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Factoring for the Manufacturing Industry

Since the turn of the millennium, the manufacturing industry in the US has taken a turn for the worse, and the last economic crunch didn’t help either.

The number of manufacturing jobs decreased by 5.1 million from 2001 to 2012, and 2.1 million of those jobs were because of the US-China trade deficit. But now some experts are calling for an increase in US manufacturing. That can only happen if there’s enough funding. Fortunately you can now turn to factoring for manufacturing companies.

Why Funding Should Be Increased for Manufacturing

There are several proposed reasons why manufacturing should be more concentrated in the US, aside from the usual talk of providing more jobs for Americans.

One reason is that in terms of dollar output per worker, the American worker is still much more productive. US customers also expect quicker delivery, and having the manufacturing done in the US cuts down on the cost of keeping large amounts of inventory. Finally, separating manufacturing from development has proven detrimental to the training and education of company workers.

For all these reasons, funding should be afforded to manufacturing companies. And if banks are hesitant, the factors are not.

Factoring for Manufacturing

The way factoring works for manufacturing companies is easy enough to understand. The manufacturing company often has customers which take their inventory but takes too much time to pay in full. That often leaves manufacturing companies in a cash crunch and why they may need a loan for working capital.

Factors can offer the funding when banks don’t give out loans. Factoring involves the sales of accounts receivable, and the factor advances up to 80% of the value of the receivable to the manufacturing company. The factor is them paid directly by the customer, and when the customer finally pays in full the factor forwards the rest of the payment after it has taken off the advance and its fees from the payment.

Benefits of Factoring

The most obvious advantages of factoring are the ease in which manufacturing companies can avail of this form of funding. Approval for funding is easy to get, unlike with bank loans which has notoriously low approval rates.

The entire loan application process is also slow with traditional loans, but with factoring it may only take a few days to get the approval. This is due to the lack of relevance of the company’s credit. Instead, the creditworthiness of the customers is evaluated.

It only takes a few days to set up the factoring line, and then the advance arrives within a day of submitting the accounts receivable.

The money can then be used for a wide variety of purposes. It can be used to meet payroll, maintenance, manufacturing supplies and expenses, or pay for other debts. You won’t have to worry about the bank calling in a loan, because the funding is not a loan in the first place. As long as your customers pay on time, then you’re all set, and your factor can even help identify which of your new customers are good payers so you won’t have problems.

With factoring, you solve a whole factory of problems altogether.

Purchase Order Finance for a Service Company

Purchase order finance for a service company is not really a common option that such businesses consider. Usually when speaking of purchase order finance, it applies to the buying and reselling of goods. Your client wants 1,000 women’s handbags and is willing to pay $100,000 for the entire order if you can deliver them on schedule. Meanwhile, you have suppliers for the handbags which will cost you a total of $50,000. But if you don’t have the resources to pay for the items, a lender can just pay for them so you can fulfill your client’s order.

You get your money when the customer pays the lender. The lender takes the money it spent for the handbags and then gets its fees. If you invoice the customer, then you may also use factoring in conjunction with the PO funding. This is when you get about 80% of the amount of the invoice right away from the lender, and the lender gets another fee for the factoring service when the customer pays in full.

How Does Purchase Order Finance for Service Company Work?

If you are a service company, then purchase order finance can help you in one of two ways. If you are a solo operator and you’re tasked to perform a service, you may need to get PO finance if the service entails the purchase of supplies or the rent of equipment.

For example, let’s say you are a house cleaning service. You may need to buy some cleaning supplies like detergent, while also renting equipment like vacuum cleaners and steam cleaners. If you can’t afford to get those things with the cash you have available, then PO finance will solve your problem.

When you need to pay for manpower, the purchase order may be negotiated to cover payroll for the specific contract (in addition to equipment and supply rent and purchases), and when the contracted service has been fulfilled you can then bill your customer just like in regular purchase order financing.

Benefits of Purchase Order Financing

There are several key benefits to purchase order financing. The first is that you won’t have to pass on any opportunity that gets you profits for your service company. In fact, if you refuse too many purchase orders for services then you may get a rather negative reputation as a company which is severely limited. With PO financing, your reputation remains intact.

In addition, you also get the cash you need much more quickly than if you rely on a traditional bank loan. Bank loans are notoriously slow to get. It’s more likely that your customer will look for another service company rather than wait for you to get the funding you need.

Often purchase order finance for a service company is necessary for growth. You may have the working capital you need to render service to your current roster of customers, but with PO finance you can expand your business and still have working capital available.

Picking the Right 2015 Factoring Company

It’s easy enough to understand why many businesses today would choose to get funding from a factoring company. Often it’s because a bank won’t hand out a loan in the first place! But there are also a significant number of businesses that prefer getting funding from factoring company instead of bank loans. The funding comes much more quickly with factoring, and besides with factoring there’s no loan involved at all.

Choosing to go with factoring is one thing. But choosing a particular factoring company this 2015 is another. You have literally thousands of options and picking the right one can be a rather complicated task. But there are ways to simplify the process.

Choose a factor that comes with recommendations from others in your industry. For example, if you’re running a medical clinic then you may have colleagues who also transact with factoring companies. They can give you a rundown on what it’s like to deal with their factors.
Opt for one with extensive experience in your particular industry. This speeds up the process because these factors are already familiar with your SOPs and particular needs. You won’t have to waste time explaining how and why you do things. They are also often known by your customers as well, so the payment process becomes much simpler too.
Check testimonials to see how they approach your customers when demanding payments. Some industries, such as construction or the garment industry, depend greatly on networking. A factor which is too rude or aggressive in its payment notification procedure may offend your customers and damage the congenial relationship you have with them.
Inspect the rates. A factor advances a percentage of the value of the account receivable to you immediately. Then they forward the rest of the payment when the customer pays in full after taking their fees. You’ll need to know the percentage of the advance, because some advance only 70% of the value of the invoice while some may claim to advance up to 90%.

You also need to check how much they charge in fees for the funding, and what the penalties are if your customer pays late or not at all. Some factors offer smaller fees if an invoice is paid sooner.

Some factors may also be more stringent about the type of customer you serve. For example, one factor may not accept an invoice concerning a particular customer, while another factor may give you an advance on that invoice.

Additional services. Many factors offer free credit checks on your customers, and this can be very helpful when you’re trying to decide if you’re going to offer credit to a particular new customer. Some factors offer a line of credit instead of giving you the advance in full. Other factors can even offer online account management services, so that you can oversee which of your customers are nearing their due dates, which ones have paid, and which customers are late.

Your factoring company choice can very well affect your entire operation. Make sure you choose well, and not just because you were attracted to their advertising copy.

Working Capital for an IT Staffing Company

The staffing industry is a field that has experienced continuous growth in recent years, and this is especially true for IT staffing companies. Every day more than 2.9 million workers are employed by staffing firms, and over the course of a year more than 11.5 million temporary or contract workers are employed by staffing companies. With IT staffing in particular, the business is projected to grow by 7% in 2015. This makes it crucial that working capital for IT staffing company needs are secured.

The Unique Working Capital Problems of IT Staffing

Working capital for an IT staffing company can be used for two main purposes. The first one is obviously for payroll. Temporary staffers expect to get paid for every week of work. And the more staffers you have as your business grows, the greater the payroll you need to meet each week.

The problem here is that your clients don’t usually pay promptly. Instead, the payment from them comes in after at least 30 days, and some could take as long as 90 days. This means that a staffing company needs to have at least enough money for 13 weeks if it is to continue its operations.

Staffing companies also have overhead costs, aside from the cost of having to screen suitable IT workers for their clients. Sometimes, the staffing company may even have to provide additional training for its employees.

But there’s also the problem of a company hiring temporary workers and then not paying the bill for those services at all. This happens in the industry, unfortunately.

How Invoice Factoring for IT Staffing Companies Solve These Problems

It’s often been said that invoice or accounts receivable factoring can be an attractive alternative to traditional bank loans. This type of funding doesn’t need security aside from the invoices themselves, and the chances of getting the necessary funding is very good compared to a traditional bank loan. And even when you get a bank loan, the entire process can be interminable, unlike invoice factoring when you know if you get the funding or not within a few days.

So if you’re unsure of meeting payroll for the week, you can get the funding you need right away and so avoid having to miss out on paying your own staff. In factoring, you can get as much as 80% of the value of the invoice right away, so you can pay off your employees promptly and also pay for overhead.

But invoice factoring offers other unique advantages when used to secure working capital for IT company needs. For one, staffing companies don’t need to hire additional workers to collect payments from clients. Often, this task falls on the lender instead. Factors can even investigate new clients to see that they’re in good financial health and that they have a good history of paying staffing companies on time.

In factoring, working capital can be secured quickly and other conveniences are also offered.

Invoice Factoring Rates

In invoice factoring, you can get an advance from a factor that’s equivalent to a percentage of the value of your invoice. With this advance, you will have some working capital to use instead of waiting for the invoice to become due.

When you compare factoring companies, you’ll need to compare their invoice factoring rates. The main problem is that different factors call their fees by different names, even though they may refer to the same type of service or fee.

Essentially, if you are doing comparisons you will have to get an exact quote on how much the funding will cost you. All the fees must be transparent before you sign an agreement. You’ll need to know exactly how much you’re getting in advance for whatever circumstances, and the fees of the factor must be stated up front. The conditions for the fees (and penalties should your customers pay late) should be clarified as well.

The invoice factoring rates you’ll need to be aware of include:

This is the percentage of the value of the invoice. Some factors claim that they offer 70% of the value, while others say they offer up to 90% or even more. You’ll need to know if the advance rate is the same for all invoices or if there are some types of invoices which may come with a lower advance rate. You also need to check if the advance rate applies to the full worth of the invoice or if it applies to the net of VAT amount.
Advance limit. This is the maximum amount that a factor may be able to give in advance for an invoice. So if the factor has a limit of $100,000 for each invoice, then even if they offer an 80% advance you only get the $100,000 even if the invoice is worth $200,000.
Discount charge. This works like interest on a loan. It can be a fixed percentage or a few percentage points over the base rate or the prime lending rate.
Additional fees. Some factors also charge additional “administrative fees” which may include setup fees, fixed annual fees, fixed annual fees per invoice, legal costs and extra percentage fees as well. For example, they may charge additional fees when they investigate the credit of your new customers. You may also be locked in a factoring contract, and opting out of the factoring service may require another fee.

What Affects Invoice Factoring Rates?

Every fee must be taken into account before you choose a factoring company to work with, although many factors are open to negotiation. Several considerations can increase or reduce the rates you pay. The info that affects the rate includes:

Whether your customers are local or international
The sales volume (per month or year)
The average size of an invoice (the larger the size the lower the fee should be)
The maturation of the invoices (whether the customer pays in 30 or 60 days)
The creditworthiness of your customers

It’s said that invoice factoring rates can be more expensive than traditional bank loans. But then again, banks loans are nearly impossible to obtain, while invoice factoring is much easier and faster. For some businesses, that’s a fair trade.

Independent Power Producer Financing

On the face of it, obtaining independent power producer financing shouldn’t be all that difficult. Becoming an independent power producer is actually encouraged by law, and today it is an integral part of the Green Movement.

A Short History of Independent Power

It all started during the 1970s when the Arab oil embargo caught the US by surprise. The prices of gasoline and other energy sources increased dramatically because of the short supply, and as a response the US Congress enacted the federal Public Utilities Regulatory Policy Act (PURPA) in 1978.

The new law aimed to diversify the sources of energy and to boost efficiency, and the electrical utility monopoly on power generation came to an end.

The Energy Policy Act of 1992 (EPAct) boosted matters further, as it lowered the cost of electric utility services throughout the US. Because of the EPAct, the independent energy industry grew significantly, and by 2002 about a third of all the power plants in the US were operated by independent energy producers. Even today 7% of the power in the US is provided by non-utility power producers.

Benefits of Independent Power

Because of these enacted laws, a lot of interest was focused on renewable energy, and this interest has not totally disappeared. Developments in solar and wind energy technology came about, and now people are more aware of these alternative sources of energy.

The benefits of these sources of energy include:

Less global warming, which affects the weather, the crops, and the health of people all over the world
Reduced pollution, which obviously makes the country a healthier place to live in
Domestic economic development, which strengthens the economy and provides jobs
Less dependence on foreign energy sources, which may hold the country hostage to the demands of other countries

Nowadays, independent power producers operate all over the world. Asia is an obvious example, but nations in Central and South America, Africa, and Eastern Europe have also followed suit. Because of independent power producers, commercial wind energy is now the leading new source of power generation in the world.

Financing Independent Power Production

Yet despite all the benefits and “glamour”, financing can still be somewhat iffy for these companies. That’s because government permits must be obtained before such a project can be constructed and operated. Financing usually comes from banks and private investors. Millions of dollars maybe poured into such a project. But there’s no way the costs can be recovered if the permits are not acquired or if the project runs out of money midway.

There’s also another requirement before financing can be acquired, and that’s the power purchase agreement. This agreement states that the electrical utility must buy all the energy that the independent power plant produces. The independent power producer must get this agreement before banks would commit funds to a project like this.

In other words, the local government (which usually owns the electrical utility) must provide assurances that the investment in the independent power production will be worthwhile. This is the only way that funds can be raised for the project.

Working Capital for Machinery Leasing Companies

If you’re starting a company that offers machinery and equipment which other businesses can lease, then you will most certainly need a fair amount of capital. Other businesses lease equipment because for the most part these things cost a lot of money to buy. As a machinery leasing company, you can buy these equipment in bulk so you can enjoy significantly lower prices than those offered at retail.

The Need for Working Capital

But even after your initial purchases, you may find that you still need working capital to run your leasing company.

You’ll need a place of business for your office, and you need to pay rent and utilities.
Your company will need to meet payroll on a regular basis, and that’s an expense that you cannot avoid.
You’ll also need adequate space for all your equipment so they can be protected from weather damage. These warehouses will cost you money.
You may also be required to get insurance. You may need liability insurance to provide coverage should someone get hurt through the use of your equipment.
You’ll also be responsible for the maintenance of the equipment. You’ll need to hire technicians to oversee maintenance and repairs. In addition, you need proper tools for your technicians, along with spare parts to replace broken machinery parts.
Your customers may need more types of machinery which you have to purchase. In addition, some types of machinery may use additional or extra attachments and accessories which you will also need to buy.

As a leasing company, it would be best if you and your clients are clear regarding the fine print of the leasing contract. Both parties must agree as to the payment and the schedule, who deals with the maintenance, and whether leases can be terminated early.

Procuring Working Capital Loans

If your working capital is insufficient, you may find your business unnecessarily restricted and unable to grow. Because of this, you may want to consider securing a loan to add an infusion of cash for your working capital.

For example, you can get a merchant cash advance so you can buy more equipment that other businesses can lease. Your funding partner may then get a percentage of the fees paid by your customers until the advance and the premium for the advance are all paid up.

You may also get a form of inventory financing, or perhaps a loan with your equipment as collateral. The amount you can get will depend entirely on the value of our equipment. You may even use property and real estate, such as the land and the building housing your equipment, as security for the working capital loan. However, if you’re unable to meet the payment, your equipment or your property may be seized to cover your debt.

There’s a lot of money to be made by offering equipment that other businesses can lease. Just make sure you have the working capital you need so that your own company can run smoothly.

Computer Repair Services Working Capital

Starting your own computer repair company can be a very profitable venture these days. Most people prefer to buy cheap PCs, and those with expensive machines generally have them repaired instead of replaced when they start to malfunction.

However, you will most certainly need some working capital, especially when you plan to expand your services.

When Do You Need Computer Repair Services Working Capital

You’ll need a place of business, and of course each worker will need a set of tools and basic equipment, especially when they go to the home or office of customers to fix their computers. Aside from your usual screwdrivers, you’ll need testing equipment for motherboards, power supply units, and cables. You may also want to bring along spare parts of the most commonly malfunctioning PC parts so you don’t have to waste time going to a retail store to get the parts you need.

Also remember that your computer repair services business will require some form of marketing, just like any business. This may mean distributing fliers in your neighborhoods. It also means you will need to run your own website where you can post your fees and explain the services you offer.

Once you expand your services, you’ll need even more working capital. Perhaps you have lots of customers and now you need more employees to handle the workload. Each one will require tools and equipment, and perhaps transportation money as well. You’ll need to make sure that each technician is properly trained and compensated as well.

As a computer repair service, your focus may be on a wide variety of gadgets, including laptops, tablets, and smartphones. This will require intensive training for your employees, and more tools and spare parts. All these will require working capital too.

Getting the Working Capital You Need

So where should you go to get working capital? Ideally, you need to save up, and perhaps you can ask family and friends to pitch in with their investments. Banks may not always be the right option if you need working capital for your computer repair services.

Here are some other ideas:

You can apply for capital loans from your local credit union.
You can get a merchant cash advance against the fees you get through credit card payments. For example, you can get a cash advance for your working capital, and you can pay 12% of your daily fees to the lender until the loan and the interest rate is paid. This method of loan repayment offers you a cushion as you won’t have to pay as much when business is slow.
You can also check if you can get some form of inventory financing. You can then buy cables and hardware for much less than what you pay in retail stores, and then you can charge your customers just a little bit more (but still less than retail prices) when you replace malfunctioning computer parts.

It can be very easy to succeed in this type of business, especially when you avoid all the common errors. But you can stall your growth if you don’t have adequate working capital. Make sure have enough money to cover your operational expenses, and the profits will keep coming in.

Small Business Loans for Low FICO Scores

Your FICO score reflects your predicted ability to pay back a loan, based on your own credit history. In general, if you’ve borrowed often before and paid each one on time, then your FICO score will usually be very high. You’ve demonstrated that you are responsible enough to pay back the money you’ve borrowed promptly.

However, if you have a low FICO score because you used to pay late or you never really borrowed money from financial companies before, then convincing a traditional lender such as a bank to provide a loan will be a futile undertaking. Banks nowadays are notoriously tight-fisted when it comes to lending money to high-risk borrowers.

Still, that doesn’t mean that you can’t get the loan you need for your small business. But you may have to consider another approach.

Friends and family. This type of small business loan is very common. After all, you already have a connection with friends and family, and if they trust you then your low FICO score is irrelevant. For small amounts, friends and family may suffice to get you the loan you need.

But there are inherent drawbacks to this type of loan. In general, it’s not always wise to mix business and personal relationships. Your friendships and familial relationships may be damaged should you encounter any difficulty in paying back the loan.

Borrowing with a Co-Signer. If your FICO score is preventing you from getting the small business loan you need, then perhaps you need the assistance of someone who trusts you who has a much higher FICO score than you. Your Co-signer usually agrees to cover the loan amount should you prove unable to pay back the loan according to the agreement with the lender. In this type of loan, it’s as if your co-signer is the one asking for a loan, except the money goes to you.
Using your credit cards. Some people who have a small business simply use their credit cards to fund their operational expenses. The main advantage of this approach is that the money is already available to you, so you can get it quickly and without a fuss. And as your credit card is like a line of credit, you can just borrow the exact amount you need.

However, you’re bound by the credit limit of your credit card. There’s also the inherent danger of mixing your personal and business finances. Your personal credit can take a beating if you are unable to pay your business loan.

Specialty lenders. If you can’t get the loan you need from a bank, you may want to approach specialized lenders who focus on borrowers with poor credit. Often the interest rate can be very high. Also, you may be required to offer some collateral for the loan, such as your car or even your home.

You may get the money you need for your business, but you pay dearly for the privilege and you risk a lot should you fail to repay the loan on time.

These days, banks are no longer your sole source of funding should you need a loan for your business. You can still get the loan you need, even if you have a poor FICO score.

Merchant Cash Advance

When you have your own business, there are times when you need an infusion of cash ASAP. When such a situation comes up, approaching a bank is often an exercise in futility.

There are several reasons why applying for a bank loan may not be ideal for your situation. For example, your business may be new. You may also not have enough equity which means you don’t have collateral needed for a loan. A bank loan application also takes a few weeks to process even if you do get the loan in the end, and the more time you waste waiting for your loan to be approved, the more money you lose.

But you don’t have to rely on a bank loan to get the money you need. One increasingly popular alternative is merchant cash advance.

How a Merchant Cash Advance Works

A merchant cash advance is not a loan, so the cash advance premiums can be very expensive. Usually, a merchant cash advance must be paid within two years, and sometimes the lender may only give you a year to pay back the advance.

Unlike a loan which usually requires a set amount every month, the payment for an advance is often dependent on the amount of credit card business you do on a daily basis. That means you don’t have to worry about making the payment each month.

Merchant Cash Advance Case Study

Here’s a real-life scenario of a merchant cash advance agreement. Calderon puts $700K of his own money for a restaurant business, and his business partners chipped in another $500K. He thought he was all set, but construction costs for the new restaurant went over budget by $80K, and that really cut down his operating capital.

Calderon needed the $80K quickly, and the bank loan required a waiting period of 4 to 5 weeks. The merchant cash advance, on the other hand, was available within 48 hours of applying. He only needed to prove that his business did $40K of sales a month, after which the funding company checked his credit and his business agreement with his partners, and the advance was already available.

Calderon received his $80K, and agreed to pay back $100K. The funder took 12% of his daily credit card sales until the entire amount was paid off.

Pros and Cons

As the case study illustrates, a merchant cash advance is very easy to get and it’s quick too. What’s more, the payment amount isn’t set in stone, so when business is slow then the amount that will need to be paid is expectedly lower.

But then again, the markup can also be very high, so the first rule for you is to shop around so you can get the best rates. You should also make sure that your business makes enough sales so you can still operate with the money you have left. With Calderon, the remaining 88% of his daily sales had to cover his other business expenses.

The funder will always be paid first, so you need to make sure the money you have left can cover utilities, payroll, and inventory, and equipment maintenance. If you can’t cover these expenses, you may not have much of a business left.