NeeBo Capital Blogs – Page 23 – The Best Info For Factoring…

How Maintenance Factoring Solves Your Money Problems

In just about every industry, businesses including maintenance companies always aim for growth in order to increase profitability. However, growth opportunities often require a rather large amount of ready cash, and that’s where maintenance factoring comes in.

Case in point: one maintenance company was awarded a contract to provide maintenance services for Wal-Mart. This was truly a big boost for their business, but not without some hitches. With maintenance factoring, these problems were all ironed out and the company’s operations proceeded smoothly.

The Scope of the Maintenance Services

The contract called on the maintenance company to provide a wide variety of services.

They were required to sweep the parking lot every day.
They had to provide porter service.
They were tasked to check on the paint on the walls, and to touch up the paint when they begin to peel or crack.
They were required to provide janitorial services inside the establishment, which included vacuuming, dusting, and cleaning the windows.
They were also asked to provide pressure cleaning services.

All these services required a lot of money to materialize. The company needed to pay for all the people they had working, plus they had to make sure that they had the tools in working order and they had ample cleaning supplies.

But of course, their problem was that they didn’t have enough money, because it was tied up in various accounts receivable. Other clients were paying 30 days or even 90 days after getting the services but with the cash advance the company got for these accounts receivable, they didn’t have to wait at all.

Late Payments by Major Retailers

While the scope of the contract with Wal-Mart meant big bucks, the payment arrangement is a bit tough. Wal-Mart, after all, does have a reputation for tight-fistedness. Major retailers usually take a much longer time to pay, and the maintenance company had to wait a few months to get the payment. But since Wal-Mart wasn’t their only client, that meant they would have had trouble coming up with the working capital to fulfill other jobs.

But with factoring, this problem was solved. Factors which specialize in the maintenance industry can expect such lateness and deals with it accordingly. They’re not like other factors who couldn’t take invoices that specify payments that late. Since Wal-Mart is a secure company, they know that the money would come, eventually.

So using the invoice from the Wal-Mart contract, the maintenance company could then serve their other clients with no difficulty.

Acquiring New Clients

Growth means getting new customers and new jobs, and the Wal-Mart deal can help with that. It’s all a matter of bragging rights. The company can always trumpet the fact that Wal-Mart deemed their services worthy of servicing the Wal-Mart establishment, and so other businesses which need maintenance services can be assured that the company is good enough.

Without maintenance factoring, accepting the Wal-Mart contract would not have been feasible, and growth would not have happened. The same advantages that this maintenance company received from factoring can also apply to your business.

Manufacture Factoring Gives Your Business More Profits

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

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

The Traditional Manufacturing Payment Process

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

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

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

The Manufacture Factoring At Work

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

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

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

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

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

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

Factoring That Advertising Company Owners Need

If you’re in the advertising business, you really have to teach yourself how to adapt to the sometimes glacial pace of the industry. Things can be really slow.

How Slow Can It Get?

Nowadays, most advertising clients can take up to 90 days to pay for services, which is in stark contrast to the time when it just took them 30 days. This, of course, can really stretch your available cash flow, to the point that you may even think about cutting costs and salaries if you manage your own advertising company.

Then you factor in the time you need to obtain a contract and to finally succeed in providing your services. All in all, it can take months from the time you start a project before you get your money which you need to cover operational expenses and salary.

You may want to get a loan from the bank, but that’s another institution which doesn’t really believe in speedy procedures when it comes to providing loans to businesses. The loan application process is notoriously interminable, and what’s worse is that it’s very likely you may not even get your loan application approved.

Factoring for Advertising Companies

There’s a difference between providing generic factoring services and factoring advertising company accounts receivable. Generic factoring companies offer the same basic services of providing quick cash for invoices, but often they require that your advertising clients should be able to pay quickly. Companies factoring advertising company invoices, on the other hand, are quite aware of the trend in the advertising industry that involves very late payments.

In other words, a standard factoring company will be dismayed at a customer’s tardiness at paying their bills. A factoring company with experience in the advertising industry will regard such late payments as “business as usual.”

The Speed of Factoring

Companies that specialize in factoring advertising company accounts receivable may be used to how slow the payments can be from your clients, but these factors can act very quickly. That’s the advantage of working with factors. They really don’t dawdle all that much.

For example:

You can call them up and you can immediate talk to a specialist who can answer all your questions. There’s no delay about finding the answers for you, because you’re already talking to an expert.
You can then fill out the information required for online applications. This can be done very easily, because usually it’s only a single page you have to fill in. You can then send it back along with a sample invoice and an A/R aging report.
That same day you can get an email from them with their proposal. The email will mention how much you can get on your invoices and the fees involved.
You then send over your first set of invoices, and in a few days (or even in 24 hours) your money will be deposited to your bank account.

That’s the factoring process, in its simplest sense.

How Debt Factoring Case Studies Illustrate Factoring Advantages

Ever since banks started to really tighten up their loaning procedures back in 2008, factoring services (also called debt factoring, invoice factoring and invoice discounting) have become increasingly popular especially for small businesses. The advantages they offer are quite remarkable, and you don’t even have to rely on their advertisements or just take their word for it. You can just take a good look at some debt factoring case studies to see how such services can help your business.

Here are some notable debt factoring case studies that can shed some light on these services:

The Almost Insolvent Painting and Rust-proofing Company

This company provided painting and rust-proofing services for big oil rigs. But they were losing money, and there was a time that they almost reached insolvency.

The company decided to try factoring, and because of that they were no longer required to chase down accounts receivable to get their money. That responsibility was passed on to their factoring provider. In three years, the company’s sales grew from $1.5 million to $10 million.

As this case illustrates, factoring can help you get the money you need to avoid insolvency, and at the same time it removes the burden of collecting from customers. Factoring here means giving you the breathing room you need to help you grow your business.

The Cash-Strapped Temporary Staffing Agency

This company was established way back in 1988, but in recent times it had problems running daily operations and meeting the weekly payroll. Their real problem was that their financing company wasn’t providing enough cash for their account receivable.

They then switched to another factor which offered better advance rates and a more generous financing option. The company was then able to get back the cash flow reserve they needed.

The lessons in these case studies are simple. The first lesson is that even established companies can have trouble maintaining adequate cash flow. And second, just because factoring is your last option doesn’t mean you’re stuck with inadequate cash advances. You can still switch to another factoring company which can meet your requirements.

The Electronics Distributor that Secured a Line of Credit with Accounts Receivable

This electronics distributor needed $20 million in profits each year to run smoothly, but at one point they realized their profits would not meet that mark. One of their products didn’t sell as well as they had hoped, and their customers usually paid about four months later. They had an unsecured line of credit, but the loss of profits meant that this would be reduced or even taken away from them.

So what they did was to offer their accounts receivable and inventory as the basis for a credit line. The credit limit was capped at 85% of the accounts receivables and 60% of the inventory.

As this case shows, accounts receivables can function as collateral. What’s more, they’re actually more effective as collateral than inventory.

So if you need the cash now, and your bank won’t oblige while your customers pay later, you still have an option. You can use factoring to get your money now, so you can keep your company afloat. Get the right factor to work with you, and you’ll see for yourself how well factoring can help small businesses.

The PO Finance Apparel Distributors Need: How It Works

If you have a small business, then you need a plan for growth. That’s the way it works, even in the apparel industry. You try to secure new contacts and perhaps move into new markets. You try to provide more products and add new ones. And of course, you need to make sure that you have the capital to fund your business expansion.

This is where some apparel distributors can have a problem. For example, let’s say you’ve been doing a good business supplying garments to retailers in your area. Now that you’ve established your expertise, one customer now asks for you to supply a volume you’ve never done before. You know you’ve got the chops to arrange the deal to the customer’s satisfaction, but your problem is that you may not have the capital to fund this business opportunity.

Of course, you’ll try to get some money from your bank. After all, that’s where your company’s bank account is. But banks, for all their improvements lately, aren’t really all that enthusiastic about lending to small businesses.

You’ll need to make sure that your business is in order, and that your credit rating is absolutely tops. That goes for your personal credit rating too. And then they drag their feet before you even get your money—if you get your money. That’s a very big if.

So if you get a big order, what you need to do is to use that particular purchase order to get the money you need. With PO finance apparel distributors should know how it works. This is the process:

You get the huge purchase order. Instead of saying no to your customer, you say yes. This is the growth you’ve been waiting for, and it’s an opportunity not to be missed, especially if it offers a very nice profit margin.
You approach the PO financer. Some lenders actually specialize in PO finance apparel deals. You tell them about the order and they ask for some pertinent details about the deal.
They check out the opportunity. They’ll first see if the purchase order is real, because there are some scammers about who fake purchase orders to get some money. Then they check out your customer’s ability and willingness to pay the order, as well as your supplier’s ability to supply what’s been asked for. There are some other factors, but these are crucial.
You get the money you need. Actually, the money doesn’t really go to you at all, but directly to your supplier. Often this takes only a couple of weeks after you first contact the lender. It’s a stark contrast to how banks operate, since banks consider two weeks as part of the initial stages of the loan application.
The supplier makes and delivers the goods. The lender oversees this stage too, to see that everything’s going according to plan.
Your customer receives the goods. When they do, they pay the lender.
You get your profit. The lender then takes out the amount they invested plus a small fee for their services, and then you pocket the profit.

That’s how the PO finance apparel deal works. It’s really that simple and that easy.

Factoring Business Studies Lets You See the Bigger Picture

Click here for our factoring case study.

It’s not always easy to get a clear picture of how factoring can affect your business. Sure, factoring companies will tout their advantages, but some businesses would rather stick to bank loans. Some even make use of credit cards to spur the growth of their business, despite the astronomical interest rate.

But there are some factoring business studies which shed light on the subject so that you can get a better understanding of its purpose. For example, there’s a book of actual factoring business studies, and it shows success stories as well as failures. You can also read up on various articles detailing actual companies which underwent the procedure.

How Does Factoring Work for You?

You can probably read up on many articles about what factoring is. After all, it’s a simple process. Instead of waiting 90 days for that $100,000 payment, you can get your $80,000 now. Then the factoring company gives you the rest of your money (minus the factor’s fees) when your customer pays in full.

But with actual case studies, you can get to see how it works precisely. For example, you can ask a factor for references in your industry before you take advantage of the factor’s services. Then you will know exactly how the process works, how much you get in advance and how quickly, and how much you pay for the privilege.

This is crucial information. While your situation may not be exactly the same as the other business, you two have something in common so at least the process and the experience will be very similar.

Is It Right for You?

This, of course, is the crux of the matter. With actual case studies, you can know precisely what kind of circumstances led a particular company to seek factoring services. For example, a business may have some trouble getting a loan from a bank. It may have cash flow problems, or it may have had a business opportunity that needed an extra infusion of cash quickly.

With this info, you can then see how such a solution that worked for others can also signify that factoring can also work for you.

When Is It Not Right?

With a case study, you can also find out if it’s not the right solution for your business. Even factoring companies admit that factoring isn’t for everyone. For example, if you have a very small profit margin then you’re just giving your profit to the factor.

OR it may also mean that a particular factoring company isn’t right for you. Perhaps their advance is too small, or their fees are too high. Maybe they want to lock you in a long term contract when you only need a short term solution, or perhaps they want complete control on which companies you should do business with. That’s why you need to look at several factoring companies to see what terms they offer. The best offer may just be good enough for your needs.

Choosing a Factoring Company for Vehicle Repair

Quite a few small businesses that offer vehicle repair started out with regular car owners as customers. These people tend to pay cash or with a credit card immediately after the service has been rendered. Since you are able to get your money fairly quickly, you have enough cash for all your operational expenses.

But the problem starts when you start catering to large companies. Sure, it’s a good deal. You have a greater volume of business in your hands, and that means greater profits, right? Then you realize that these companies don’t pay immediately. Either they will expect you to wait for a month (or even 3 months for some companies), or they have their insurance companies pay you. And one thing you can expect from insurance companies is that while they’re very eager to accept premiums, paying out is a different matter altogether.

If you just started out as a vehicle repair company, then you must anticipate these things. However, it doesn’t mean you should just pass up the opportunity or get a loan for your cash flow needs. Your third option is to make use of the services of a factoring company that deals specifically with companies offering vehicle repair. By doing so you may actually improve your cash flow situation.

How Factoring Works for You

Let’s say you have a large invoice worth $50,000 due to you in 60 days. You then just submit the invoice to the factoring company. They then investigate the company who owes you the money and evaluate the likelihood that they will pay up. If they think that you have a solid company for a client, then the factor advances you a large chunk of the money owed to you. For example, they may give you $40,000 in a couple of days. Then the factoring company for vehicle repair deals with the company or the insurance company for the payments.

When the company or the insurance company finally coughs up the payment, you then get the remaining amount, although the factoring company will take a small cut to cover fees and charges.

What Can You Do with the Cash Advance You Received?

Of course, you should prioritize paying your workers and utilities, but with this kind of an advance you have a lot more possibilities. You can add to your inventory or provide new types of services for your customers. You can engage in more effective forms of marketing so that you can gain new customers. When another large order comes in, you can then be able to fulfill the requirements without having to take out a loan.

It’s so simple a process that many people in the business are using factoring companies extensively. If you can limit their services to just the bigger invoices, then you can limit your fees and maximize your profits handsomely.

How Janitorial Factoring Services Can Help Your Business

. If you need more working capital, contact Neebo Capital

If you are running your own janitorial services, you don’t need anyone to tell you why you need some sort of available cash on a regular basis. You already know that. But what you may not know is that a bank is not your only option when it comes to getting the cash you need. In fact, a bank loan may not be your best option at all.

Why a Bank Loan May Not Suffice

There are several reasons why banks are not exactly reliable lenders these days. That’s because the economic recession has spooked them, to such a degree that many banks are somewhat “risk-averse” when it comes to loans. While they have improved their tight-fistedness lately, you better have one heck of collateral to put up if you want a loan, and you better have a damn good credit rating.

Then there’s the fact that bank loan applications take a long time to process. You know that you need the money now, but they don’t know that or they don’t care. They will proceed in their own good time.

Why Factoring?

If you want a convenient solution to your problem, then factoring may be your best option. The application is extremely simple and quick, and you know right way if your application has been approved. What’s more, you have a much better chance of getting approved.

So how does factoring work? The concept is very easy. You have accounts receivables, but you will receive the payment due to you in 30 to 90 days. Depending on the circumstances and the company, you get about 80% of the money due to you much more quickly. You may even get your money in a week or even in a few days. Then you get the balance when the invoice is fully paid, and the factor gives you the rest minus their fees.

A Look at Janitorial Factoring Services

But the above is simply a generic description of how factoring works. What you really need is a factoring service that’s geared specifically for janitorial companies. Janitorial factoring services offer several advantages over those generic factoring services. That’s because the factors have already worked with businesses in the janitorial industry, and they know what to expect.

The advantages here include:

Relevant references. You’re not the first company in the janitorial industry to make use of their services. That means they can give you references which are in the janitorial industry, which can give you a much clearer idea if the factor can really help your business.
The process is geared to match standard janitorial industry practices. You don’t have to explain to these factors why some things are done in a particular way in the janitorial industry. The factor already knows this which makes the entire process much more efficient. The two of you are on the same page already.
They can do investigative work for you. These factors are already familiar with some of the companies that require janitorial services. That means when you have a new client, your factor can tell you if they are a good company that actually pays their bills or not.

If you own or manage a janitorial company and you want ready and steady cash, then you need to go to a factor which specializes in helping companies like yours. The janitorial industry is always changing, and you need help to weather the storms that come your way. It’s as simple as that.

Factors that Affect Apparel PO Finance Approval

You have a huge order from a customer and this could very well help pay your operational costs for an entire year. But the problem is, you don’t have the money to pay your supplier. Where will you get the money?

While you can turn to your bank, the loan approval you need is very iffy at best, and it takes too long. This is where the apparel PO finance opportunity comes in. You just use the purchase order from your customer to get the money you need to pay the supplier. Your chances of getting approval for the finance is much higher compared to banks, and it will all depend on the following factors:

How profitable is this business opportunity? This is perhaps the most important thing that your lender will consider. After all, in general your lender will take a cut from your profits, so there has to be some actual profit involved. And because you’ll be sharing this profit with your lender, the profit has to be substantial.

So how much profit will you need? That depends on your lender, but some may require you to profit at least 30% from your investment. This means that if you invest $100,000 for the deal, you’re going to get back $130,000 from the customer. Others may require only a 20% profit, however.

How good are you as a manager? Say you’re a distributor, and you’re the go-between of the manufacturer who makes the goods and the retailer customer who needs the goods for their own store. Can you help make sure that everything goes smoothly? One way to prove this is if you’ve done similar jobs in the past and the results were positive.

In other words, your credit rating may not be in question (that’s rather irrelevant in apparel PO finance), but your expertise will certainly be one of the considerations your lender will take into account.

How reliable is your supplier? Everything starts with your supplier. Do they have the capability to produce what you and your customer needs? If you need a thousand dresses made in a month, then that means your supplier should be able to produce that number in that time. Retailer customers may also have some conditions set regarding the quality of the merchandise, and your supplier should be able to meet those conditions too.
How will your customer pay? In the apparel and garment industry, payment can come anywhere from 30 to 90 days. That’s of course if they come at all. The lender will check not your credit history but your customer’s credit history, to see if they have any nasty habit of not paying or paying very late. Some customers, in fact, can even take an entire year to pay for what they ordered from you.

Sometimes, your apparel PO finance company may insist that a factoring service will have to be brought in so that your lender will be paid quickly once you deliver the goods. Factoring involves getting your money now instead of getting it when the customer pays in full, and this can hurt your profits.

But all in all, if the lender refuses to pony up the money so that you can fulfill the order, then this may be a good thing for you. Now you know that the customer is unreliable, and at least you’ve been warned.

How Factoring for Wholesalers Work

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

Factoring for Wholesalers

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

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

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

Factors Can Investigate New Customers for You

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

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

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

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