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Are You Looking for a Local AR Factoring Company? Here’s What You Need to Know

You run a business but now you’re running out of working capital. Your suppliers need to be paid on delivery, your utility bills are due, and you are wondering where to get the money to pay your employees. Meanwhile, your customers only pay 90 days after you’ve delivered their order. How are you supposed to keep your business afloat for the next 90 days?

For most people, the most obvious answer is to go to a bank and ask for a loan. But banks today are no longer as cooperative. And even if they were, often the application process takes too long.

If you need the money immediately, your best option is to partner with a local AR factoring company. Applying for this kind of financing takes a short period of time and the approval rate is much higher. Setting it up takes only a week or two. You give them your accounts receivable, and in return you get about 80% of the value of the invoices right away. You get the rest when your customer has paid in full and the factoring company takes its cut.

The number of factoring companies is increasing, and this gives you a bit of leeway on your choices. But how do you select the right local AR factoring company for your needs? Here are some variables you need to look for:

  1. Experience. You need a factoring company with experience, especially if you yourself are new to this method of financing. You want a company which already knows the intricacies of this funding method, and you want someone to guide you through.
  2. Specialty. Even a factoring company which claims to be familiar with all types of industries will prefer one or two specific industries. You want a company which already knows the peculiar rules and customs of the niche you are in. If you are running a medical clinic, for example, you want a factoring company with extensive experience with insurance carriers.
  3. Size of client companies they usually work with. Factoring companies are more comfortable with small businesses, while others may prefer bigger corporations. You can confirm how the factoring company works by asking for references. Specifically, you want a reference which is the same size as your company and is also connected to your industry.
  4. What are the terms of the contract? How large is the advance? What is their limit? How much do they charge in terms of percentage, setup fees, and fees for late-paying customers? These are questions you need to ask before making a decision.

To avoid confusion, you may want to refrain from applying to a dozen different factoring companies. Instead, pick the top three among the bunch according to the variables listed here. You can then compare them against each other so that you can determine which one is the best for your needs.

The Risks of International PO Funding for Lenders

Many financial experts advise that international PO funding should only be a last resort for small businesses, even though it offers several advantages such as a quicker approval process. That’s primarily because the cost of the financing is almost always higher than the cost of a traditional business loan from a bank.

International PO funding

The higher cost of purchase order financing is not because lenders are taking advantage of a company’s desperate need for immediate funds. It’s simply because the entire process involves a lot of risks for the lender, such as:

  1. The purchase order may be bogus. Several schools, for example, have already been targeted by scammers making fake purchase orders. One man was arrested in Louisiana for making fake purchase orders using the name of a local parish school in 2013. In December of the same year, Texas A&M also issued out an alert that invalid purchase orders misrepresenting the university have been used.
  2. There may be a problem regarding the transfer of the receivable to the lender. It could be that there are laws prohibiting the transfer or there may be a third party making a claim on it.
  3. There may be a dispute concerning the goods or services. For example, the buyer may claim that the goods or services provided by the supplier did not meet the requirements specified in the purchase order. There are many ways in which these disputes can originate, and such disputes can be complicated and time-consuming to resolve.
  4. The buyer may also decide to get a discount. There are several reasons why a buyer won’t pay the full amount of the invoice, aside from dissatisfaction with the quality of the goods and services. The buyer may pay less because in the past the supplier was not able to meet the requirements of the buyer. It may avail of a discount by returning goods it was not able to sell. It may even hold back part of the fee as a way to induce continuation of the business relationship in the future.
  5. There’s also the possibility that the buyer will pay the supplier directly instead of paying the lender.
  6. And then of course, there’s also the risk that the buyer may be late or worse, default on their payments. The buyer may be unable to pay because it is experiencing financial troubles of its own.

Remember, this is international PO funding, and that makes the entire process much more complicated and riskier. With the parties involved located in different countries, the verification process becomes even more difficult. What’s more, different countries have different laws and rules. Keeping track of all these regulations means more work, hence the higher fees.

But the fact that the lender is still offering your business the working capital it needs is always better than nothing. Even with the high financing costs, it’s still better than not having the money you need to operate your business. Lacking capital will cost you more in the long run, and it may even spell the end for your business altogether.

Green Product Company Working Capital: What You Need to Know

Despite the shrill protests of those who believe that religious tracts are actually science textbooks, climate change is a reality. And the cause of climate change, according to 97% of scientists, is mankind’s activities.

There are many ways in which modern society have harmed the environment. We pollute the air with noxious fumes from our factories. We cut down trees excessively, and we don’t plant new ones to ultimately replace them. We pollute our waters and soil with trash and toxins, and we use and discard the world’s resources at unsustainable levels.

Most people like the idea of helping out in some way by buying green products. As a business owner, you may find yourself liking the idea of selling green products, but that means you may have to drastically make changes to your facilities and procedures.

These changes won’t come cheap. Green product company working capital can be high.

A Green Company

To be green, a product has to have at least one of these characteristics:

  • Durable. They don’t have to be replaced as often as regular products. This then reduces the need to obtain raw materials and use energy to keep remaking these products.
  • Low-maintenance. You don’t need a lot of effort or new products to take care of it.
  • Energy-efficient. It doesn’t consume as much fuel or electricity to run.
  • Toxin–free. It should contain no toxic compounds, produce toxic by-products, or produce or contain chemicals that deplete the ozone layer.
  • Made from recycled materials. Some products, for example, are made from scrap metal or from wood salvaged from discarded ships and furniture.
  • Obtained from local suppliers or from local resources. This reduces the need for the product to travel great distances—saves on the consumption of fuel and CO2 emissions.
  • Biodegradable. It breaks down swiftly and safely by natural means.
  • Recyclable. It can easily be reused into making something else.

Green Procedures and Facilities

Sometimes a product can be considered green because the way it was made did not harm the environment as much as typical manufacturing procedures and facilities. These may not consume as much power, water, and other resources. When you build your products, you may also try to lessen the harmful impact on the environment by using facilities that don’t leech toxic wastes into the water or soil. You can have facilities built which don’t consume as much power for heating and cooling. You may also use tools that are considered “green” as well. You can also lessen or even eliminate the use of harmful chemicals such as pesticides.

Obtaining Working Capital

One way of increasing the chances of getting green product company working capital is by emphasizing the “green-ness” of your products and processes. Green is now a byword in business, and it is good business to emphasize your company’s efforts in helping the environment. And it makes a lot of sense. After all, you and your children live on Earth too and you should do your part in taking care of it.

Advantages of Freight Broker Factoring

Freight brokers are among the businesses that are commonly denied credit by traditional lenders such as banks. That’s because they rarely have any collateral to speak of. A freight broker is a middleman, who brings together the shippers who want to deliver their freight and the carriers who have the equipment to make the deliveries.

Unfortunately, the freight business does come with an imbalance of sorts for the freight broker. Many carriers tend to demand their money immediately, while shippers usually wait a few months after making the delivery to pay their bills in full. And sometimes the shippers default entirely, and a typical freight broker doesn’t have the financial resources to pursue collection and initiate legal action.

Why Freight Brokers Can’t Get New Loans

Most lenders today demand some sort of collateral if they are to give a loan to small businesses. That leaves freight brokers without any other recourse to get additional funding for operational expenses. This is especially true if:

  • Their sales history and previous earnings do not warrant additional borrowing in the eyes of lenders;
  • They are a start-up company with no financing base;
  • They have uneven or seasonal sales patterns;
  • They have bad credit, which makes them ineligible for standard loans.

A freight broker doesn’t really have any collateral—except perhaps their accounts receivable. And that’s where freight broker factoring comes in. As a freight broker you only need two things to be eligible for additional funding. First, your accounts receivable is not currently used as collateral, and second, your shippers have excellent credit.

Advantages of Freight Broker Factoring

Once you partner with a factoring company that’s familiar with your industry, you’ll find that there are many benefits to this business relationship. Of course, the primary benefit is that you no longer have to wait as long to get your money from the shippers. Factoring involves getting an advance on the amount of the invoice (usually about 80% of the value or so), and then you get the rest minus the factor’s fees, when the shipper pays in full. You may even have the option to convert the invoices to a line of credit.

Getting approval for this kind of financing is easy, and setting it up takes only a week or so. With this setup, you can considerably reduce your overhead expenses regarding your collections.

An experienced factor in the freight industry can also provide a lot of extra services. It can pay your carriers and the drivers directly. You may even receive a credit check performed by the factoring company on your new customers, so that you’ll only extend credit for shippers who are prompt at paying their bills.

With this new source of funding, you can take advantage of the spectacular growth projected for the freight industry. According to the U.S. Freight Transportation Forecast to 2024, overall freight revenue is expected to rise by 63.6% in the next ten years. That means the freight industry will be a $1.3 trillion business by 2024.

4 Tips to Keep in Mind When Applying for Apparel AR Factoring Line

In 2009, 61% of all factoring business focused on the apparel industry. While in other industries the factoring process may still carry some stigma (why were you denied a bank loan?), in the apparel industry it’s SOP. That’s because an apparel AR factoring line is expressly suited to how the industry works.

As a distributor to clothing retail stores, for example, you have to pay your suppliers right away. But clothing retail stores often wait up to 90 days before they pay you in full. Some make later payments than that, and others even have the gall to return the merchandise because it was unsold.

Using accounts receivable factoring can help alleviate these problems, and it will provide new opportunities for you as well.

Here are some tips you need to keep in mind:

  1. Study all the terms involved in the agreement. Factoring usually means getting an advance on the accounts receivable, and then getting the rest when the clothing store pays in full. So you need to take note of how much money you can get, and how soon. Keep tabs on all expenses and fees. What is the cut of the factoring company? Is there a setup fee? What happens if the retail store pays late? How long will the factoring agreement last? Every hypothetical situation should be spelled out for you, so that you can avoid any nasty surprises later on.
  2. See if the factoring company can do credit assessments for you. Factoring companies are more interested in the credit-worthiness of your retailers, instead of your own. After all, it’s their ability to pay is what’s at stake for the factoring company. If a factoring company refuses a retail store, make note of it. The retail store may be on the brink of bankruptcy, or it may have a habit of not paying companies like yours.
  3. Perhaps your factoring company can take most of the risk for you. If you are just starting out, you may ask for a deal wherein the factoring company assumes most of the risk of non-payment. As a newbie in the industry, you won’t be familiar with the clothing stores which have excellent reputations for paying in full on time. While this kind of deal may be more expensive for you, it may help you in the long run to know which stores to work with in the future.
  4. You can even have the factoring company do your collections for you. You are essentially outsourcing this particular task. Now you don’t have to bother with setting up a credit and collection department of your own.

Business is booming for clothing stores today, and sales have gone up by 5% in 2013. If you are part of the apparel industry, you need to put in some effort so that you can get piece of the action. With an apparel AR factoring line, you can take advantage of opportunities now, instead of waiting for 90 days.

 

How Your Business Can Benefit from Beverage Company Factoring

How Your Business Can Benefit from Beverage Company Factoring

The Boston Beer Company is #13 on the Forbes List of America’s Best Small Companies, which is amazing when you consider that the company started out as a small home business. Today, it employs almost a thousand employees and its sales for 2013 was at $637 million. Now the company is worth more than $3 billion.

Its owner, Jim Koch is now a mentor and he readily gives out advice on how to succeed. And among the tips he gives out, the first one is about how crucial it is to have ready access to capital. If you are running a beverage company, you really need lots of financing in order to grow. But banks are notoriously tightfisted when it comes to lending to small business, which is why beverage company factoring has become more popular.

There are several ways to use beverage company factoring, as discussed below.

Working capital

If you own a beverage company, most of your working capital will either be tied down in your invoices or in your inventory. And sometimes this can be a problem, especially when you realize that your expenditures are increasing while your distributors delay giving you the payment for the goods you provide. And some of your expenses must be dealt with immediately. These will include your overhead and salaries for employees.

Some people in the brewing business resort to obtaining venture capital, but this can be a mistake. This is especially true when you know you are posed for success.

One famous example is when a particular brewing company considered raising a million dollars by selling a fourth of their business. They changed their mind and resorted to factoring instead. They got the million dollars they needed, but they had to pay a quarter of a million as the cost of factoring.

That may seem steep, but that brewing company grew and achieved $5 million in annual revenue. Today this company is worth a $20 million. If they had gone with their first option by accepting venture capital, they would have sold a $5 million piece of the pie for just 1 million dollars. So by going with factoring, the brewing company essentially gained a net of $3.75 million.

Growth

This is the other main reason why factoring can be crucial. If your brewing company puts out a product that is successful among consumers, then there will be a greater demand for your brew. But that means you have to have the facilities in order to meet that demand. Without it, your company may fizzle out.

With factoring, you may be able to finance the construction of new facilities or improve your current machines.

Remember, factoring is not a loan. You are essentially paying for the privilege of getting your own money in advance.

Time is of the essence in the brewing industry, and you always have to be ahead of the competition. With factoring, you no longer have to wait 90 days to use the money owed to you. You can use that money now.

 

Qualifying for a Purchase Order Loan for Apparel Companies

Qualifying for a Purchase Order Loan for Apparel CompaniesBusinesses today are scrambling for loans and other types of financing, and that’s because banks are now very tight-fisted. But if you are an apparel company that’s been awarded a huge merchandise order, then you have another source of ready working capital. You may be able to get the funding from institutions that provide a purchase order loan for apparel companies.

The way a purchase order loan works is different from a regular loan. Generally, the purchase order is considered a form of asset. Here are some aspects that need to apply to your situation if you want to use a purchase order to get the loan you need.

  • Does the customer have the ability (and the willingness) to actually pay for the order? This is perhaps the most crucial question, and it shows how a purchase order loan is different from traditional loans. In traditional loans, the key question is whether you have the ability to pay back the loan. In a purchase order loan, the most important consideration is whether your customer can and will actually fork out the money. That’s why the best purchase orders are those made by a government agency and publicly traded corporations. The more reputable the customer is, the better it is for you. Different types of lending institutions will have different standards as to whether the customer is likely to pay.
  • Does your apparel company have the skill to do the work and complete the order? Not even a government agency will pay if you can’t deliver the goods according to the terms of the purchase order. You have to comply with the quality and quantity requirements, and there may also be a schedule involved. The best way to do this is to show that you already have the experience in fulfilling similar orders in a timely manner.
  • Is the payment schedule for the order quick enough? In the apparel business, normally the payment comes within 90 days (sometimes even within 30 days) after you’ve delivered the goods. But there are a few cases where the payment can be staggered for a longer amount of time. Some customers may even ask for a year to pay or even three years, as if they are paying for a car.
  • Are your profit margins sufficient? This is essentially the percentage of the selling price which goes to you as profit. For example, if you sell dresses for $100 each and you can make them for $75 each, then you have a 25% margin. Anything less than that may not sit well with the lender, although 20% margins may suffice if the customer is an extremely repeatable company and the payment schedule is short.
  • Are you asking for the right amount of money? Don’t expect a $100K order to result in a $100K loan. For a government contract, 85% of the order may be possible, and for private companies you may be able to get half of the order as a loan.
  • Are you dealing with the customer directly? Lenders really hate it when there’s a middleman involved.

A purchase order loan for apparel companies can be a huge boost that can fuel the growth of your business. It can even help make sure that you have the resources so that you can actually manufacture and deliver the goods. When you land a major purchase order or contract, check if you can use it to obtain the working capital you need for your business to thrive and grow.

5 Facts about Asset Based Lending for Food and Beverage Companies

These days, it’s not always easy to establish or maintain a food and beverage company. If you own a business in this industry, then you have quite a challenge ahead of you. One of your constant problems will be to make sure that you have readily available resources to cover operational expenses and to take advantage of opportunities for growth. With banks nowadays no longer quite as forthcoming in offering unsecured loans, asset based lending for food and beverage companies have become much more common.

Here are some key facts you need to know:

  1. What is asset based lending? Basically, you offer your company’s assets as a collateral or security for the loan. It’s a ready-made statement that says you actually have the means to pay back the loan.
  2. What assets can you use as collateral? If you run a food and beverage company then you may have several assets you can use to secure the loan. You can use your inventory, your accounts receivable, the equipment you use to manufacture your goods, any land or buildings your company may own, or even special patents you own. Even a purchase order can be considered an asset.
  3. How much can you borrow? That depends on the value of the asset you are putting up as collateral. To determine the value of that asset, it has to be appraised first. Then you can ask for a loan that’s considerably less than the worth of the asset. The more risk involved, the lower the amount you can borrow.
  4. What are the advantages of asset based lending? Typically, the main advantage is that it is a very straightforward transaction. There really isn’t much of a delay, unlike other types of loans which can really take a lot of time to work out. You have a much higher chance of getting approved for the loan, and often you don’t get any restriction on how you wish to use the money you receive. Since you also offer security, the interest is often less than what other unsecured loans require. The interest is often lower than what credit card companies charge.
  5. How likely are you to receive the loan? If your asset readily available, then your likelihood of being granted the loan is quite high. Unlike other types of loans, it may not matter as much if you have a poor credit rating. It may not matter if your company is doing poorly and that you don’t see any revenue for the next few months.

Asset based lending for food and beverage companies covers a broad spectrum of possibilities, so you have a great chance of finding a loan agreement that appropriately fits your requirements. With a purchase order, you can borrow half the value of the order at the very least. With your accounts receivable, you can look for a type of factoring that provides you the money you need much earlier than you expected. By leveraging your equipment, you may be able to operate more smoothly so that you finally make the sales and the profits you have been seeking.

Click here to visit our food and beverage lending page

 

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.