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What is Inventory Financing?

It’s pretty normal to have a small business of your own and then find yourself running a little low on operational cash. Perhaps you underestimated how much of a cash cushion you need, or maybe some projected expenses were much more expensive than you thought it would be. Sometimes the competition can crowd you out, or maybe a customer you depended on to pay on time suddenly failed to do so.

When these things happen, most small business owners tend to think about getting a traditional bank loan. But these days the odds of actually getting a loan from a bank aren’t all that good. This is especially true if you don’t have any collateral to offer as security for your loan.

In a way, inventory financing is a form of secured business loan, even if you may currently not have any inventory to speak of.

How Inventory Financing Works

With inventory financing, you get either a short-term loan or a line of credit, which you then use to buy the inventory you need. These products are the inventory, and they serve as collateral for the loan. In other words, if you’re unable to pay the loan according to the agreement you drew up with the lender, the lender then has the right to seize this inventory as part of the payment.

Often, the reason you’re unable to pay for the loan is because the inventory you’re supposed to market and sell isn’t selling as well as you expected. According to experts, this makes inventory financing a form of unsecured loan. After all, if your business is to sell these items and you fail, then how is a bank supposed to succeed where you didn’t?

However, if the inventory is selling well, the money generated by the sales is then used to pay off the loan. For example, let’s say that the lender advances you $100,000 to buy gadgets at $5,000 each which you can sell for $10,000. You can then use the money from each sale to pay off part of the loan or use that money to get more inventory.

In the end, you pay off the loan plus the interest or the cost of the cash advance. Usually, the cost of this form of financing is greater than what factoring entails because of the greater risk and uncertainty. With factoring, items have already been sold, but in inventory financing this is merely hoped for.

Should You Use Inventory Financing?

It depends on the marketability of your inventory. If your inventory is selling well, then you can use inventory financing to reap more profits for your business. However, if your items are not selling well, then lenders may find them unsuitable as security for the loan.

To get inventory financing, you usually need a good credit record and a viable business plan, along with the inventory (and the values) you want to finance. The lender will then offer financing based on the realistic expectations of sales and profits from the inventory.

As the recipient of the loan, part of your responsibility is to make sure that your inventory is in good condition. Lenders have the right to inspect the property to certify that it retains its value as collateral.

 

The Advantages of Janitorial Factoring Services

 

Advantages of Janitorial Factoring Services
Advantages of Janitorial Factoring Services

There are several good reasons why janitorial services are thriving these days. The most common reason is that just about every place of business needs to be maintained and cleaned, but it doesn’t always make sense for a business to have its own cleaning staff. It’s too much trouble to hire janitors on a permanent basis, especially when the company also has to buy cleaning supplies and equipment as well.

But while there are good reasons for you to start a janitorial service, it may be difficult to maintain its growth when you’re experiencing cash flow issues. You need the cash to meet hire new workers, meet payroll, buy and maintain cleaning appliances, and buy cleaning supplies.

Without the cash flow, you may find yourself walking away from future contracts because you don’t have enough money to hire new workers. And what’s more, you may even have problems with your current contracts since you need to hire new workers for those who quit working for you.

If you’re having cash flow problems, then janitorial factoring services may be the answer to your situation:

  • Factoring services are very easy to get. The approval can come in just a single day, unlike bank loans that take such a long time. The approval for factoring services is also much more likely compared to bank loans. That’s because there’s no need for you to have excellent credit, and you don’t really need to put up any collateral for a loan. Setting up the factoring line takes only a week or so.
  • Factoring gives you your own money now, instead of having to wait. Your customers may take 30 days (or more) to pay you for the services your workers provide. But your daily and weekly expenses won’t wait at all. This causes cash flow problems that factoring solves easily.

What’s more, the cash advance you get is not a loan at all. It’s your own money, but you only get it in advance. This means that such arrangement won’t affect your credit.

  • The factor takes over the collection duties. It’s hard enough to hire sufficient numbers of janitors to meet the demand. So it’s convenient for you when the factor takes the responsibility of collecting the payment from your customers. You don’t have to hire staff for your own collection department.
  • The factor doesn’t tell you how to spend the financing you get. They don’t tell you if you should spend it on growth, new facilities, or hiring new workers. After all, it’s your You spend it on whatever you like.

In contrast, banks often insist that you spend the loan they provide in the manner they prescribe. That’s because it’s the bank’s money, and the bank wants to make sure you’re using the money properly so that you’ll be able to pay them back.

Banks loans may be good for your business, but it’s not always easy to get one. On the other hand, it’s easy enough to get factoring services whenever you need it, so that your company can grow and help many other companies with their cleaning requirements.

 

Factoring for Staffing Companies

factoring for staffing company
All you need to do is send in your weekly timecards and invoices, and you can get between 80% and 93% of the cash in your account the very next day.
Contact us now.

Staffing companies these days fulfill a vital role in our economy. The stats are clear on this. These staffing companies employ 11 million people per year, and they occupy just about all the jobs across all industries. Staffing companies offer benefits to employers, employees, and to the economy as a whole.

Employers benefit because they don’t have to undergo the hassle of hiring competent workers, as the staffing company has done this job for them already. They can get as many workers as needed, and it’s less of a hassle when they need to let go of workers they don’t need any more. And if they find a great worker, the employers can just simply offer them a permanent contract.

Employees also benefit from staffing companies because they get employment that they may otherwise not get. And staffing companies find the employers for them, so they don’t have to scurry around looking for work.

But despite the many good things staffing companies offer, they may also experience problems along the way.

Why Do Staffing Companies Have Problems?

The problem that many successful staffing companies have is that they may not have enough cash flow to handle the payroll. More and more companies these days are looking to staffing companies to provide for their manpower needs. That means staffing companies have to spend money looking for the appropriate candidates, and they also have to meet payroll requirements.

But clients who make use of staffing companies don’t pay on the dot. Usually, they pay 30 days or so after being billed. This delay is causing a lot of headaches for staffing companies. Some have even been forced to not accept new requests for manpower because they don’t the cash flow to recruit and pay for new workers.

How Factoring Helps Staffing Companies

This is where factoring comes in. In factoring, the staffing company may be able to get as much as 80% of the value of the accounts receivable immediately. That money can then be put to good use hiring workers to fill some urgent slots. There’s no need to not accept any new requests anymore.

When the company which needed the extra workers then pays the bill in full, the factoring company forwards the rest of the amount to the staffing company, minus the fees they charge.

This method is in many ways superior to asking a bank for a loan:

  • Banks don’t always grant approval for loans, while factors have much higher approval rates. That’s because factors don’t care how good the credit of the staffing company is. What’s important is the paying history of the company that used the temporary staff.
  • Banks take a very long time to grant approval, but factors may take as little as a single day to decide to grant approval.
  • Factors take over the collection duties, so staffing companies don’t have to set up an entire department for this purpose.
  • Factors don’t interfere with how a staffing company uses the advance. Banks, on the other hand, want to know how the money will be used.
  • Factoring doesn’t count as a loan. It’s a cash advance, technically speaking, because the staffing company is using its own money instead of the lender’s money.

So if you’re running a staffing company, think about getting factoring services if the demand for your workers is making it difficult for you to meet payroll on time.

 

Identifying the Best Commercial Factoring Companies

The good thing about factoring is that now you can find additional financing for your small business if your local bank is unwilling to provide you with the loan you need to operate.

But there’s catch: commercial factoring companies are so prevalent that it may be difficult to identify which one will work best for your business.

So how do you choose among all the commercial factoring companies out there? Here are some steps you can take:

  1. Ask around and read newspapers. What you want are authentic factoring companies, especially those with experience in your industry. This means you should ask around your contacts in your industry to see which factoring companies have experience in your line of work. You can also read newspaper accounts of factoring deals in your area.

By asking for recommendations and reading newspaper articles, you get a more objective review rather than simply go by the advertising copy used by these companies.

Your best bets are always the factoring companies who have extensive experience in your industry. You won’t have to explain how your industry works, and the factors already know which of your customers can be trusted to pay in full and on time. You may even benefit from the contacts and knowledge you gain from an experienced factoring company.

  1. Determine the advance rates and fees. The main advantage of factoring is that you’re more likely to get approval, and the entire application process takes only a day or so to complete. Afterwards, you get a term sheet detailing the advance rates and the types of fees involved.

Obviously, the greater the percentage you get in advance, the better it is for your cash flow. Also, you should compare the fees charged by these commercial factoring companies. There’s a world of difference between a fee of 2% and a fee of 4% of the value of the accounts receivable factored.

You’ll also need to be aware of late fees, especially when your customers have developed an unfortunate habit of paying late.

  1. Assess the ability of the factors to collect payments. In general, factors are the people who handle the collection from your customers. Factors don’t wait for you to pay them. Instead, they’re paid directly by your customers and they forward the money to you after they’ve deducted their fees.

Unfortunately, a factoring company that doesn’t know how to collect payments properly may screw up your amicable relationships with your customers. The twin goals of payment collection are to get the money and still maintain friendly relationships with customers. But a rather brusque approach to payment collection may do more harm than good.

Ask for references and make sure you bring up this topic when you talk to them. Just how aggressive are their collection methods? How do they plan to communicate with your customers? These topics must be discussed before you sign an agreement with a factor.

If you find a factoring company that’s very professional when they deal with you and your customers, then this is a resource that you should treasure for many years to come.

 

The Key Benefits of Manufacturing Asset Based Lending

Asset-based lending provides you with the money you need for your company, using assets such as your inventory and your accounts receivable as collateral. The money you receive depends on the value of these assets. Ordinarily, you can get 80% of the value of your accounts receivable and about 50% of your finished inventory.

As a manufacturer, this type of financing may be suitable for your needs. You probably need to invest in research, new manufacturing tools, and materials to make your finished products.

All these can use up your cash reserves very quickly and you end up running out of money to continue your operations. With asset-based lending, you get the money you need immediately instead of having them tied up in your inventory and accounts receivable.

There are many benefits to this type of financing:

  1. You improve your current cash flow. This is perhaps the most important benefit of asset-based lending. As a manufacturer, you know for a fact that there may be a long period of time between capital outlay and receiving payment for your goods. And within this period, you may run out of money to pay for operational expenses, including meeting payroll and paying utility bills.
  2. It offers you the chance to grow. It’s hard to take on new orders when you don’t have the cash to spend on buying the supplies you need. But with the additional infusion of cash, you now have the money needed to buy supplies to fulfill new orders from your customers. Your ability to fulfill these new orders gives you a better chance of getting even more business in the future.

On the other hand, if you start walking away from orders because you don’t have the necessary capital it may stain your reputation, and your customers may turn to your competitors instead.

  1. The additional funding enables you to negotiate for better prices when you buy supplies. You can now negotiate for better terms and discounts because you can pay for these supplies early. In addition, you can take advantage any deals that may come your way. When prices of raw materials fluctuate, you can buy larger quantities when prices are low.
  2. Asset-based lending often offers flexible payment terms. Most loans require you to pay fixed amounts every month. But these asset-based loans may allow you to pay based on market or seasonal fluctuations.

These fluctuations are common in the manufacturing industry, but you still have year-round expenses, such as plant operation expenses, technology upgrades, payroll, and marketing. These loans cover such expenses while enabling you to pay based on the revenue you receive every month. For example, the lender may ask for 20% of your gross income every month, and that means regardless of how much business you make each month you can still make payment each time.

As a manufacturer, you’ll need a lot of cash reserves to run your business and boost its growth. If you can’t get a traditional bank loan, asset-based lending can offer you what your company needs.

 

Aspects of AR Factoring Term Sheets You Need To Check

One of the great things about account receivable factoring is that you may be offered a term sheet (a document listing all the details involved in the financing) in as little as 24 hours. It’s a welcome departure from the slow loan application process normally used by banks.

Duration of the Financing

Even the most ardent advocate of factoring admits that this method of financing should be only temporary. It’s to be used only as needed. However, some lenders may ask for an extended period of time for factoring so that they actually get a decent return on their investment.

This is called a lock up period, and it can be devastating if you’re required to use factoring for a year or two when you only need it for a few months.

But with some companies, spot factoring which only involves a one-time deal and a single invoice may also be possible.

Advance Rates and Fees

In factoring, you get an advance as a percentage (more or less 80%) and then the rest is forwarded to you minus the factor’s fees when the customer finally pays in full. So to have a viable budget plan, you’ll need a definite idea of the advance rates and the fees. The AR factoring term sheets must explicitly state how much you’ll be getting.

The problem here is when advance rates differ depending on the credit-worthiness of your customers. If advance rates are different each time, what determines the final advance rate?

The fees may also be affected if your customers don’t pay on time. You may have to shoulder the penalties as well, so you’ll need to know the fees involved.

And you also need to know what will happen if your customer refuses to pay. Usually, you may have to return the advance money you received along with additional interest. In non-recourse factoring, the factor doesn’t hold you accountable if the customer declares bankruptcy. But it’s usually a different matter if the customer refuses to pay because of a dispute with your company.

Collection Methods

Factors are usually in charge of collecting fees from your customers. While this may be regarded as a convenient service, it may also be an area of concern. Some factors may employ collection methods which may not sit well with your customers.

Some term sheets specify the kind of letters factors send out to customers when collecting payments, and the frequency of sending out these letters are specified as well. Sometimes the factor may even incorporate your own letterhead or logo on the collection letters so that your customers are unaware that you’re using a factor as a collection agency.

Conclusion

AR factoring term sheets specify every important detail so that you avoid disagreements and confusion later on. The best term sheets try to anticipate every possible contingency so that there’s a planned response for every scenario. Having a factor as backup is often great, but to forge a lasting relationship you need to come up with AR factoring term sheets that are fair to all parties involved.

 

The Appeal of Government Purchase Order Funding

Landing a purchase order from the government is one way of growing your business. You have a customer that will surely pay you
Landing a purchase order from the government is one way of growing your business. You have a customer that will surely pay you

If you’re running your own company, you’re usually required to put up some of your assets as security when applying for a bank loan. The security gives the bank peace of mind, because the collateral acts as an alternative form of payment if you’re unable to pay back the loan.

But you may have other assets you can use to secure additional funding. If you’re having cash flow problems, you may find yourself having to walk away from a lucrative government contract simply because you don’t have the capital to pay for supplies necessary to fulfill the contract. But with purchase order funding, the purchase order itself is enough to get you the funding you need.

Here are some reasons why a government purchase order can easily be used to obtain funding:

  • Approval for purchase order funding depends on the ability of the customer to make payments. And that’s why government purchase orders are so attractive. Lenders know for a fact that the government will pay up. There is virtually no chance at all that the customer will declare bankruptcy and become unable to pay.
  • Government purchase order funding provides greater amounts of capital than purchase orders made by private companies. In purchase order funding, you get a percentage of the value of the purchase order in advance, which you use to pay suppliers so that you can fulfill the contract. The more reputable and secure the customer is, the higher the percentage of the funding.

And there’s nothing as secure and reputable as the government (in the US, at least). That’s why PO funding lenders can offer as much as 85% of the value of the purchase order. When the PO is issued by a private firm or by a lesser-known public firm, the funding may only be 50% of the value of the contract.

  • PO funders with experience dealing with the government can lend you their expertise. These funding institutions can even help you land a government contract in the first place. They also know how governments define certain terms in the purchase order, so you can be sure of what’s expected from you.
  • Purchase order funding providers can also help in dealing with payment collection later on through factoring. With factoring, you get an advance on the payment instead of having to wait for days for the government to pay up. You also have your funder bear the burden of collection the payment from the government. They’re the ones who have to deal with government red tape regarding payment collections, not you.

Landing a purchase order from the government is one way of growing your business. You have a customer that will surely pay you, and there’s also the prestige of landing a government contract which you can use to attract more business in the private sector.

And if you fulfill your obligations properly, you also increase your chances of getting more government contracts in the future. You’ve already proven yourself, and the government may be more likely to direct more business your way because you’ve already demonstrated a proven ability to fulfill orders promptly and efficiently.

The Benefits of Factoring Maintenance Companies Can Enjoy

imagesJanitorial and maintenance companies are one of the mainstay services in any type of business. Find any type of company, and there’s always a need for a janitor or someone similar to clean up after the workers have left.

It’s obviously a growing industry, as the Bureau of Labor predicts that there will be a 12% increase in the employment of janitors and building cleaners from 2012 to 2022. In 2012 there were about 2.34 million janitors and cleaners (not counting maids and housekeeping cleaners). By 2022, there will be more than 2.6 million of them.

Commercial customers for cleaning services include office buildings, hospitals and other healthcare facilities, industrial plants, schools, retail stores, shopping malls, and restaurants. More companies are also outsourcing their cleaning services, so maintenance companies are likely to benefit more from this growth.

Payment Delays

With such a favorable outlook, what’s wrong with the maintenance industry? That’s simple enough to answer: their customers take 30 to 90 days to pay up. That means a maintenance company has its money tied up, so they don’t have money to use for various necessary expenses. And with maintenance companies, the expenses are plenty.

  • Maintenance companies must meet payroll requirements. This is absolute, because not being able to meet payroll can be disastrous for any type of business. There are legal consequences, and the bad PR can destroy a company’s reputation.
  • You’ll need to hire new workers on a regular basis. You’ll need to hire new workers when you get a new contract. Without the cash reserves ready, you won’t be able to go after new contracts.

What’s more, you may even fail to meet the demands of your current contracts. That’s because the turnover rate for personnel in this industry exceeds 50%. Too many workers quit, are hired by other firms (or hired directly by a client), or open their own small-scale maintenance business.

The continuous search for new workers can be very expensive. Advertisements must continuously be posted, and you need a department to interview applicants and choose among them. You may even have to provide additional training as well.

  • Cleaning supplies must be bought at regular intervals. Wash cloths, paper towels, cleaning solutions, and other similar items are consumed regularly, and they must be replaced. Cleaning appliances must also be bought, and they must be maintained properly as well.

How Factoring Helps

If you’re running a maintenance company, then the factor advances you about 80% of the value of the invoice that your clients pay after 30 days or so. You get the rest (minus the factor’s fees) once your client finally pays you in full.

Because you get your money immediately, you can then spend it on whatever expenses you deem vital for your maintenance company.

Another advantage of factoring is the speed in which you can set up the agreement with a factor. Unlike bank loans which take so much time to process, getting approval for factoring can take only a day or so. And what’s more, the approval rate for factoring is much higher than the approval rate for traditional bank loans.