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Fulfill Christmas Purchase Order with Adequate Working Capital

Christmas season is a busy time for retail stores and wholesale companies, and it can get very stressful. People are in the mood to buy, and businesses must make sure that they can accommodate the demand sufficiently. Christmas sales can increase the annual revenues tremendously, but the ability to fulfill Christmas purchase order properly is not always a sure thing.

Potential Difficulties in Fulfilling Large Purchase Orders

In some ways, a large purchase order is a dilemma. It is both a risk and an opportunity. It’s an opportunity to earn more money for the year, yet at the same time the inability to fulfill a large purchase order can easily damage the reputation of your business.

The many problems associated with large purchase orders include:

  • Arranging for suppliers to meet the volume required in the order
  • Hiring more personnel to do extra work
  • Making sure that distribution channels function smoothly
  • Being able to pay for every operational expense

Essentially, you need a healthy amount of working capital to make sure that you are prepared for every eventuality.

The Problem with Traditional Bank Loans

If you’re like most small business owners, your first thought would probably be to secure some form of working capital financing from your bank. But this is not always your best option. Among the most significant drawbacks of applying for a loan is that banks take a very long time to process loan applications. After all, they have lots of clients to help, and they have to investigate your business thoroughly before they lend you the money you can use for your operational expenses.

And even after all the time you spent on applying, the chances of actually getting a loan aren’t exactly good. For loans amounting to less than $100,000 banks offer a paltry 46% approval rate. To qualify for a loan, your credit must be spectacular and your collateral should be noteworthy. And you may not always get the amount of money you need—you can ask for $200,000 in loans and the bank may offer you $40,000 instead.

Common Alternatives to Traditional Bank Loans

So what can you try instead? Today, two of the more popular options include invoice factoring and purchase order financing.

For example, you may actually have the working capital in theory, except that your previous retailers have not yet seen it fit to pay you for the supplies you have delivered them. Your suppliers may ask you to pay them in 10 days, but some retailers may pay you in full in 90 days. That means your money is tied up in those invoices.

With invoice factoring, you get your money immediately. The factor advances you the money (anywhere from 70% to 90% of the value of the invoice) so that you can use that money to buy supplies for your holiday purchase orders. The rest of the money (minus the factor’s fees) will be turned over to you once the retailer has finally paid in full.

You can also fulfill Christmas purchase order by using that purchase order to obtain financing. A finance company may also advance you a percentage of the value of the purchase order so that you can have the money you need for your supplies. With these sources of funding, you can make sure that it’s going to be a Merry Christmas for everyone.

 

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Why It’s Better to Partner with a Factoring Company for Start Up Business

The largest benefit of a capitalist society is that you can go into business of your own if you want to. You don’t have to remain an employee all your life. You can save up, quit your job and start your own business – or you can also do this the other way – save up, start a business and then quit your job when your business becomes stable. But sooner or later you’ll realize that you need more money than you started with, and your best option may be a factoring company for start up business.

Look at your other options, and you’ll realize that they all have serious drawbacks:

  • You can go to a bank for a loan. This is true, but only in theory. The reality is that banks these days don’t really feel enthusiastic in lending money to startups. Your startup company doesn’t have a long record for profitability, and that frightens banks that may not be sure about your ability to pay back a loan. That means you need to have an excellent credit, and you need some collateral as well.

Add the fact that loan applications are time-consuming, that banks don’t have a high approval rate, that you may not get the amount you need, and that your bank may also have provisions as to how you will spend your money, and you’ll realize that a bank loan may not be the solution you need.

  • You can use your credit card. A lot of small business owners use this method, because it’s quick and easy, plus they can just pay off the interest each month. But just about every financial expert agrees that this is a terrible idea. The interest rate can really siphon off a lot of money from your business. And what’s more, the more you borrow the more your credit score goes down. And of course, the credit card may not offer a lot of money in the first place.
  • You can borrow from friends and family. This can seriously damage your personal relationships if you are unable to pay off the debts.
  • You can partner with venture capitalists for a slice of your company. While this may look good, the more successful you are the more you have to pay for that money you receive.

For example, let’s say your business is now worth $100,000. You then get $30,000 in return for giving up 30% of your business. With your great idea and your hard work, you manage to eventually grow into a million dollar business. And that means you received $30,000 and paid for it with $300,000.

The Benefits of Factoring

All of these examples prove just how beneficial it is to just use factoring for your funding needs. The entire approval process is very short, and approval is much more certain. You don’t get into debt at all; you get an advance on the value of your accounts receivables (from 70% to 90% or even higher) and the factor gets its fees when the invoice is paid in full. The factoring company sends you the rest of the payment minus its fees.

As a startup, you won’t have to set up your own collection department, as the factoring company does that for you. You can get as much money you need as long as you have the accounts receivable to factor. And the factoring company can even investigate potential clients for you so that you know which ones deserve credit from you.

With a factoring company for start up business, you get the money you need with less hassle, and you get more added services should you need them.

Need working capital? Call 1-888-382-3766
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What’s A Good Alternative to Traditional Business Bank Loans?

Many small businesses these days need some form of financing before they can start or grow their business. For most people, that means negotiating with a bank to get the loan they need. But this is only a good solution in theory. In general, you will have to consider another alternative to traditional business bank loans.

Problems with Bank Loans

Actually, there is a long list of potential problems with you deal with banks so let’s just mention the most important ones:

  1. The approval rate for business bank loans are not quite as high as many businesses hope. If you plan to borrow less than $100,000 the approval rate is about 46%. For greater amounts, the approval rate is 60%.
  2. Many banks don’t see many small businesses as good investments. They are not impressed with common businesses problems such as low customer demand and unreliable cash flow, and they are not exactly enamored of the low credit ratings of some small business owners either.
  3. Banks nowadays shy away from loaning to small businesses because they are expensive for banks, and yet they don’t offer a lot of profit anyway.
  4. Even if you do get a loan from a bank, the entire process will eat up a lot of your time. And often, the loan you’re offered may not be enough to meet your immediate needs. You can apply for a $200,000 loan and your bank can offer to lend you just $40,000.

Traditional Alternatives

If a traditional business bank loan is not possible, often small businesses obtain funding through one of two ways: using a credit card or selling equity.

Many small businesses have used credit cards as a way to get the additional funds they need for their business. It’s really quick and easy, and for immediate needs they can’t be beat. But there are serious downsides to this method. For one, the interest rate can be atrociously high. You can pay too high a price for the privilege of using those additional funds. Another problem is that the credit limit may not be enough, and you may find yourself maxing out your credit cards and still having some problem with your capitalization.

Other companies solve their problem by selling a percentage of their company to venture capitalists. For example, if the value of your business is $2 million, you can sell off 20% of your company and receive $400,000 in short order. But here the problem is that you’ve lost 20% of your company—and future growth means that you only get 80% of your future earnings.

Newer Alternatives

Fortunately, if you have a need for further financing many institutions are offering newer alternatives. Some institutions offer loans which you can pay off giving them a percentage of every credit card payment made to your company. Some restaurants have made use of this method, and the big advantage is that your monthly payments will depend on your revenue. If your sales are slow, then you pay only a little amount for the month.

Another method is to use your invoices. You can sell off your accounts receivables for a percentage of their value so you get your money immediately. Some institutions even offer you a cash advance when you receive a purchase order so that you have the money to meet that order.

So when you need additional money for your business, you can at least console yourself with the fact that there may be a more ideal alternative to traditional business bank loans if a bank can’t help you get the financing you need.

 

Need working capital? Call 1-888-382-3766
To visit our site for an instant quote click here

 

Why Janitorial Factoring Services are Different—and Better

factoring-Janitor Services

Factoring services can come in many different forms, but the essence remains the same for the most part. Instead of having to wait 30 days (or sometimes even more) to receive payment for the goods and services you’ve provided, you can get your money (or at least most of it) immediately. How quickly you get the money, the amount of money you get in advance, as well as the fees that the factoring company gets, will depend a lot on the particular situations unique to your industry. So if you are running a company that provides janitorial services, you need to look for janitorial factoring services.

While there are many factoring companies that offer financing to a wide range of industries, janitorial factoring services may be a better fit for your company because they already know details about the industry that other factoring companies don’t.

  1. You don’t have to explain your need for working capital. You know why you need the money and why you need it quickly. But does your factoring provider know? If they don’t, then they may take too long to provide you with the money you need and the advance may not be sufficient for your needs. Having to explain that you need the money to buy cleaning supplies and to meet the weekly payroll is a chore that you’re spared from, when you deal with a factoring service that’s already familiar with the janitorial service industry.
  2. Setting the factoring arrangement is a breeze. Every industry has its own way of doing things. But there can be some misunderstandings and screw-ups if the factoring service is unfamiliar with the business processes you work with. With an experienced factor, the setup is much quicker and more efficient. You don’t have to educate them, and they may even give you a tip or two on how to do things more efficiently.
  3. Experienced factors have realistic expectations. Some factoring services don’t understand why some clients of yours insist on paying in 60 days or more instead of the usual 30 days. They may then penalize you for their “lateness” in paying when in fact it’s just business as usual for these people.
  4. These factors can provide additional services. Janitorial services involve workers’ compensation. Generic factoring services have to be educated about this particular element of the janitorial industry. But janitorial factoring services not only know all about it—they may even know more about it than you do. You can then take advantage of their help when this particular issue comes up.

Moreover, the factor can also help you identify problematic clients. For example, if you have a new client then the factor can tell you about whether this new client pays their bills on time or not. You can also avoid new clients that already have a reputation of defaulting on their payments.

Working with a factoring service is a partnership, so make sure that the factor brings knowledge and experience to the table.

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Manufacture Factoring Gives Your Business More Profits

There’s a recent spate of news in the media lately about the rebirth of US manufacturing, and that’s being spurred by higher production costs in places like China, while US manufacturing is demonstrating higher productivity levels and lower energy costs.

Of course, if you are a manufacturer then you need to make sure that you can cover all your labor and material costs so that you can fuel your growth as a company. That’s easier said than done, but actually you can get the working capital you need simply by using your accounts receivable to make use of factoring services. Not doing so can really slow down your growth.

The Traditional Manufacturing Payment Process

Let’s say you can’t get a line of credit or a bank loan, which isn’t really all that unusual these days. In a very simple sense, this means you’re entirely relying on completed payments before you have the cash to pay for material and labor to pay for the widgets you manufacture.

Here’s one example of how this works. You take 15 days to manufacture a batch of widgets, and it costs you $50,000 in labor and materials. Your customer takes the delivery, but pays $80,000 in 45 days. That means from start of the manufacture to getting your money takes 60 days, or two months.

Then you start all over again, all the while making $30,000 every two months. So in 6 months, that’s $90,000 in profits with three batches of widgets.

The Manufacture Factoring At Work

In this case you have your manufacturing costs covered, so the process is different. It’s much more efficient.

Since manufacture factoring gets you an advance on the account receivable, you can get enough of an advance to start manufacturing right away. Even an 80% advance gets you $64,000 on the invoice, which means your initial costs are covered adequately.

So after the 15 days you can start manufacturing right away, so that you make $14,000 in profits every fifteen days just from the cash advance. That’s $28,000 in a month, and in 6 months that’s $168,000. But starting from the two-month mark, you get the rest of the first batch’s payment, which is the remaining 20% of the $80,000. If your factor charges you 1.5%, then that leaves you with 18.5%, which is still $14,800.

From the 2-month mark to the end of 6-month period, the factor gives you $14,800 every fifteen days. That means in that four-month period, you also get an additional $118,400.

So in six months you receive $168,000 + $118,400, for a profit of $286,400. Compared to $90,000 during that same period, you earn an additional $196,400.

Of course, the math here is somewhat simplified, but the core of the matter remains accurate. When you have the cash flow to cover manufacturing costs immediately, you can operate much more efficiently. That means greater productivity, and greater profits. So if you can’t get a line of credit or a loan to cover your manufacturing costs, then you can get the necessary capital through manufacture factoring.

 

How Factoring for Wholesalers Work

If you’re a wholesaler, then you are probably quite aware of the need for ready cash for your business. Unfortunately, lenders make it difficult for you to have the cash you need. Small banks approve only 47.9 percent of all small business loans so that means you don’t have an even chance of getting your loan with a small bank. With bigger banks, the approval rate is just 19.4 percent, and that’s an improvement compared to how tight-fisted these guys were just a few years before. In fact, it’s sort of a record for big banks.

Factoring for Wholesalers

So if you need ready cash for your wholesale business—and most probably you do—you need an alternative to banks. There are some alternative means of getting a loan, but the interest rate can be brutal.

But factoring for wholesalers is an alternative that’s not actually a loan at all. It’s a cash advance on your accounts receivables. So let’s say a retailer owes you $100K, but the payment is due in 90 days. Of course, you really can’t wait that long since you have bills to pay, employees to support, and supplies to purchase. Fortunately, with factoring, you get an advance right away. You may get $80K in advance, the amount depending on your situation and your factoring company. The time it takes for you to get your money will also depend on the factoring company. Some may take a week, while others can get you your money in as quickly as 24 hours.

Then when the retailer pays the entire $100K to the factor, you get the rest of your money after the factor’s fees.

Factors Can Investigate New Customers for You

By definition, if you’re a wholesaler then your retailer customers probably form a large chunk of your business. These people as you may well know tend to pay late, and at times they may not pay at all. That’s because a lot of retail companies don’t really do well in the long term. Less than half of them—a whopping 47 percent—are still standing after 4 years. They can fold up at any time, and if they declare bankruptcy then good luck on getting your money from them.

This is especially true if your customers are grocery stores and restaurants. These are among the businesses with the worst rates of success after 5 years.

And here’s where factors can help. You see, factors don’t really care much about your own credit. They are more concerned about the credit rating of the people who owe you payment. So factors investigate these retailers to assess the likelihood of getting the payment from them.

So before you take on a new retailer customer, you can have a company specializing in factoring for wholesalers do the investigation for you. They may even already have a file on this retailer. You then can get the necessary info so you can make an informed decision as to whether you should do business with a particular retailer.

 

Non-Recourse Factoring for Food and Beverage Companies

Food & Beverage working capital lines ($50,000- $10,000,000)
Food & Beverage working capital lines ($50,000- $10,000,000)

There are many types of factoring for food and beverage companies, and sometimes it can get confusing. That’s because not every factoring company offers the same types of services, and sometimes they don’t differentiate between invoice factoring and invoice discounting.

The best way to go about procuring factoring services is to make sure that you and the factor have a very clear agreement. Now if you want to be protected from the risk of not being paid by a grocery store for your food and beverage products, you may want to search for non-recourse factoring. In this version of factoring, the factoring company assumes most of the risk.

When a Grocery Store Goes Bankrupt

To illustrate, let’s take a typical example. You have an invoice that’s worth $100,000, which the grocery store is required to pay in full in 90 days. With the factoring agreement, the factor gives you 70% (this may vary depending on the factor) right away. So that means you have $70K as working capital, which you can use to pay your employees’ salaries and overhead. When the grocery store pays the full amount, you then get the rest of the money, minus a standard fee and a percentage for the factor.

But with non-recourse factoring, if the grocery store declares bankruptcy before the due date of the invoice, you get to keep the $70K. You may not get the rest of the money owed you, but basic math tells you that it’s better to lose $30,000 than lose $100,000.

Points to Consider

Usually, non-recourse factoring costs a lot more than recourse factoring. You may receive a smaller advance, and the fees and percentage for the factor may be higher. This is understandable because the factor will want to be compensated for the added risk. In addition, the background checking for that particular grocery store may be more extensive, which means there’s more work that must be paid for.

You may also want to remember that you will only be protected if the grocery store goes bankrupt. If the grocery store refuses to pay because of a dispute with you, then that remains your problem.

Conclusion

So is non-recourse factoring for food and beverage companies worth the additional expense? It’s hard to say, but that can apply to anything in business. Everything in business, when you think about it, is a gamble. You’re simply paying more so that you minimize your risk when it comes to a particular invoice. Moreover, you can’t really know for sure that a grocery store is unlikely to go bankrupt just because it is already well-established. According to some statistics, grocery stores rank as the third type of business that’s most likely to fail after the fifth year, with eating places (which may also be your clients) trailing at number 4. By passing on the risk to the factoring company, you can still get the majority of money owed to you even if your clients go bankrupt.

 

How Essential is Factoring for Apparel Companies?

Factoring for apparel companies has always been popular. The textile and apparel company is the first industry in which the factoring method of obtaining fast cash through the sale of accounts receivables became virtually a standard practice. That’s primarily because of how clothes manufacturers and retailers do business. A clothing line offers a set of clothes to a retail store, but the retail store will pay for the clothes anywhere from 30 to 90 days. But with factoring, the clothes manufacturer gets most of the money right away (anywhere from 70% to 80%).

Today, factoring services are expanding in the business sector as many companies across a wide range of industries have come to appreciate the convenience and other advantages of factoring. Yet the textile and apparel industry is still the major player in factoring. According to one study, the majority (54%) of the factoring volume in the US is still with the textile and apparel industry.

While factoring advantages for apparel companies have always been recognized (such as greater cash flow and convenience), many apparel companies are also using due diligence as a way to help predict the future.

Assessing your Future

If you are a designer who sells clothes to retailers, one of the things you may have tried in order to get the capital you need is going to the bank to borrow money. Banks have always been the go-to lenders for working capital. What they will do is investigate your financial health (such as your credit rating) in order to assess the likelihood that you’ll pay back the loan plus the interest.

But because of the current economic climate, banks nowadays are not really in a lending mood even if your credit history is satisfactory. You probably need to put up sizable collateral in order to secure the loan you need. But chances are your loan application may be denied. That’s not really saying that your company has very little chance of succeeding. It only means that banks are quite wary about lending these days.

On the other hand, with factoring services, you may get a more accurate assessment of how your company will perform in the future. The factors will also investigate your company and if they think it is a viable partner, then they will be willing to purchase your invoices. It’s only when factoring companies reject your application that you should really be concerned about your future.

Customer Creditworthiness

Factors also check out the creditworthiness of the retail stores that owe you money. You have to do your own due diligence, of course, but here, the factors perform the same task as well. And if the factor refuses to purchase an invoice involving a smaller retail store, that may be a red flag concerning your future relationship with that particular retail store.

There are many advantages to factoring for apparel companies. If you want your business to operate smoothly and steadily in spite of some challenges, then factoring is certainly something you should consider.