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Why You Need AR Factoring Companies for Your Particular Industry

Factoring is a financing method where the finance company called the factor offers a substantial cash advance (usually 80%) of the value of the accounts receivable. The problem is that some business owners choose an accounts receivable factoring company based solely on the fees they charge. But what’s really more important is that the AR factoring companies you should consider should also specialize in your particular industry.

Medical Factoring

One good example here is medical factoring. Factors who do not have experience in the medical industry may insist on letting customers to pay in 30 days. But that’s not going to happen in the health care industry where the “customers” are mostly Medicaid, Medicare, and private insurance companies. These organizations usually take as many as 90 days to pay up completely, and some insurance companies tend to contest medical bills whenever possible.

This is hard to explain to inexperienced factors, but to those with experience this is a fact of life that’s accounted for in their factoring service.

Construction Factoring

In the construction industry, another set of rules exist for factoring. In fact, different types of construction projects may have different requirements. For example, financing a directional boring contractor is very different from funding a cell tower maintenance provider even though both belong to the construction industry.

The industry also involves progress payments, which may not be very precise. When a portion of a construction project is completed, then a specified part of the payment is made. This is different from wholesale companies which need to deliver an entire order before a payment is made.

Construction factoring may also involve general contractors and subcontractors, and this is another wrinkle that inexperienced AR factoring companies may find confusing. Sometimes, a subcontractor only gets paid when the general contractor is paid. This is called the “pay when paid” clause, and only an experienced factoring company will know how to deal with this issue properly.

Factoring in the Trucking Industry

Many factors offer credit investigation reports to their clients, and for trucking companies that’s a very useful service. After all, factors set their approval and their rates based on the creditworthiness of your customers. Their findings should be made available to you by your factor, so you know to whom you can extend credit in the first place.

But factors who specialize in trucking should also offer a fuel card program. This offers substantial discounts for your trucking firm. They should also offer fuel advances too, which is a special type of advance on accounts receivables to cover fuel expenses.

When opting for factoring to fund your business, your choice of AR factoring companies mustn’t be based only on how low they charge. It must also depend on the breadth of experience the factoring company has in the industry your involved in. When you deal with an experienced factor, you no longer have to explain things. Instead, the factor may even have ready solutions for your problems.

Business Loans Offered by the Government

You need to have enough capital before you can start a business and it’s never wise to touch your life savings or even the money you have set aside for the rainy days. This is so that no matter what happens to your business, your personal life would not be in jeopardy.

Business loans from the government are among the available options for people looking for capital. Many startup businesses consider these kinds of loans more suitable for them because traditional lenders such as banks are often reluctant to grant loans to those without any financial history or a stellar credit report. Although one of the requirements of business loans the government is offering is a good credit report, they are not as stringent as the private sector and they also offer better interest rates and terms.

Who Grants Government Business Loans?

There is a government body known as the Small Business Administration (SBA) and they are the ones who partner with banks and credit unions, backing up loans to lower the lender’s risk and thereby boosting the business owner or entrepreneur’s credibility. If the borrower defaults on the loan, then the SBA will pay off the balance. No risk to the bank.

You can apply for a business loan for the following purposes:

  • Establishing a line of credit
  • Refinancing current debts
  • Purchasing new machinery, equipment, supplies, and others
  • Financing leasehold improvements
  • Financing commercial mortgage

Types of SBA Government Loans

The Small Business Administration has several lending programs and some of its most popular types of loans include:

  1. 504 Fixed Asset Program

This type of government business loan features long term financing and fixed rates. It is more suited for businesses that will directly benefit the community by offering much needed services or by providing more jobs. The maximum loan amount is $5 million.

  1. 7(a) Loan Guarantee Program

This loan is geared towards helping small businesses get started or grow. The maximum amount you can loan under this program is $5 million.

  1. Disaster Assistance Loan Program

This program aims to provide renters or homeowners with a long term, low interest loan to help them restore their property after being struck by a disaster.

  1. MicroLoan Program

This is generally a short term loan and is often used to purchase supplies, equipment, furniture and so on. The maximum loan amount is $50,000.

 

Preparing Your Loan Application

 

Each program under the SBA has its own application process and set of eligibility criteria. Generally speaking however, you need to have a decent credit report and should have invested a reasonable amount of money into your business. You should also have a sound business plan, and you’ll need to submit your income tax returns for the last 3 years. Some legal documents such as your articles of incorporation, license and contracts will also be required.

 

Business loans from the government are without a doubt very helpful because they give you excellent terms and low interest rates. But they are not for everyone. If you don’t meet any of the requirements above, or if you need a loan fast, then you have to consider other non-traditional options such as invoice factoring. Invoice factoring is not technically a loan, but a cash advance against your invoices. The interest rates are higher than regular business loans but they are easier to attain and also have quicker approval times.

How to Spot the Best Factoring Company for Your Business?

Many businesses these days have already recognized the many benefits of factoring and other forms of alternative financing. This funding method involves having a factoring company advance about 80 percent of the value of your accounts receivable instead of having you wait for 30 or more days for the customer to pay you in full. The money you receive can immediately be used for operational expenses such as payroll, overhead, and supplier fees. But it all hinges on whether you get the best factoring company for your business.

There are several ways to determine whether a factoring company is better than another. All things being equal, the factoring company that offers the lowest service fees is obviously better than another lender that charges higher fees. But not every company offers the same kind of service.

The Factor Should Understand Your Industry

This is one of the more crucial considerations you need to remember, but unfortunately a lot of factoring clients don’t realize its importance. First of all, you need a factoring company with experience, because you don’t want a factoring company that’s still feeling its way around.

This experience should also be in your industry, because the factoring needs of a trucking company is very different from the needs of a medical clinic. A trucking company may enjoy perks such as fuel advances, while a medical clinic needs a factor who knows the ins and outs of collecting from health insurance providers.

When you have an experienced factor, you may even enjoy benefits that you never expected. To check whether your factor has experience in the type of factoring you need, you should ask the factor for references in your industry.

You Can Get a Customized Service Package

The service of a factor goes beyond offering a large advance percentage for little costs. But the service package is not just about the fees. The terms must also suit your needs. For example, getting a 90% advance on your invoices may seem better, but it may not matter when 80% of the invoice value is enough for your needs. The higher advance may come with higher fees.

Collecting the fees is also usually the responsibility of the factor, but in some cases your customer may want to pay you directly instead of paying a company they don’t know. Some factors realize this and can make the necessary adjustments to their procedures.

Other businesses simply do not want to deal with invoices altogether, so some factors take care of each invoice instead. This can save a business from having to setup a separate department to oversee this particular function. This saves you money too.

They Have the Financial Resources You Need

Simply put, your factoring company should be able to handle the invoices you submit for factoring. For example, they may be able to handle invoices averaging $50,000 and totaling $500,000 a month right now. But if your company grows and your business begins to earn millions of dollars a month, then the best factoring company should still be able to accommodate your “growing” needs.

 

How Medical Receivable Factoring Works

If you’re running a business in the health care industry, it’s guaranteed that sooner or later you’re going to have a problem with cash flow. And that’s where medical receivable factoring comes in.

There are two reasons for this. One reason is that you’re going to have to spend a lot of money on day to day expenses. Whether you’re a vendor selling goods or services to clinics or you run a clinic that helps treat patients, expenses are a fact of life in the medical industry. A clinic, for example, will need sufficient ready cash to cover payroll, pay for rent and utilities, make the regular payments for the equipment, and purchase regular medical supplies such as gloves, syringes, bandages, and medicines.

Another reason is that health insurance companies can really slow down your cash flow cycle. While your suppliers may require you to pay up front or in 30 days, insurance companies can take up to 120 days to settle the bill. What’s really aggravating is that you’d have to follow up on them regularly, and even then they may not pay the full amount.

So how does medical receivable factoring work?

  1. Factoring for vendors. In this scenario, your customers are the clinics who treat patients. When you bill them, you send the receivables to the factoring company which then gives you the advance of about 80% of the value of the invoice. The factor then waits for the clinic to pay them in full, and then the rest of the payment is sent to you minus the fees of the factor. It’s pretty much a straightforward arrangement.
  2. Factoring insurance claims for clinics. This version can get a bit more complicated. It’s the same basic format, in which the factor forwards you an advance and then the rest of the payment is sent to you once the insurance company has settle the claims. Usually the factor deals with the insurance companies by sending a notice of assignment, and experienced factors realize just how long it will take so that they don’t charge you outrageous amounts when they take 120 days to pay.

However, insurance companies are also known not to pay the full amount. So if this happens, the factor doesn’t reimburse you for the missing amount. In fact, the factor may hold back 20% of the receivables in a reserve account to cover instances when the factor pays less than the advance you get. So if you get 80% in advance and the factor ends up getting only 70% of the value of the receivable from the insurance company, the factor takes money from the reserve account to cover the advance and the fees charged by the factor.

  1. Factoring Medicaid and Medicare claims. As you know by now, factors operate by requiring your customers to pay them directly instead of sending the payment to you. Unfortunately, Medicare and Medicaid don’t allow you to assign the claims to a third party such as a factor. Medicare and Medicaid will only pay you directly, and won’t send payment to your factor.

This problem must be discussed with your factor, but an experienced factor already knows how to set a managed account, which is also known as a sweep account. This account is in your name and ownership, so Medicare and Medicaid can send the payments to this account. At the same time, the account gives full operational control to the factor, so the factor can collect the payments and its fees and also settle the invoice for you.

All these may seem complicated, but when you’re dealing with a financing company that has experience in medical receivable factoring, it’s actually very simple.

Should You Rely on Your Local Bank for Real Estate Commercial Loans?

If you own or manage a real estate company, you sometimes find yourself at the mercy of your local bank when you need a loan. The problem with local banks is that they may not have much experience with real estate companies, and that’s supposing that they are willing to provide you with the funds you need for your business. But with the assistance of a loan consultant such as 1st Commercial Lending, you may be able to get the funding you need – fast.

Here are some of the advantages of dealing with an institution such as 1st Commercial Lending:

  • You get access to more lenders. Shopping for lenders is a necessary step if you want to get the best terms for your loan. The problem is that it is so tedious to do, and so often you’re limited to your local banks.

But reputable firms such as 1st Commercial Lending may represent more than 300 commercial lenders which can offer loans to firms all over the country.

  • Dealing with an industry specialist is much more convenient. A specialist in commercial real estate loans already understands the intricacies of real estate deals and the needs of real estate companies. So whether you need a loan for commercial real estate, business acquisition, expansion, a startup, to boost your working capital, to fund your equipment purchase, or to consolidate your debt, you’ll be guided every step of the way.
  • You can get different types of loans for different types of commercial property. These properties may be apartments, hotels, motels, office buildings, retail buildings, warehouses, industrial buildings, or self-storage structures. The loans can come from banks or private lenders or they can be backed by the SBA. Loan amounts can range from half a million dollars to $20 million.
  • The application process is very quick and easy. You just need to fill out a short application form indicating the type of property, the purpose of the loan, the amount of the loan, the estimated property value, and where the property is located. Then you furnish your data including your contact info.

In 24 hours a specialist will discuss your options with you and you choose which option is the best for your specific situation.

Typically, a commercial real estate loan can be closed in 45 or 60 days. But there is a Fast Track option that accelerates the process so it only takes 30 days.

  • You don’t even need to use up all of your savings. The SBA loan programs can cover up to 90% financing. In some cases, they even offer a working capital loan to help out on the transition.

They can also help you buy an existing business or start a new one.

So should you rely on your local bank for real estate commercial loans? The short and simple answer is no. You’re better off relying on a loan consultant such as 1st Commercial Lending instead. At the very least, you get more financing options so you can choose the best terms for your loan.

 

The Pros and Cons of Assets Based Lending

Wouldn’t it be amazing if you can borrow money simply on your word that you will pay it back? Sadly, that’s not how it works. Far from it. Many banks have very rigid lending requirements in place. Recent news articles report that there’s a surge in approval rates at big banks, but actually as of March 2015 big banks only approve 21.6% of small business loan applications. So if you want to increase your chances of getting a loan, you may have to resort to assets based lending.

What is Assets Based Lending?

Most of the time, assets based lending involves risking your future earnings to get access to capital immediately. The typical assets lenders accept are your accounts receivables and your inventory. These assets represent money in the future, and your lenders are willing to give you an advance against it now.

Other lenders may also accept equipment and real estate as collateral for a loan. The money you can borrow will depend on the valuation of the equipment and/or real estate. Of course, these assets must be encumbered and free to use as collateral. They should not be embroiled in any legal or accounting issues and they’re not already used as collateral.

Typically, you can borrow as much as 80% of the value of the accounts receivable. You may also borrow half the value of the inventory, equipment, and real estate.

Getting approval for assets based lending is also not just a matter of having the appropriate assets. You’ll still need to show documentation that your business has good financial statements and reporting systems, and that your inventory is very easy to sell. You also need to demonstrate that your customers have a good history of paying fully and on time.

Advantages of Assets Based Lending

This form of financing can be very helpful if your business is undercapitalized, in the process of a turnaround, or on the way to rapid growth. That infusion of cash you get may be the final tool you need to set your business into a stable and profitable future.

These loans can also be used to finance acquisitions for growth. Another suitable candidate is a company with seasonal needs and industry cycles which often result in cash flow difficulties. The loan can help them get the cash flow problem straightened out.

Drawbacks of Asset Based Lending

First of all, the chances of securing a loan or a line of credit is only as good as the quality of the assets you possess. The lenders often only approve of accounts receivable as collateral when your customers have stellar credit and they pay in less than 60 days.

The interest rate for assets based lending may also be higher than traditional bank loans, and some lenders may even require you to personally guarantee a loan. Some lenders also insist that your customers send their payments directly to them, and the lender will only pass on the payment to you after they have taken out the advance plus interest. Nevertheless, this form of financing gives you another option besides traditional bank loans.

6 Common Indicators of the Best Factoring Companies

Factoring has become a very popular way of getting funding among small businesses these days. It offers a lot of benefits, but of course, it still depends on which factoring company you do business with. The best factoring companies are actually very easy to identify. Take a look:

  1. Online application. One of the advantages of factoring as a source of funding is that you don’t have to go all over town to secure the financing you need. This is what you usually do when you’re shopping for a bank loan. With factoring, many factors allow you to apply online sometimes through a broker so you can apply to several factors in the comfort of your own home.
  2. Fast approval. This is another advantage you can get when you work with the best factoring companies. Banks can take weeks or even months to determine if you qualify for a loan or not. But factors may usually only take a week to see if you qualify for factoring. For the best ones, it may even take 48 or even just 24 hours to know if you qualify. This helps you to quickly identify which factoring companies are willing to help you out.
  3. Sufficient advance rate. In factoring, you get a percentage of the value of your invoice right away instead of waiting 30 days for the customer to pay in full. For most factors, the percentage of the value is about 75 to 80 percent. But if that’s not sufficient, some factoring companies may offer as much as 90% or more if your customer has a stellar credit history. If the invoice is worth $100,000 then it’s the difference between getting $75,000 and getting $90,000 right away. For some companies, the $15,000 difference can be a deal breaker.
  4. Competitive fees. Some companies charge very little fees. For example, they may not even charge any application or startup fees. Some factors on the other hand may charge for application and for startup, and they may even charge you when you terminate the factoring agreement.
  5. No long term contract. Some factoring companies may require you to make use of their factoring services for more than 2 years, which can be a costly process especially when you only have a short term problem that can be solved by factoring for a few months. But the best factoring companies may only require you to make use of factoring for the time period you need.
  6. Easily accessible. Factors are usually in charge of collecting the payment from your customers. The best factors post the information online (through a private, secure account), so you will know when an invoice is due or when a customer has paid in full. Other factors may even send the info through other means, so you can email, or phone them for the info if you want.

There are other considerations when you’re shopping for the best factoring companies to transact with, but in general they all offer useful benefits at very low costs.

 

 

Who Can Benefit from Medical Factoring Companies?

In any type of business, there is always the need for sufficient funding. Without it, the business simply cannot survive. But such reality is even more evident in the health care industry, where many businesses operate on very limited capital. This is because businesses like medical clinics and hospitals are often paid through insurance claims, which take as much as 120 days to pay up. Such delays create substantial cash flow problems for health care providers who have daily overhead expenses to take care of.

What is Medical Factoring?

The rise of medical factoring services is welcome news for businesses in the health care sector. Medical factoring solves cash flow problems by providing you with ready cash that you can use in any way you deem necessary while you wait for your payments.

Medical factoring companies usually do not have stringent requirements. They will only evaluate the credit-worthiness of the insurance company to whom the insurance claims were filed, and once that is established, they will immediately give you an advance against the claim. Simply submit your approved claims to the factoring service, and they in turn, will advance as much as 80% of the claim. Once the claim is paid, the factor then gives you the remainder of the payment minus their fees.

Pros and Cons

The single most crucial benefit of opting for medical factoring is that it solves your cash flow problem. Now, with their help, you don’t have to worry about when insurance companies will pay you. You can get your much needed capital resources in just a few days, instead of months.

Another benefit of choosing this alternative form of financing is that it gives you flexibility. While it is possible to get a line of credit from the bank, you can simply use medical factoring to give you the funding you need not just to stay afloat, but even to grow and expand (or to down-size if necessary). You get to choose which (and how much) of your approved insurance claims you can submit for factoring.

But of course, while it can literally be “life saving,” factoring not exactly without drawbacks. For one, the fees can be higher than what banks and other traditional lenders would charge. So before opting for it, see to it that you have a good understanding of the terms and fees of the medical factoring service.

Who Can Apply for Medical Factoring?

Medical factoring companies usually offer financing to the following:

  • Hospitals
  • Physicians
  • Home healthcare companies
  • Nursing homes
  • MRI clinics
  • Laboratories
  • Physical Therapy/Rehabilitation companies
  • Radiology centers
  • Medical equipment providers
  • Ambulance service providers

 

Approaching medical factoring companies is especially practical for startup businesses that don’t have credit history, which is a standard requirement for bank loans. Factoring is also suitable for those who need financing to make payroll, those who want to expand their business or buy new and expensive equipment and machines. To get the most benefit from medical factoring, always choose a factor with extensive experience dealing with health care businesses.

Increased Demand for Accounts Receivable Factoring

There was a time not so long ago when factoring had a bad rep in the business world. Some considered it a commercial version of payday lending, and others regarded it as the only viable financing option for struggling companies. But while it is true that companies with bad credit and no collateral make extensive use of accounts receivable factoring, many others have found it an ideal way to get financing.

  • Fewer business loan applications are approved by banks. In 2012, the National Small Business Association reported that 25% of small businesses didn’t have the necessary capital to fund the growth of their company. Many business owners find it difficult to stay afloat even when market opportunities are presenting themselves. Yet in December 2012, it was found that of the small business loan applications less than 15% were approved.

In contrast, applications for accounts receivable factoring have a much higher chance of getting approved.

  • Bank loans take an inordinate amount of time. Banks like to investigate every little detail about the business who wants to borrow their money, and because of that, loan applications take weeks or even months to get processed. In contrast, factoring applications only take a short while because only the quality of the invoices is investigated. And once your business has a relationship with a factor and you keep the same customers, you can get the funding you need even faster.
  • Factors don’t require any other type of asset as collateral. The invoices are more than enough. In contrast, many banks require business owners to personally guarantee a business loan and this may require them to put up their personal assets as collateral just so they can get the money the need for capital.
  • Factors offer many services that banks don’t. Factors investigate the credit worthiness of your customers to see which ones are known to pay in full and on time. Their investigations can help you identify which companies deserve your business and which ones are best avoided. Factors also assume responsibility for processing the invoices and collecting the payments, and this means your company may be spared from having to set up a separate department for this sole function.
  • Factors don’t set limits with what you can do with your cash advance. When banks offer loans, often they want some input as to where you should spend that money. Banks want to be sure that they will get their money back, so they set limits on what you can and cannot do with the money.

In contrast, factors don’t care how you use the money. Once you get the usual 80% of the value of the invoice, you can use it to pay your employees, cover your overhead and operational expenses, or pay of your outstanding debts.

  • Factoring is technically not a loan. When you avail of factoring services you won’t have any debts listed on your credit report, because the money you get is an advance and not a loan. It does not affect your credit in any way.

With accounts receivable factoring, all these benefits are yours to enjoy. No wonder the demand for these alternative forms of financing continue to increase every year.

 

The Advantages of Purchase Order Finance

It’s often a wrenching decision to turn down a large purchase order from a reliable customer simply because you don’t have the financial resources to fulfill the request. This is especially true when that order represents a very tidy profit, or if it may result in regular business with that customer. That’s a lot of potential profit down the drain.

To solve this problem, some businesses apply to banks for a loan. Others sell a percentage of the business to venture capitalists to get their hands on much needed cash. But for others, the necessary funding may be available via alternative forms of financing such as purchase order finance.

This approach offers several crucial advantages:

  • You don’t miss a great opportunity for profit. Purchase orders represent a large chunk of profit, but if you can’t take advantage of them then your company misses an opportunity to increase revenue. It’s not only this particular situation which can provide the profit for you. It also affects your future business, because your reputation can be affected as well. If you can deliver on the purchase order, then the customer is more likely to do more business with you in the future. But if you turn down the order, then the customer will have no choice but to do business with your competitor.
  • Purchase order financing takes a very short time to secure. A business loan from a bank can take a very long time to process, because of all the requirements they need. And often, the application for a loan may be rejected. But with purchase order finance, it doesn’t take all that long because the financing company only needs to know the creditworthiness of your customer.

Once you’ve already had a good relationship with a purchase order finance company, getting much-needed funding may take only a few days.

  • Your bad credit isn’t going to be a problem. Many businesses can’t get a bank loan because their credit isn’t up to par. So if your credit is bad, even if you do get a loan it may not be for the amount you really need. The interest rate may also be exorbitant.
  • You don’t need collateral. Many businesses put up some of their assets as collateral to get a loan, and sometimes business owners may even need to offer their personal assets on the line. Now with purchase order finance, the lack of collateral is not going to matter, because the purchase order itself is the only collateral you really need.
  • It frees up your cash flow reserves. If your current cash flow is inadequate to pay your suppliers to fulfill a purchase order, the financing company can come in and help. Not only can they add the missing amount, but they can actually cover the entire supplier expenses. This frees up your cash flow to use for more pressing needs, such as salaries for your workers and paying off other operational expenses.
  • It doesn’t affect your credit. Even if your bank loan application is approved, your credit is affected. But purchase order finance is technically not a loan at all, so your credit is unaffected.

With purchase order finance, you can take advantage of opportunities brought on by a large purchase order.