NeeBo Capital Blogs – Page 30 – The Best Info For Factoring…

What are the Rates of Return for the Factoring of Accounts Receivable?

Factoring saves times, effort, and in the long run, can even save money for a company. That’s because even if the original worth of the invoices may become anywhere from 85% to 97% due to the discount applied by the factoring company, there could be greater savings realized when the cash from the factoring is used to keep operations running

Is the factoring of invoices an investment of some kind? What are the rates of return for the factoring of accounts receivable?

“Rates of return” typically mean the loss or gain made in an investment over time, which is stated as the percentage of the increase (or lack of it), compared to the original amount of investment.

In invoice factoring, a.k.a. the factoring of accounts receivable, there is no real investment made on the part of their company that owns the invoices. If there is an investment made, or more accurately, if any kind of investment is being made during the transaction, it is on the part of the factoring company.

Sounds Greek? Let’s take a look at the smaller details further, to arrive at the bigger picture.

What Factoring Entails

At its most basic, there are three elements necessary for factoring to take place. First, a company with invoices or still uncollected payments for goods and services that have already been purchased. Second, a Factor or factoring company. Third, an agreement between both, that the invoices will be sold by the first company, and that the second company will buy those invoices, at a discount.

That discount can be said to be the “commission” or earnings of the factoring company out of the transaction. So, in a sense, that can be considered as the rates of return for the factoring of accounts receivable, but only on the part of the factoring company.

But what about the company that owns the invoices. What do they get out of the transaction?

Benefits of Factoring

When a company is strapped for cash, many processes and systems needed to run the business get adversely affected. From administration and operations, to advertising, marketing and sales, the lack of readily available cash makes a strong impact that could hinder business efficiency and productivity. Without a source of funds coming in, cash flow will become stagnant or blocked.

That’s where the beauty and usefulness of factoring comes in. Instead of having to wait for invoices to be collected (which can take months or even years, depending on the economic climate and the financial state of the customers to whom the invoices were made), a company can easily and readily have access to their required cash through a factoring agreement.

Factoring saves times, effort, and in the long run, can even save money for a company. That’s because even if the original worth of the invoices may become anywhere from 85% to 97% due to the discount applied by the factoring company, there could be greater savings realized when the cash from the factoring is used to keep operations running. In essence, then, that could be the rates of return for the factoring of accounts receivable, on the part of the company who sold the invoices.

If you’d like more information on how to get the most out of a factoring agreement, get in touch with Neebo Capital. Since the discounts are dependent on which factoring company you are dealing with, it’s best to deal with professionals such as those from Neebo Capital.

What are the Rates of Return for the Factoring of Accounts Receivable?

Is the factoring of invoices an investment of some kind? What are the rates of return for the factoring of accounts receivable?

Sounds Greek? Let’s take a look at the smaller details further, to arrive at the bigger picture.

What Factoring Entails

But what about the company that owns the invoices. What do they get out of the transaction?

Benefits of Factoring

Is Business Location Considered When Factoring Loans?

Do you need to consider the geographical location of your company when thinking of whether or not you should apply for factoring loans? While it would be foolish to provide a definitive answer, as there are other variables which may need to be considered, you can make up your mind with the least amount of difficulty by carefully evaluating some statistics that have to do with accounts receivables.

For instance, while it is true that the whole country reeled (and is still reeling in many places) as a result of the economic crisis that overtook the nation a few years ago, not all states have been affected in the same manner or degree.

Cortera, a company that provides credit information on businesses and corporations, released mid last year a list of states with the worst standings, as far as past due accounts receivables are concerned. Here’s the rundown, from highest to lowest:

Is Business Location Considered When Factoring Loans?

Florida: 24.59%
Minnesota: 23.02%
Illinois: 22.97%
Georgia: 21.91%
Hawaii: 21.79%
Missouri: 21.41%
New York: 21.28
Connecticut: 20.76%
Vermont: 20.21%

One of the things that may be inferred from such numbers is that the states mentioned are among those which have heavily experienced the effects of recession. In turn, that makes paying for goods and services difficult.

Should You Consider Factoring Loan?

If you live and primarily do business in a state that’s included in the list above, in the matter of accounts receivables, you would do yourself a great favor by exploring your options in terms of factoring loans.

However this is not to say that those who do business in other states should already relax their guard. On the contrary, even if geographical location may be considered heavily when deciding on whether you should avail of factoring or not, it should not be the only consideration.

Essentially, the most important consideration that you need to take into account is the condition of your business finances. If you often find yourself with a stagnant or blocked cash flow, and its effects are readily felt or seen on your business efficiency or productivity, then it’s highly possible that you need factoring, regardless of where your business is located.

That’s because compared to other “remedies” to deficient cash flow that you may choose from – such as getting a bank loan, or deferring action on business purchases, upgrades, or improvements – getting accounts receivable factoring (a.k.a. invoice factoring) could be the most practical solution.

It’s Not a Loan

For one thing, factoring loans are not really loans per se in the sense that they don’t come with crippling interest rates. It’s more proper to think of factoring as cash advances. Neebo Capital is a factoring company that can best explain the huge differences between a bank loan and factoring. If you’re thinking hard about whether or not to avail of factoring, especially during rapidly changing economic cycles, turn to experts like Neebo Capital, to find out what your options are.

Medical Factoring for Health Clinics: Turn Your Invoices to Ready Cash for a Healthier Bottom-line

Click the image for our medical factoring program. Clients that exceed $500,000 in accounts receivable may qualify for our asset based receivable financing program — Click the image for our medical factoring program.
Clients that exceed $500,000 in accounts receivable may qualify for our asset based receivable financing program

Health clinics provide an invaluable service to the public, and as such, should never find themselves in the position of having to worry about the health of their bottom-line. However, while that may be ideal, the reality is vastly different. That’s why medical factoring for health clinics could be a highly workable solution to the problem of an ailing bottom-line.

Bureaucracy, Late Payments, and Others

There are times when health clinics, along with other health care providers, find themselves having to contend with issues such as a tangled bureaucracy both from sources that are internal and external to the health clinics (such as insurance agencies and HMOs) and credit worthy customers who are slow or delayed in making payments.

Even if it is true that the health care industry has been proven time and again to be among the industries and sectors that are resilient to the effects of an economic recession, it cannot be denied that there are other matters which can impact the financial condition of a health clinic, such as:

Continued changes and improvements in medical technology. Health clinics that are unable to keep up with such changes because of blocked cash flow can end up losing more opportunities in the long run.

Public policy shifts. It’s not just the economy that affects the customers’ way of thinking. Whatever policies and legislation are actualized by the government can also affect the thoughts and behavior of a health clinic’s customers, specifically in the area of choosing which clinic to patronize.

Private policy shifts. Even if the health care industry may stand strong against national economic upheavals, supporting players such as insurance companies are not, and could be forced to come up with policy changes that greatly affect the financial health of clinics.

Market conditions. People will always seek ways to alleviate their medical issues and concerns. However, the question is whether they will still be able to afford their treatments.

Medical Factoring

Given all of the challenges that a health clinic may face in the course of doing business, it makes good sense to have a solution within arm’s reach in case something bad does happen and causes cash flow to become stagnant or blocked.

Medical factoring for health clinics is an excellent solution. A typical factoring process could happen this way:

The health clinic bills HMOs, private insurance companies (for both health and personal injury claims), worker’s compensation insurance, or Medicaid/Medicare for services or goods rendered in the practice of health care provisioning.

The health clinic sends copies of the bills/invoices to the Factor or the factoring company.

The Factor buys the invoices, agreeing with the health clinic on the discounted amount. For example, if the amount involved, or the face value, was $100,000 then the health clinic could receive anywhere from $80,000 to $97,000 depending on the terms and conditions of the factoring company.

The amount is given to the health clinic or deposited to their account, usually within 24 to 48 hours. Some Factors may release the cash immediately.

As mentioned, different factoring companies have different policies and have different terms and conditions, with regards to medical factoring for health clinics. If you manage or own a health clinic and want to know more, you can get in touch with Neebo Capital.

What is Factoring of Receivables and How Can You Benefit From It?

If your business is cash-strapped and you’ve heard that factoring could be a great way to get out of a financial rut, then chances are, you’ve thought about factoring of receivables. Factoring is not rocket science. It’s actually a simple, cut-and-dried arrangement between you and a third party known as the Factor or factoring company.

Whatever business you engage in, whatever industry you belong to, you’ll always need a steady flow of cash to offset any changing cash needs that occur in the course of doing business.

For example, some of your equipment or tools may suddenly need to be repaired or upgraded. You may need to hire additional temporary staff whom you need to pay per day of service rendered. You may be offered bargain prices on materials that are important to your operations, but the catch is, you need to pay in cash for all your purchases.

All of those activities require spending, which wouldn’t pose a problem if your business had a continuous stream of cash payments. However, most likely what you have are accounts receivable or payments that are yet to be collected. Unfortunately, the waiting period can tie up your finances.

You have options to manage the situation:

You can defer making any purchase, no matter how necessary, until you have enough funds. The downside of this is you could jeopardize the efficiency and quality of your operations.

You can take out a loan and have to contend with interest rates, as well as expose yourself to the risk of being unable to meet your obligations on time because your account receivables don’t clear up as scheduled.

You can apply for factoring.

Factoring and Your Business

To understand what is factoring of receivables all about, review these steps:

Present yourself to the Factor as a business that needs immediate access to cash and has a number of accounts receivables.

Offer to sell your invoices to the Factor. Invoices are proof that products or services have been delivered to creditworthy customers, but no payments have been made yet, and as such, need to be collected.

The Factor calculates the aggregate amount of the invoices. From the total, the Factor buys the invoices at a discounted price. The payment is given to you immediately, in cash.

The Factor then takes care of collecting from the customers, and administers the sales ledgers.

When you consider that 26% of invoices that are 3 months old, 70% of invoices that are 6 months old, and 90% of invoices that are 12 months old become uncollectable, then it makes sense to inquire about your options with a factoring company such as Neebo Capital as soon as possible.

Neebo Capital will be able to inform you more about the details relevant to what is factoring of receivables, such as how much you can get for your invoices, in order to maintain the solidity of your business operations and the stability of your cash flow.

The Many Different Uses of ABL Loans

In the life of any business, there will be moments wherein cash flow is restrictive and you would need to borrow money to stay afloat. For the business to be set up in the first place, it is highly likely that some amount of money had to be borrowed. After all, it takes time for your investment to grow and for your capital to reap the rewards.

There will be many instances wherein you will need additional sources of funding, and this is where ABL loans come in. Asset based lending looks into your current assets and gives you additional cash flow based on the value of these assets.

Lenders could look at any of the available assets in your balance sheet, but typically, the loans available are the ones tied to your accounts receivable, equipment, real estate, and inventory. ABL lending gives companies flexibility and versatility, providing immediate cash flow as soon as the need arises.

But who usually needs asset-based lending? To understand this, we need to take a closer look at the many uses of ABL loans:

Additional Working Capital

Working capital is the most common reason why companies need to take advantage of asset based lending. Particularly for those companies with very high receivables, an ABL loan will free up a lot of cash flow to be used for other more important aspects of the business.

The problem with having too much money tied up in receivables is that you barely have enough left for the day-to-day operations of your company. How much more for expenses that are important in establishing your company’s future?

Growth

When a company wants to grow and expand its operations, ABL lending will come in handy. This is because you’ll need additional money for capital expenditures, which may include additional equipment or machinery, an upgrade in physical assets, acquiring additional store space, and others. All of these expenses will require that you also have additional cash flow, and this is where your ABL loan can truly help out.

Mergers & Acquisitions

Sometimes, the most logical thing to do to move up is to acquire another business or entity. But mergers & acquisitions, as sassy as they sound, require a lot of additional capital. You can’t buy another business if your money is tied up elsewhere, and this is why ABL loans can be the perfect solution.

Turnarounds

When a business is not doing too well, you’ll need turnaround financing to revamp operations and give your business the boost that it badly needs. The reason why asset-based lending is most ideal for this type of scenario is that an ABL loan typically offers more flexibility compared to the usual loan options offered by banks.

Stabilizing Seasonal Sales

For some industries, sales can become very seasonal. This means that there will be instances in the year wherein sales are very low, and you will have to wait months before the figures pick up again. ABL loans are there to help stabilize the seasonality of your products and services so you can still have sufficient funding to survive until your sales figures go up.

If you need an ABL loan, we’d be happy to help you. Please check out our website: www.neebocapital.com for more information about our services.

Different Types of ABL Loans You Can Apply For

Asset Based A/R + Inventory revolving line of credit ($1 million-$25 million+)

Most lenders tend to shy away from aggressive advance rates on inventory in today’s conservative lending environment, but not all of them. Most banks and asset based lenders usually top out at a 40%-50% inventory advance.

Asset-based lending or ABL is one of the options companies can run to when cash flow becomes a bit of a challenge. There are many loans you can apply for, but these usually require collateral that the lender can take if the borrower ends up not being able to pay. Also, depending on the amount you need, most loans require that the borrower is backed up by stellar credit.

The advantage of ABL loans is that you can borrow money based on the existing assets that you have. ABL loan providers will review your asset portfolio and offer you a percentage of whatever these assets are worth.

Because most companies have varied asset portfolios, there are also various ABL lending options that you can apply for:

Inventory Financing

Inventory is one of the main assets of any company, especially if you operate in certain types of industries. Depending on how much finished goods inventory you have, an ABL loan can give you up to 70% of the inventory cost. With inventory financing, you can apply for a credit line that’s worth as much as $4,000,000. This means that your inventory is not only good for selling, it can become the basis of your ABL loan approval as well.

Accounts Receivable Financing

The total amount of your Accounts Receivable is another asset that can give you access to ABL loans. These Accounts Receivables typically consist of the money that you are expecting from various customers from goods and services that you have already given them.

You can apply for a loan that’s usually worth 80% – 90% of your receivables, and in most cases, the lender is given control over collecting the receivables. This will depend on the agreement between lender and borrower. This type of ABL loan transfers the risk of the receivables to the lender and also frees up your working capital so you can use it elsewhere.

Equipment Financing

If you operate a company that needs various types of equipment, furniture, and software to run, the good news is that you can make use of these assets to apply for an ABL loan. It’s like hitting two birds with one stone, because you will certainly use this equipment for your operations anyway.

With ABL loans, your company can become more liquid without having to prepare too many reports for the lender. If you need cash and you need it now, asset based lending can really help you out because it uses your assets as collateral. Compared to other types of financing, asset-based lending typically has fewer covenants to adhere to, so borrowers have more flexibility with this compared to other options.

We offer high advance rate on A/R (85%-90%) with an aggressive advance rate on inventory (65%) the results maximize our client’s growth capital.

Purchase Order Finance: The Solution for Startups

Purchase Order Financing ($500,000-$5 million) Whether you have a large order to be produced in the U.S. or overseas, as long as the goods are pre-sold and the purchase order is non-cancellable, Neebo Capital can finance up to 100% of your cost. — Purchase Order Financing **($500,000-$5 million)**
Whether you have a large order to be produced in the U.S. or overseas, as long as the goods are pre-sold and the purchase order is non-cancellable, Neebo Capital can finance up to 100% of your cost.

If a business is just starting out, there are many limitations and challenges to be faced. For instance, you may have gathered enough capital to set up your business, but sustaining it is another story altogether. A startup business usually has very limited working capital, because the revenues haven’t come in yet and there’s really not much to work with. This means that whatever capital is left will have to be budgeted properly to fund things that will make the business grow. It leave little room for operational expenses, especially if these expenses are unforeseen.

Purchase order finance services are the perfect solution for startups, because it gives them the ability to stretch their working capital without having to prove their creditworthiness or get into even more debt.

The fact is that startups usually have a hard time with traditional financing methods, and this is a challenge especially if you’re still trying to establish your business. The good news is that purchase order financing is here to save the day. Here are some of the most important reasons why startups will truly benefit from a purchase order financing arrangement:

Startups usually have no track record to speak of YET.

Before banks grant loans, they will look at your credit history and track record. For startups, this is a challenge because they have barely anything to show. Purchase order financing solves this problem because it focuses on the creditworthiness of the customer placing the order, not the supplier or the startup that needs additional capital.

The purchase order finance will therefore be granted based on your customer’s ability to pay. Customers who place large orders are usually government agencies and other credible commercial entities, so their credit worthiness should not be a problem.

Startups will have a hard time showing collateral.

Collateral is another requirement before loans get approved, and this is why startups will find applying for loans difficult. With purchase order financing, you don’t have to show collateral because again, it’s not your credit worthiness but your customer’s that matters.

Startups have more important expenses to prioritize.

When a business is just starting out, you have to focus your cash flow on important things like R&D and marketing. After all, you have to make sure your products can really meet the needs of your prospective customers, and you have to constantly innovate to stay in the game. Marketing is another expense you need to prioritize. After all, you need to create hype for your business and find customers that will patronize it. Both of these require money. Lots of it.

So when a customer places a big purchase order, you can’t risk not being able to deliver on that order simply because you don’t have enough cash flow. This is why it’s important to get purchase order finance.

For more information about how you can avail of purchase order finance, please check out our website: www.neebocapital.com.

Purchase Order Finance for Maximum Flexibility

Purchase Order Financing ($500,000-$5 million)

Whether you have a large order to be produced in the U.S. or overseas, as long as the goods are pre-sold and the purchase order is non-cancellable, Neebo Capital can finance up to 100% of your cost.

One of the realities that businesses normally face is the fact that cash runs out. For a business to operate properly, you need sufficient working capital that can cover all your operational expenses. But in a world of seasonal sales and unpredictable revenue, there are times when you really run out of funding. The sales will come much later, and you will need various sources of funding to support your operations in the mean time.

An example of this is when you have a larger than normal purchase order from a particular client, and you lack the cash flow to complete this order. Whether this is to buy raw materials, cover the manufacturing costs, or pay for the delivery, you will need to be very liquid. This is where purchase order finance comes in.

Who Benefits From Purchase Order Financing?

Purchase order financing enables all kinds of companies from various industries to have a bigger working capital, when needed. Those who will benefit from this type of arrangement consist mostly of product importers, exporters, resellers, distributors, wholesalers, manufacturers, jobbers, and other such companies that are required to deliver large purchase orders to clients. Sometimes, there are also seasonal changes in sales that make certain times of the year extra tight on the cash flow. For growing businesses that have little access to working capital and who need to focus this capital on other priorities like marketing or research and development, purchase order finance brings maximum flexibility.

The Advantage of Applying for Purchase Order Financing

Getting additional working capital is not all there is to purchase order financing. After all, when you need additional cash flow, there are many other options you can run to. But compared to other options like a bank line or a loan, purchase order financing gives you maximum flexibility.

Here are some of the advantages of turning to this financing method:

It’s a financial solution that increases your cash flow depending on how much you need, whether that’s $50,000 or even as high as $20,000,000.

At your convenience and when you need it the most, it removes the strain from your current working capital and frees it up for other more important priorities.

Whether your purchase order is domestic or international, you can get financing for 100% of what needs to be paid for, without having to wire money internationally or sell equity as a last resort.

You don’t have to get stressed about what collateral to offer banks, or adding more debt to your portfolio.

Your credit line will be granted based on the financial strength and credibility of the customers you are serving. This is different from loans and other financing methods wherein you constantly need to prove your credit worthiness.

Clearly, purchase order finance is a solution that’s out there for those who need their cash flow and working capital to be stretched, and it’s a solution that’s available for you when you need it.

How to Expand Your Canada Working Capital

We Offer Working Capital Lines $25,000 – $500,000 Across U.S. & Canada!

Knowing the amount of working capital that you need to run a business is very important. At any given point in the life of a business, working capital is perhaps the most important aspect that you need to really pay attention to. This is because your working capital is the source of all your operating expenses, and if you don’t have enough revolving capital, your business won’t be able to function the way you need it to. Relying on future revenues wouldn’t cut it, and this is why it’s important to really have your working capital figured out.

The reality though is that there are times when having sufficient Canada working capital becomes a challenge. Expanding your working capital sometimes becomes a necessity, and you’ll need to be clear about the options that you have in case you really need additional cash flow.

Different Financing Options

The good news is that while the requirements of traditional financing methods have become more stringent, there are now other ways to apply for financing. You don’t have to be limited to the usual loans offered by traditional financial institutions like banks, and you don’t have to worry if the credit line given to you is not enough to cover what you need.

In today’s world, there are so many other options you can run to. You can even initially apply for working capital financing through an online platform, no matter what part of the world you’re located. Here are some of the Canada working capital financing options that you can look into:

Purchase Order (P.O.) Financing
Supply Chain Financing
Contract Financing
Export Factoring
Freight Bill Factoring
Inventory Financing
Accounts Receivable Financing
Equipment Financing

These are just some of the many options available for those who want to expand their working capital. There are other options that fall under Factoring, Asset-based loans, Trade Finance, and other lending methods.

The amount you can borrow will depend on the arrangement with the lender and what your asset portfolio currently looks like.

Having the Right Working Capital

When you need to expand your working capital and you eventually choose one of these financing methods above, you just have to make sure that you know the amount of capital you need. Depending on what type of company you have and what industry you operate in, working capital needs could differ.

Also, if you operate globally, there are additional international requirements you need to think about and consider. For instance, you may have a customer overseas that just made a bulk order. To deliver that order you would need additional working capital not only for the raw materials and manufacturing but also for shipping those goods and making sure they reach your customer across geographical borders.

To operate your business efficiently, you will then need to really assess how much Canada working capital you need at any given point. If your working capital is about to run out or if you foresee that a certain season will drain it, then you’ll need to make advanced arrangements or plans for working capital financing.

Problems You’ll Encounter If You Don’t Have Sufficient Canada Working Capital

If you own or manage a small business in Canada working capital should always be monitored. Just about every business in the world has to make sure that they’ve got access to sufficient working capital all year round. This is how they stay ahead. And this is how they survive.

But let’s define working capital for a moment, so that we’re all on the same page. Working capital is when you take into account all your resources that you can easily turn into cash within a year (current assets), minus all the debts that must be paid back with the year (current liabilities). In short, working capital refers the efficiency and current health of your business. If you lack sufficient working capital, you may encounter several serious problems:

It’s more difficult to find investors for your business. Without sufficient working capital, you demonstrate that your business doesn’t have the ability to earn a positive return for investors or pay back a loan to lenders. As a small business in Canada working capital deficiency may prove too much of a risk. And without investors and creditors, you seriously hamper your business’s ability to acquire crucial resources.
You miss out on great hires. Finding the right employees to work for you can really help your business grow considerably. It’s not just that the superstar employees may not work for you because you don’t have the means to pay them a fair compensation. Sometimes you may even have to forgo hiring staff that you really need. When your employees are using too much time and effort on jobs in which they don’t have the skill (typing reports, figuring out Excel, selling products, etc.), the lack of sufficient working capital can be truly detrimental.
You can’t run day-to-day operations efficiently. You need to purchase equipment and inventory, you need to buy supplies, and you have to pay your employees. If you make do without the necessary supplies, equipment, and inventory you can affect your profit margins, and any trouble with salaries can affect employee morale and efficiency.
Emergencies can be terrible and even fatal to your business. What if some unforeseen circumstances not covered by your insurance cause you to lose your inventory? How will you replace them, if you don’t have the working capital to make the necessary replacements? This is just one possible emergency that can happen. In the business world, emergencies tend to happen on a regular basis, and the lack of working capital can end your business permanently.

In Canada working capital must always be overseen so that they remain sufficient for all the company’s needs. If they’re not, steps must be taken to correct it. Perhaps sales revenues can be boosted, or some long term assets can be converted to cash to solve cash flow problems.

If you have some difficulties with your working capital, do check out our services at www.neebocapital.com.