Asset Based Lending – NeeBo Capital Blogs

Why Factoring is a Great Source of Staffing Agency Funding

Technically speaking, there are several ways of obtaining staffing agency funding. You can approach a bank and apply for a loan or line of credit. You may sell shares of your company to a venture capitalist in exchange for some capital. Some are even tempted into use their credit cards to pay for expenses necessary to run a staffing agency.

However, many agencies have discovered the many benefits of factoring staffing accounts receivable. In factoring, you don’t have to wait for your clients to pay you in full in 30 or 60 days. Instead, you get about 75 to 85 percent of the value of the invoice at once from the factoring companies, and you can use this money to pay your workers and hire new ones.

So what makes factoring such an advantageous option? Here are some of its very beneficial features:

You Can Get Your Funding Even With Bad Credit

It’s not very easy to get a loan from a bank, even at the best of times. And if you’re familiar with banks these days, you know that it’s never the best of times. And so if your staffing agency is new or has bad credit, getting the funding can be virtually impossible.

That’s not the case when you approach a factoring company. These factors don’t really give a damn as to what your credit score is. They’re much more concerned with the credit worthiness of your customers. When the factor advances you the money, your customers are instructed to pay the factor directly, so it makes sense that the factor wants your clients to have a good history of paying their bills in full and on time.

You Don’t Need Collateral

When you obtain a loan from a bank, in most cases you’re going to be asked to put up property as collateral to secure the loan. Since you’re running a staffing agency, your company doesn’t have a lot in the way of heavy or expensive equipment. So as the owner you may have to put up your own home as collateral.

In factoring, there’s no need for this sort of thing. You don’t need to put up your corporate assets and your personal assets are untouched. The factors only need a lien on your accounts receivable. That’s it.

You Can Scale Your Funding

You have lots of leeway regarding how much advance money you get so that you can boost your readily available working capital. In a way, it’s like having a line of credit or using a credit card. You can only take as much money as you need. If you don’t need much, you can just submit several invoices instead of all of them.

But lines of credit and credit cards have limits imposed by the lender. With factoring, the limits are only defined by the volume of your sales. So the more successful you become, the more advance money you can have available for your staffing agency.

So if you’re in need of staffing agency funding, think about factoring. It may be the key for the growth of your staffing agency.

The Ins and Outs of Purchase Order Factoring

Some asset based lending companies have a wider definition of what kind of assets can be used as collateral. Most lending companies consider the small business owner’s home as a viable collateral, while others may also accept expensive equipment as security. Some even offer financing based on a company’s purchase orders and accounts receivable, and that’s where purchase order factoring comes in.

Using the Purchase Order

The entire process starts with a purchase order from a customer. Your business may not have enough working capital to fulfill the order which will force you to turn down the opportunity. But you don’t have to do that because some asset based lending companies can help.

What they can do is provide you with extra capital based on the value of the purchase order. You need to demonstrate that the purchase order offers a wide margin of profit, so that the lending company can take its share without hurting your business. You also have to prove that you have the means to fulfill the terms of the purchase order.

Usually, you’ll be provided with a line of credit so that you can pay your suppliers in order to fulfill the purchase order. Your progress towards completing the project will be monitored closely.

Factoring

Once you have succeeded in fulfilling the order, the next step comes in. Usually, your customer is another business, and you allow it to pay you in full in 30 or even 60 days. Since you’re obviously in need of working capital immediately, that wait may not be good for your business. So again the lender steps in and helps.

They advance you the money based on the value of the payment coming to you. You get an advance that may be worth about 70 to 80 percent of the value of the contract. You can then use that money to cover essential expenses, or even to fulfill other purchase orders so you won’t need the help of the lending company again.

When your client pays in full within the agreed upon time period, you can then get the rest of the money. This is after the lending company gets the money they advanced to you.

Benefits

The benefit of this entire process is twofold. First, you get the money to fulfill your purchase order. Without it, you don’t get to benefit from the business opportunity. You may also tarnish your reputation because you don’t have the capability to fulfill orders.

The other benefit is that you get your payment in advance. This allows you to take advantage of other business opportunities that will come your way. You don’t have to wait to get your own money anymore, and you can use it to make your operations more efficient.

With purchase order factoring, you get your profits, your lender gets their fees, and your customer gets their order. Everybody wins.

How Medical Receivables Factoring Can Help Your Clinic Stay in Business

These days, it’s not entirely surprising to see clinics closing down. They stop doing business because patients aren’t coming in due to high costs of health care, or there’s too much competition in an area and you have to set your clinic apart from the rest. In all likelihood, you’ll need a quick infusion of cash to help your clinic operate and thrive. And this is where medical receivables factoring comes into the picture.

Medical factoring companies can help you because they can advance you the money owed to you by insurance companies. If you have enough capital, you can do the following to help your medical clinic rise above the competition.

Boost your advertising. With the money you get from the factor, you can advertise your clinic more effectively. Perhaps you can start a website, and if you already have one you may want to set aside a budget to improve it. You can make it more attractive, feature more articles, and perhaps also improve SEO so that your clinic’s website is ranked at the top of the search results when patients in your area are looking for clinics online. All these require the help of professionals, and they cost money.
Upgrade your equipment. You can also feature more advanced technological equipment in your clinic. Not only do these new tools help you treat your patients more effectively, but your clinic also becomes more attractive to patients.

You can get better diagnostic tools so that you can find out what’s wrong with your patients. You can give them more comprehensive and more accurate tests to help with the diagnosis.

You can also get new tools to help you get more patients. You may offer different solutions for certain ailments so that your patients will have several options.

If you think that your current equipment is still ok, then you can still use your funds to make sure that they are properly maintained. By helping your equipment last longer, you can get full value for them for as long as possible.

More personnel. It’s not easy to run a clinic all by yourself. That’s especially true when your advertising succeeds and you have an influx of new patients. You may run yourself ragged trying to take care of them all.

But with enough capital, it may be possible for you to hire new nurses and doctors. You may even hire doctors with a different specialty so that you can expand the range of your health services.

This is especially true for dental clinics. If you’ve been specializing in preventive dentistry, for example, then by getting new dentists on board you may be able to offer new dental services such as braces, aligners, and crowns.

With medical receivables factoring, your medical clinic can thrive when others have failed to survive.

Considerations Before Signing a Contract with Factoring Companies

When you deal with factoring companies so you can get the funding you need, you’ll need to sign a contract. But before you sign on the dotted line, you should make sure you understand all the business finance terms. That way, you can anticipate what’s going to happen. You’ll know how much capitalization you’ll receive, and how much you have to pay.

The problem is that sometimes you may not be fully aware of what the business finance terms in the contract mean. Before you enter into an agreement with factoring companies, make sure you take note of the following considerations:

Advance rate. This is the money you get in advance, represented by a percentage of the value of the account receivable. Most of the time, The advance rate hovers around the 80% mark. Some of the more inherent industries may only have a 70% advance rate average. However, some specialist factoring companies in certain niches may promise an advance of up to 95%, although this rate depends on the credit history of your customers.
Discount rate. This is the fee represented by a percentage of the value of the account receivable. The discount rate similar to the interest charged by a bank when they give you a loan. When your customer finally pays up, the factor takes the percentage from the payment before they pass on the payment to you.

Usually, this rate ranges from 1 to 6 percent, but you also have to pay some attention to the period of time it covers. For example, a 1% discount rate may only apply for 10 days, so an invoice which sets 30 days for payment may actually have a 3% discount rate, and payment within 60 days would then cost you 6%.

Reserve amount. Usually, the factor holds back an amount of money from the payments to cover any instance of non-payment. The amount of money for the reserve differs with each factor, and obviously you want this to be as low as possible, so that you get more working capital.
Length of time. This is the specified time during which you make use of the factoring process. You’re usually locked in for a specified period, and in that time frame you’re required to submit some accounts receivable for factoring.

The contract may also define which account receivable should be factored. You may be given a choice, or there may be a minimum number of invoices involved.

Fixed fees. Many factors charge additional fees aside from the discount rate. For example, there may be a fee to set up a factoring line, while each particular account receivable may have a fixed factoring fee as well. There may also be a fee when you end the factoring agreement early.
Late fees. There may come a time when a customer pays late. Every instance of this entails a penalty because the factor didn’t get back their money on time.

Take note of all these considerations and you can use them to compare which contract is better when you’re trying to choose among several factoring companies.

Busting the Myths About Accounts Receivable Factoring

Accounts receivable factoring is a way to get funding for a business, and for a growing number of companies it is in fact the only way to get working capital. Quite a few banks these days aren’t in a very generous mood to lend money to small businesses, and so getting money from factoring companies is the only way to go.

In factoring, you exchange your accounts receivable for cash now, instead of waiting for 30 or 6o days to get paid. The factor gives you about 80% of the value of the invoice (take note that the actual percentage varies) and then you receive the rest of the value of the invoice (minus the fees of the factor) once your client pays up in full.

This method of obtaining capital has its fans and critics, and some of these people are responsible for some of the myths concerning factoring. So let’s tackle these misconceptions once and for all.

It’s too expensive. Aside from paying a percentage of the value of the invoice, you may have to pay several types of fees to the factor. Add all these costs together, and it may very well turn out to be a more expensive method of capitalization than getting a simple bank loan.

But at the same time, you have to face reality. If the inability to get more capital will cost your business a lot of money, then factoring actually makes much more sense financially. It’s easier to get the capital you need this way. With a bank loan, you stand a very good chance of wasting a lot of time applying to get a loan only to have your application rejected in the end. When it comes to your business, you really can’t take that chance.

Factoring will keep your business from failing. Actually, factoring is a great way for your business to foster growth. The money you get depends on your sales, so the more sales you bring in, the more money you can get in advance.

When your business is failing and your stakes are declining, then factoring may not be much of a help for your business at all. Remember, you get an advance on the value of your invoices with factoring. If the value of your invoices are falling by the wayside, then your advance money from the factors are reduced as well.

Factoring could damage your relationship with your customers. This myth stems from the SOP that your client pays your factor directly. Some people seem to think that factors are likely to harass your clients to pay up (the way credit card collections people do). But that’s not the case at all. While the factor may send courteous reminders, getting your clients to pay will still be your job. When your clients are late in paying, you may even end up paying a penalty because of it.

Hopefully, we have clarified some issues that are muddying the waters, and you now have a clearer understanding of what accounts receivable factoring is all about.

How to Get Working Capital for a Consulting Company

A consulting company, on the face of it, doesn’t really need a large startup capital, especially in the beginning when they still have very few employees. It’s only when the work gets underway when learning how to get working capital for a consulting company becomes more crucial. Offices have to be maintained, employees need to be paid (even if you’re just the sole consultant in your firm), and of course the networking and advertising expenses must be covered as well.

Figuring out how to get working capital for a consulting company depends greatly on your contacts. This applies directly when trying to get funding, and also indirectly when you’re trying to get clients.

Here are some of the options you need to consider:

Bank Loans. This is of course the standard method of getting working capital funding, but of late this may not be the most ideal option. The crux of the matter is that getting this kind of loan is almost impossible because you usually don’t have much in terms of company assets which you can use for collateral. One way of getting a bank loan for your business is if you are willing to use your own home as security.
Using Credit Cards. This is actually a very popular option. For most solo consulting operations, credit cards have limits which can adequately cover expenses. For best results, you may want to consider getting a separate credit card for your business so that your personal and professional finances don’t get mixed.

This is a viable option if you don’t have an employee such as a permanent secretary to cover. If you do, then this can get very expensive very quickly, as credit card interest rates are usually among the highest in the lending industry.

Equity Financing. This is when you take in a partner who gives you the working capital you need in exchange for a slice of the company. While this is a good way to get funding for growth purposes, for working capital it can truly dilute your future profits. From a long-term perspective, this is one of the more expensive ways of getting working capital.
Immediate billing. Some experts in the consulting industry recommend billing clients on day one. They say that the predictability of this payment process may appeal to clients. In addition, you can charge fees plus 15% for expenses and then agree to reconcile against actual expenses in 90 days. This separates your fees from disputes about expenses.
Invoice factoring. On a more realistic note, it may be more practical to expect clients to want to pay later instead of sooner. Limiting your clientele to just those who can pay upon delivery can severely limit your growth. But then again, that can cause working capital difficulties.

This is where invoice factoring comes in. This method of getting working capital involves getting 80% or so of the invoice amount right away from a factoring company. Then when the client pays in full, the factor forwards you the rest of the pay after they have deducted their fees.

As a consultancy firm, your expenses involve research and meeting payroll for your employees. Certainly marketing and advertising will also have to be taken care of. You can cover all these expenses only if you know where to get working capital for a consulting company.

Grocery Stores Financing

It’s safe to say that as a small business owner, you probably don’t have the means to compete with the likes of Wal-Mart. You’ll have to be smart and make sure you have all the popular items your customer base is looking for. And sometimes that may mean additional financing.

Uses for Grocery Stores Loans

There are many ways you can use the extra money so you can improve services and eventually improve profits as well.

You can make sure you meet your payroll, and you may even want to think about offering higher wages than what your competitors offer. This way, you can pick and choose the most helpful and polite employees for your grocery store.
You can renovate your store so that it will look more appealing to shoppers. You can also expand the store so you can stock more items that your customers want to buy.
You can set up your own website as a marketing tool for your grocery store. Your site can offer news about your merchandise and about any promo you’re running. You may even use it to set up a delivery service, which will be greatly appreciated by elderly or handicapped customers.
You’ll also be able to use the money to stock up on the most popular items your customers are buying.
You can buy, upgrade, or maintain your equipment, such as your walk-in freezers. For grocery stores, having the right equipment in tiptop shape is crucial for your success.

Where to Get Grocery Store Financing

The most obvious sources of financing for your grocery store are your own savings and whatever your friends and family can chip in as investors. You may also want to try getting some funding from your bank as well.

After that you can still make a deal with alternative lenders to get the financing you need. For example, if you own the building where your store is located then you can use that property as collateral for your loan. The downside is of course, if you can’t pay on time, your bank may end up owning your grocery store instead.

Another common form of financing is the merchant cash advance. You may get the financing you need right away, and you can repay by reserving a percentage of your daily credit card revenues for your lender. This means you don’t have to worry about coming up with a specific amount of money each day to guarantee that you’ll meet your loan payments. If it’s a slow day, then you don’t have to pay as much for the day.

To get these loans, you need to prove that you deserve them and that the lender isn’t wasting their money. That means you need to show your research on how you chose your location, the breadth of your managerial experience, and how you choose and present your merchandise. These are the factors which will influence the lender’s decision to provide you with the financing you need.

Asset Based Lending Metrics that Factors Will Consider

If you are a small business owner, then it’s easy to find out which factoring company or asset-based lender offers the most attractive arrangement for you. The asset based lending metrics you need to look at includes the advance rate (the money you get right away in relation to the value of your accounts receivable), the costs and fees, and the number of days you’ll need in order to get the money you need.

But the financial institutions which provide you with the funding you need have asset based lending metrics of their own. These metrics determine how much money you get as an advance, and also affect the costs of the financing.

Accounts Receivable Turnover Ratio. This refers to the net credit sales in a particular period of time, divided by the average accounts receivable. The net credit sales are used instead of net sales because your cash sales aren’t your accounts receivable. You get the average accounts receivable by adding the beginning and ending receivables for the year and then dividing the number by two.

When you have a high ratio, then it means you have an effective system of extending credit and collecting accounts.

Sales Dilution Rate. Sometimes your gross sales and your net sales have different figures. You may have $100,000 a month in gross sales, but your net sales is only $90,000 for some reason or another (your customer returned your merchandise or they were unable to pay). So in this case, you have $10,000 sales dilution divided by the total gross sales of $100,000, which gives you a 10% dilution rate.

You will want to keep this rate low, as this is one of the crucial metrics looked at by lenders to determine how much money you can get in advance.

Asset Turnover Ratio. By taking your net sales and dividing it by the value of your total assets you will know your asset turnover ratio. So if you have a .5 ratio, then that means you get 50¢ for every dollar you invest in your business. This ratio sheds light on the efficiency of your company in generating revenue from its assets.

In some variations of this ratio, the lender may want to check and see how you use your fixed assets, and how you use your working capital.

Inventory Reliance. This is your liabilities that can’t be covered by your liquid assets, divided by your inventory. This is a ratio that shows how much of your inventory you would need to sell or convert into cash in order for you to cover your current liabilities. It’s best if you have a very low ratio here, or if you don’t have any current liabilities which you can’t cover with your liquid assets.

Keep in mind that the specific figures that factors are looking for in order to give you a good deal depends largely on the industry you’re in. Each industry has different standards. This is precisely why you will want to enter into a financing relationship with a factor who is very familiar with your industry. Such a factor knows the “norms” in your industry, so they will be able to evaluate your situation more accurately.

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The Importance of Having Sufficient Food and Beverage Business Working Capital

If you want to put up a grocery store to serve the needs of your neighborhood, one of the first things you need to secure is sufficient food and beverage business working capital. Your working capital will enable you to run your business smoothly even through the slow seasons. You need that money to pay for inventory, which is necessary for you to make a profit.

One of the more common problems for small business owners such as those in the food and beverage industry is that they tend to underestimate the amount of capital necessary to function properly. You’ll need to use capital for things that a grocery store needs, such as:

Location. You’ll need space to set up your store. You need space to display and stock your wares as well as for your office, and you’ll also need space outside for parking. You may even have to do some renovations, and that too will require money as well. The precise location will also have to be found, because you want a place that’s accessible to your potential customers. The best locations also tend to be more expensive to rent, lease, or own.
Inventory. You’ll have to use your capital to buy food and beverage items, so that you can sell them. You’ll have to try to make sure that you have enough of the more popular grocery items so that you don’t run out of them.
Special equipment. You need to make sure you have the shelves for your wares, cash registers, computers for your accounting and communication needs, adequate lighting, shopping carts, and special containers such as freezers, refrigerators, and refrigerated display cases. A sound system for special announcements and relaxing music may also be helpful.
Personnel. You need people trained to guide customers to the sections they are looking for, to stock the shelves, to keep the place clean, and to handle the food and beverages so that they are stored properly in sanitary conditions. That means you have to make sure you pay their salaries regularly and promptly, and you may also have to spend time and money on their training.
Regular expenses. You will need to pay your monthly water and electricity bills.

Starting your own grocery store without adequate food and beverage business working capital can be problematic, at the very least. And these days, getting financing can be very difficult, since bankers tend to be quite tight-fisted about lending. In some ways, it’s a Catch-22—you need lots of money to buy assets, but you need lots of assets to borrow money for capital. So it’s a good thing that there are other ways to secure your capital aside from just relying on banks. With invoice factoring and other kinds of services, you can continue your business without interruption, even if you don’t have enough money at hand to secure inventory and pay for your daily operational expenses.

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Purchase Order Loans for Canadian Businesses

Knowing where to find corporate financial leverage is one of the more important things businesses should understand if they want to survive tough economic times. The reality is that running is a business is far from easy, and at certain times of the business cycle, they would need to leverage on debt instruments and other financial tools. A study published in Statistics Canada highlights how, in a period of 3 decades, corporate financial leverage has increased by almost 50% for both Canada and the United States. This data is very telling, and it suggests that businesses are really using debt instruments more and more.

Understanding purchase order loans

While there are many debt instruments that businesses can choose from, turning to purchase order loans is probably one of the easiest options. Purchase order loans for Canadian businesses allow you to take out a ‘loan’ or increase your working capital tremendously based on what purchase orders or invoices you have.

Unlike a typical loan where you borrow money from a bank, this is not a debt per se that you have to pay for after a certain time period, interest included. What you’re essentially doing is taking advantage of the invoices you have that have not yet been paid by your clients, and trading these invoices for the cash that you need right now.

The working capital advantage

Purchase order loans for Canadian businesses are important because they give you the working capital advantage. When all your capital is tied down on invoices that have a lot of value but give you nothing in terms of current liquidity, where will you get the money you need for your operational expenses?

Through purchase order financing, you get the working capital you need because you trade those invoices for cash. With this working capital, you can then fund operational expenses you need in order for the business to thrive and grow. This includes purchasing new equipment, investing in the training of your people, or simply completing a huge order that needs additional investment in shipping and transportation. You can’t let your lack of working capital bog you down because purchase order financing is readily available for you.

Who needs purchase order financing the most?

All kinds of businesses will reach a point in the cycle when working capital is a challenge and some intervention on financing needs to be done. But the types of businesses that need purchase order financing the most are those that regularly deliver large orders, such as manufacturers, distributors, and exporters.

In Canada, statistics show that in 2009, 86% of Canada’s exporters were small businesses. These small businesses also accounted for $68 billion in exports. And while a large multinational company would most likely have very deep pockets and a lot of assets, a small business would need purchase order financing to ensure that these orders are delivered. This is why small businesses tend to need purchase order financing a whole lot more.