your customers. However, there’s always the risk that a customer won’t deserve the credit at all. But because accounts receivable financing is based on customers’ ability to pay, you have experts investigating your new customers for you, so that you have a pretty good idea of their paying history even if you don’t have any experience with them yet.

Types of Construction Company Loans for Sub Contractors

Subcontractors inevitably need money to replenish their cash flow because the industry can be very volatile. There may be times when there are few projects, which may make it difficult to meet payroll. When there are too many projects, as a subcontractor you need lots of working capital to pay for supplies and equipment rental.

So where can you get the money you need to maintain business operations? Usually, there are several types of construction company loans for sub contractors.

  1. Bank loans. Most businesses often turn to banks when they need additional funding, and subcontractors are no exception. The problem is that often the bank will require a lot of collateral. It’s not uncommon for a bank to secure assets that are worth 2 or even 3 times the amount of the loan. Add the fact that bank loan approval rates are only about 20% and that loan applications can take a very long time to process, and it is quite obvious that this method may not the best option.
  2. There are other problems too. As a subcontractor, you’d have to meet monthly payments, and that can be a problem when you have a time when business is slow. And if you need more money, you will have to renegotiate the loan.
  3. Asset-based lending. If you have some real estate you can use as collateral, then you may get construction company loans for sub contractors. Stock and even the cash value of life insurance can also serve as collateral. The accounts receivables less the accounts payable can also be used as security, but many banks don’t like progress billings which are common in the construction industry.
  4. Here, the problem is that often a subcontractor doesn’t have the assets needed for loans.
  5. Factoring. This is a form of financing which isn’t really a loan at all. In this method, the factor company buys the invoice from you, and then gives you anywhere from 70 to 80 per cent of the value in advance. When the invoice is paid, you get the rest of the money after the factor has deducted its fees. With this method, you won’t have to make monthly payments and you can choose the invoice to factor so that you get the money you need. Factoring has a very high approval rate, and the process can be very quick. Once the factoring line has been set up, you can get your advance in just 24 hours.
  6. All these construction company loans for sub contractors have their pros and cons, and it’s up to you to choose which one is best for you.
  7. For example, let’s say you have a single invoice totaling $120,000. Your agreement with the factor has you paying 2.5% of the total as a fee for the first 30 days and you receive 80% in advance. That means you get $96,000 right away instead of having to wait thirty days for the contractor to pay in full. When the contractor does pay in full, the factor keeps the $3,000 as their fee and you get your $21,000.