NeeBo Capital Blogs – Page 36 – The Best Info For Factoring…

Invoice Factoring Financial Services

When you need a quick infusion of cash, you can use your accounts receivables invoices to get up-front money from a factoring company. The factoring company can get anywhere from 3-5% of the total value of the invoices (some companies even offer less), and in return you get that money immediately instead of waiting for a month or two for them. But the invoice factoring financial services you receive doesn’t stop there, which is why you may be charged service fees by a factoring company.

There are essentially 4 types of invoice factoring financial services you may receive as part of the factoring agreement:

1. Assessing the Credit-Worthiness of Customers

In some factoring agreements, factoring companies are willing to take on the risk on a customer’s ability to pay. This type of agreement is called nonrecourse factoring. The typical form of this type of agreement means that you are not liable if a customer is unable to pay the bill because of insolvency. Another type of nonrecourse agreement absolves your company of any responsibility at all for a customer’s inability or refusal to pay the bill. The only exception here is when that refusal is due to a customer’s view that your company did not provide the goods or services they paid for. When that happens, your business is still liable for the amount.

Before the factoring company shoulders this responsibility, they will make an assessment as to which of your customers appear able to pay the bill they owe your company. Knowing which customers are worthy of credit and which ones are not can help you determine just how much credit to offer particular customers.

2. Maintaining the Accounts Receivable Ledger

It’s important that you have a record of how customers pay their bills. These records will indicate which customers pay on time, and which ones require installment plans in order for them to pay the total bill. Again, the information here can help you determine which customers are worthy of receiving preferential treatment when it comes to getting credit from your company. These records may also be important for your tax records.

3. Maintaining Regular Reports on Collections

As a business, you will want to know how the bill collection is progressing over time. A factoring company can make weekly or even daily reports on the collection process for your records.

4. Contacting Customers

Having a factoring company do the collections for you means you are spared from having to contact customers yourself. You also don’t have to hire permanent staff in order to fulfill this function.

However, since the factoring company will be dealing with your business’s customers, you may want to make sure that the people from the factoring company who interact with your customers do so in a professional and courteous manner. The best factoring companies offer great customer interaction as part of their invoice factoring financial services.

You don’t want to alienate future relations with your customers, as they will affect your bottom line eventually. For some businesses, entering into a factoring agreement may be temporary, but relationships with customers are long-lasting.

How to Choose Among Factoring Companies

Once your company has decided to use a factoring company for accounts receivable financing, you really need to choose the right one. Making the wrong decision can have disastrous consequences for your company, and this can, not only negatively affect your current profit margins, but also cause some ripples in your company’s future transactions.

Here are some tangible hallmarks you should be looking for in factoring companies:

References:

The best way to find information about a factoring company is to collect information from its previous and current clients. This should be more objective than the information provided by the people working for the factoring company.

The information you need to gather from the references should include the following:

The simplicity and ease (or lack thereof) of the application process, and the time it takes for the factoring company to approve the funding request;
The quality of support received from the factoring company;
The time period from the initial approval of the funding request to receiving the initial funding and the time required before the company received the remaining balance of the advance;
The reaction (complaints and comments) of the company’s customers regarding the factoring company;
Their willingness to use the services of the factoring company in the future.

Customer Support

For the best service, the factoring company should offer many kinds of support for their clients, such as telephone and email support, and face to face meetings. A factoring company that offers only email support may not be as supportive as those companies which offer many other avenues of communication. By offering several modes of communication, your company has a better chance of having its questions answered promptly, which can prevent or minimize the possibility of misunderstandings later on.

Factoring Company History

The length of time that a factoring company has been in the industry is also a very telling indication whether it is reputable or not. That a factoring company has stood for many years says that it has provided sound services for its clients, which is why it has very little difficulties in finding new clients. It is also vital that the factoring company should have a long history of providing their services to companies in your industry.

Although it is entirely possible that a newer factoring company can provide the same quality of service for your business, your company takes on more of a risk with a factoring company that has a much shorter history of service in the industry.

Of course, there are also intangible signs you may wish to look for, such as the personality and professionalism of the factoring company. After all, it is your company’s reputation at risk, and if you select a factoring company which deals rudely with your company’s customers then you may lose some customers.

You may even tarnish your company’s reputation and lose potential customers when word of the factoring company’s rudeness spreads, which is why it is crucial that you choose wisely among the many factoring companies offering their services.

What are Receivable Factoring Companies?

Receivable factoring companies offer money in cash for your account receivables invoices, which they collect for you and from which they get a certain percentage as fee. Choosing among them to solve your cash flow situation will depend upon a number of factors and these are discussed below.

How Much Do They Charge For Their Services?

Receivable factoring companies have their own ways of charging for their services. There are generally two ways in which they earn their money:

The first is the percentage of the total amount of the receivables’ total face value. For example, when if the total amount of the accounts receivables is $100,000 then you may get up to $90,000 right away instead of waiting for a few weeks or months to get it all. Some companies may offer a larger percentage for your share than their competitors.
Each transaction often comes with its service fee, which may range from 0.5% to 3% of the bill. This is why it is preferable to turn over only your largest accounts instead of a lot of smaller ones. If you have a single account which owes your company $100,000 then the service fee may be nearer to 0.5%. But if that total is comprised of many little accounts, then the service fee for each may be nearer to 3% because they increase the workload of the factoring company.

How Do They Treat You As A Customer?

Once you have entered into an agreement with a receivable factoring company, at some point you will have questions for them to answer while they process the billing. The way they deal with you is important, and the best receivable factoring companies make sure that you have plenty of ways to communicate with them. They also make sure that they reply to your queries promptly and with all the necessary information you require.

So if a factoring company merely gives an email address as a way to contact them, don’t be surprised if they are tardy when they respond to your questions. This lack of communication increases the chance of misunderstanding between the two parties later on.

How Do They Interact With Your Customers?

Since a factoring company will be the one to handle the collections of the bills that are due to your company, the manner in which the factoring company interacts with your customers can affect your business as well. In a way, they represent you in the eyes of your customers. And if they are overbearing and discourteous when they go about collecting the money from them, the factoring company won’t be alone in getting the blame. In fact, the customers may place most or all of the blame on your business. After all, you chose them to collect the bills for you.

So get some feedback as to how receivable factoring companies do their collecting, and how professional they are when dealing with customers. It may be better for the future of your company to pay just a little more in terms of interest and service fees to ensure that you and your customers are treated properly.

Invoice Factoring And Why Your Business Requires It

Whatever business you may be a part of or running, having a good cash flow is always imperative. Anyone who is running a B2B operation will know that late payment of invoicing is a persistent and ever present problem and can build stress within the company, even when it is doing really well.

Invoice factoring is a form of accounts receivable financing which will help you get paid on time every time and will enable you to perform daily operations and payments normally. While invoice factoring as a does have its pros and cons, the cons for the most part apply only if the process is used on a business model which does not need this type of financing.

What is Invoice Factoring?

Invoice factoring is a type of financial transaction where you, as a business owner will sell your accounts receivable to a third party, called a factor at 80% to 95% of their face value. The third party then goes around collecting payments for the invoices and forwards any balances that may be left less charges to you.

Here is a step by step illustration of how the process works:

Step 1: You contact a factoring company and sell your overdue invoices to them at a pre-determined rate which is typically 80% to 95% of the invoice’s value.

Step 2: The factoring company will provide you said value, usually within 24 hours thereby freeing up capital for your company.

Step 3: The factoring company then collects the payment due on those invoices it just got from you.

Step 4: Your customers pay the factoring company instead of you and any residual balance which is left is immediately remitted to you.

This type of accounts receivable financing will help you free up locked capital quicker and also take care of a huge headache by allowing you to pursue your business goals rather than running after customers for payment.

What Types of Businesses is Invoice Factoring Good For?

Invoice factoring is typically applicable when businesses are extending their customers a line of credit, or if they are a B2B operation selling to other companies. Also businesses which need cash now, rather than cash later can use invoice factoring to get the money they need in order to run their operations normally. By using Invoice factoring you will be able to plan out your cash flow better, pay bills and take care of payroll. Finally when you use invoice factoring, the factor will then take care of your sales ledger and do the running after for you.

Invoice factoring is a brilliant solution to traditional bank loans whereby you can free up working capital and raise cash for your business immediately. With this type of accounts receivable financing, your cash is in the bank, the funding is immediate and is primarily driven by your costumer’s demand for your products. Finally, another advantage of invoice factoring is that the service fee is only charged against advances that are not fulfilled by your customers. So every time a customer pays, the debt is automatically repaid.

Advantages of Invoice Factoring

New startup companies quickly realize that purchasers often do not pay invoices on time which in turn creates cash flow issues for the company. Late payment from buyers means the company will now default on its own payment of bills, pay rolls and to its suppliers. While many like to opt for bank loans to mitigate the effects of late payments by customers, you should know that you have a far easier solution available.

Simply Sell Your Invoices!

That’s right, “factoring companies” are businesses which are built around the idea of helping other businesses tackle payments due on their invoices to their customers. A factoring company will simply purchase your invoices from you at a discounted rate, typically 80% to 95% of their original value and then collect payments your customers.

Typically a factoring company after it has purchased your invoices will pay you the very next day so you will have cash readily available for you to pursue your goals of building your company. This of course has a multitude of advantages to offer.

1. No need for bank loans: Most businesses due to myopia tend to stick to bank loans for financing their companies; asset based funding such as invoice factoring can fuel your growth simply by the demand for your product/service.
2. Have Cash In Hand Immediately: Get cash quickly from your receivables; no waiting at all. Such a method can greatly aid you in building your company, hiring more staff and creating more products or improving your services.
3. Collection Assistance: Let a third party see to the issues of tackling your customers while you focus on your company’s day to day management. A factoring company can handle your accounts receivable perpetually meaning you will have less to worry about even in the long run.
4. Build A Healthy Credit: With an account receivable financing system such as invoice factoring on your side you can pay your bills in a timely fashion thereby maintaining a good credit score. This in turn will allow you to get better terms with your suppliers.
5. Pay Your Bills and Staff on Time: When you get paid on time, your staff and suppliers get paid on time. Clear out your bills, and pay out your staff when expected and maintain a good healthy working atmosphere in your office.

Invoice factoring can help you in building a better business model for your company. While before, an accounts receivable type of system such as this was considered as an end game solution where a company went when it was in dire straits, today, smart businessmen and women are opting for it in order to mitigate lost time and business opportunities. By letting a factoring company tackle your accounts receivables you are effectively freeing yourself from the need to spend time calling customers while also maintaining a healthy cash flow in to your business.

Many businesses are also opting for invoice factoring as they consider it to be a more favorable way of raising working capital as compare to bank drafts. The system is a more efficient method of managing finances and gives businessmen a lot more flexibility so consider opting for it.

Invoice Factoring Vs Bank Loans

Invoice factoring is a form of asset based financing in which a company uses the money that its customers owe as collateral for a financing agreement.

Maintaining a good health cash flow is the primary priority in any business. However doing so is more easily said than done and companies which are by all appearances doing really well financially can get into a fix. Many businesses which are looking for ways to fund their growth, pay off their bills and tackle their payrolls typically narrow down their options to financing by banks, however there is another option that they can consider – Invoice factoring.

What is Invoice Factoring?

Invoice factoring is a form of asset based financing in which a company uses the money that its customers owe as collateral for a financing agreement. When opting for Invoice factoring, the business will sell its invoices due to a factoring company at a discounted rate which will then collect the money from its customers and forward any due balances less charges back to the business. Know that the older the receivables are, the less their value becomes.

Is Invoice Factoring A Kind Of A Loan?

No, Invoice factoring is not a loan; it is a financial transaction between a business which is seeking funds and a factoring company. Since the factoring company will purchase the invoices, the business selling the invoices has immediate cash flow which it can then invest. Invoice factoring is a kind of a no-loan solution which is driven primarily by your customer’s demand for your products.

Bank loans Can Devalue Your Business

Invoice factoring is a good solution to traditional bank loans; especially in today’s economic scenario. More and more banks today have difficult to meet criteria which are no doubt affecting many people’s businesses. Even if you can get a line of credit, what options will you have when you exhaust it? If you have over due invoices, you will still have to wait in order to get paid.

You should also consider the implications should you happen to default on your bank loans, which will in turn affect your company’s credit rating and thereby make it more expensive for you to opt for other forms of financing. Invoice factoring not only eliminates such a scenario but it is also a lot more flexible.

Considering the Worst Case Scenario

As a business owner you owe it to yourself to consider the worst case scenario and be well prepared for it. Any business needs to think what if it ran short on funds?

Know that there are alternative and better means of financing available for you. Why let your unpaid invoices drain out your company’s resources when you can sell them and get paid within 24 hours. Most invoice factoring companies will purchase your invoices for at least 90% of their original value while some will give you as much as 98%.

With this much money immediately available you can take your business whichever direction you wanted to, pay bills and pay rolls on time and maintain a good, healthy relationship with your suppliers and staff. This is especially true if you run a business which needs cash now rather than later, so if you are fed up with late invoice payments go ahead and give invoice factoring a chance, it just might be what you are looking for to make your life easier.

Challenges Faced by Small Businesses and Tackling Them With Invoice Factoring

Regardless of your ground breaking ideas, any business you start will always face some core issues. Perhaps the most vital of these is cash flow management, having a healthy cash flow is pivotal for any business however delays in payment can easily set you back and create stress within the company. Invoice factoring, which is a kind of a accounts receivable financing can help you overcome your cash flow issues which you can then use to tackle other issues.

What is Invoice Factoring?

Invoice factoring is a kind of financing solution where a factoring company purchases your overdue invoices at a discounted rate which can range from 85% to 98% of its original value. It then collects the money from the company’s customers and remits any outstanding balance back to the company. By doing so the business has cash immediately available for use, which it can then use to pay its bills, pay rolls and suppliers.

Challenges Faced By A Typical Business

Here is a list of issues that a business will typically face.

1. Staffing & Payroll Payment: All businesses need to hire employees and pay them. However as the business needs to have its invoices paid first, any delays on that front can lead to delays in payment of the company’s staff. Such delays typically result is friction between the employees and the company’s management and the company can end up losing valuable workers. By opting for Invoice Factoring, you can be assured of having cash in hand so that you can pay your staff on time.
2. Sales: Increasing sales is also another major concern that a business faces. However if you are always getting paid late, you are going to have to hold your plans back. Invoice factoring can allow you to create new products, improve on your services and look into more opportunities.
3. Training Employees: With cash readily available, you can train new employees quicker and let them contribute to the company as well. You can also invest in training your managers and bringing them up to speed with the latest in management techniques and also arming them with the best tools required to increase the company’s bottom line.
4. Managing Change within and Without the Company: Having more cash readily available will help you respond to changes in the market faster, fueling your company’s growth.

So, in short a lot of your company’s hassles can be easily tackled simply if you have cash in hand. If you are running the type of business which requires cash now rather than later, then it is even more imperative to at least consider opting for Invoice factoring.

In doing this you are also ensuring that you do not need to rely on a line of credit from a bank as your growth will be driven by your customer’s demand for your products and/or services. Give Invoice factoring a chance, it may just be the solution to your accounts receivable hassles you were looking for.

Rates of Return for the Factoring Of Accounts Receivable

If you run a business and you want some ready cash to bolster it, you can enter into a factoring agreement with another company which provides this kind of service instead of applying for a loan.

When you enter into a factoring agreement, you agree to sell your accounts receivables invoices for a fraction of their total face value. The rates of return for the factoring of accounts receivable can help you determine which factoring company you enter an agreement with, or whether you enter into a factoring agreement at all.

“Rate of return” in practical terms, however, can mean different things for different businesses. It’s up to you to determine the kinds of benefits your business needs.

The Different Percentages of Your Account Receivables

Let’s say you have about $100,000 coming to you in customer payments, but you may have to wait a few months in order to get them all in full. If you want or need that money now, you can sell your invoices but you certainly won’t get the full amount. Typically, the percentages range from as low as 70% to as high as 90% of the total amount of the money coming to you. But recently, competition has been fierce among factoring companies, which has led to some pretty startling offers regarding these percentages.

Greater Maximum Amounts

Every creditor institution has its own limits as to how much they are willing to front each business it deals with. Some companies may offer up to a few hundred thousand dollars maximum, but others are willing to front up to $2 million (or even more).

Faster Transactions

If you are willing to forgo a percentage of accounts receivables so that you can get the money more quickly instead of waiting for a few months for them, then time is obviously an important factor for you. But there is also a time factor involved when dealing with a factoring company. You will have to consider just how fast a factoring agreement can be reached with a particular factoring company, and how fast each one can get you the money after the agreement has been finalized. It’s typical for a factoring company to need about two to five business days before they can get you your money, although others may need less than 24 hours. The speed of the transaction may also affect the eventual rates of return for the factoring of accounts.

More Willing To Accept Risks On Behalf Of Your Company

There are many kinds of factoring agreements, and some of these agreements concern what happens in the event that a customer doesn’t pay. Some factoring companies are willing to take on the risk of non-payment, although they would have to evaluate each customer to see if they meet their standards regarding acceptable risks. The “real” rates of return for the factoring of accounts you receive may depend on how many of your customers pass this form of screening. The more customers a factoring company regard as acceptable, the more money you get in return.

Distributors Invoice Factoring: A Way to Solve Cash Flow Problems for Distributors and Wholesalers

Invoice factoring can get you the revenues that are tied up in your accounts receivables without forcing your clients to pay up any sooner than the agreed terms.

If you have a wholesale or product distribution business, then you probably have heard of distributors invoice factoring. Yes, it may sound familiar, but truth be told, not a lot of people truly understand how it works.

Product wholesalers and distributors, much like any other business, need to make sure that their revenues are being managed wisely; otherwise they might face some cash flow shortage. Looking at the expenditures side, you have suppliers that need to be paid up. If you’ve already established yourself as a worthy client to your suppliers, then you can probably ask them for some payment terms.

However, at some point in time, (and normally this happens to budding businesses) you may exceed your credit limit, therefore forcing you to make upfront payments. On the revenues side of the fence, you have clients who will also negotiate for credit payments from you. And if they are indeed credit-worthy and you want to keep their business, then you will need to agree to some payment terms.

Scenarios like these make cash flow management a bit tricky and if your wholesaling/distribution company starts to grow rapidly, then you might face the possibility of running out of funds. If you won’t take immediate action, this can lead your business into a downward spiral.

Fix Your Money Woes by Factoring Your Invoices

The financial dilemma mentioned above can be addressed by going for distributors invoice factoring. This move can get you the revenues that are tied up in your accounts receivables without forcing your clients to pay up any sooner than the agreed terms. Rather, you do the financing with the help of a third party lender. Lenders will pay you in advance whilst they hold your invoices until your clients pay up. Once your clients have paid their dues, the lender gets their fees with the corresponding interests, then settles the transaction.

Get Your Funding By Using Your Clients as Leverage

The credit strength of your clients can be put into good use with distributors invoice factoring. But sometimes invoice factoring alone will not suffice. If you are a small business that landed a big deal but lack the fund to complete the transaction, the next best course of action is to get a purchase order loan. In PO financing, lenders check your client’s credit records, and if they pass, they’ll give you the loan. Once you’re able to deliver your products, go into invoice factoring to release the revenues tied with it. These two solutions, when combined, can give you a supply of cash that can keep your business operations running. So if you know that your client has good credit terms, use that as your leverage in securing your loans.

Will You Qualify for Funding?
For this to happen, you need to ensure that your invoices are from credit-worthy clients. You also need to make sure that you have lien-free invoices, a good management team running the show and follow good invoicing practices. Often you don’t need any other hard collateral to be approved for funding; your invoices should suffice if you are applying for distributors invoice factoring.

Non-Notification Factoring – NEW

Neebo Capital now offers non-notification factoring, below in this article we describe Non-Notification Factoring:

not notification factoring — Non-notification factoring, can help your company retain clients and grow cashflow.

The majority of factoring occurs with the full knowledge of the customer.

If you’ve obtained a mortgage from your local bank, chances are that at some point you’ve also received a letter from them saying that your mortgage was now being handled by one of the bigger banks.

Non-notification factoring occurs when the invoices are sold to a factoring company without the knowledge of the customer.

This service can benefit companies in three ways.

1. It preserves trust

Personal service has become incredibly important in our impersonal world. And the big banks, in particular, have earned the well-deserved reputation that they don’t care about anything except paying huge salaries who head their institutions. They certainly aren’t interested in the ordinary people whose mortgages or other accounts they hold.

That attitude has disenfranchised their customers. Smart business people do the opposite. They do all that they can to maintain the faith that their clients have in them.

And that being the case, if customers of smaller lending institutions were aware that their business had been passed to a different company, one which was out of their reach, then they might be tempted to take their custom elsewhere.

So, by keeping the changes in the ownership of the loans confidential, firms can prevent that from happening. In order for that trust to be maintained, however, it’s essential, that customers are still able to get the help and support they need from their local lending company.

2. It preserves the brand.

Think of laundry soap, for example. Consumers like choice. If all of detergents had labels that identified them as being from the same company, there would only be a few to choose from. But, by branding each of them separately, customers can pick the one they prefer.

The same idea holds true when firms sell their invoices to a third-party without the knowledge of the customer. Factoring companies typically buy accounts from many different businesses.

But, if customers became aware that in actual fact their invoices were in the hands of only a few companies, then they would feel that their ability to choose had been eroded. In effect, they would be unable to see the difference between dealing with one company or another.

3. It preserves loyalty.

Customers prefer to use their local bank branch because they want to support firms in their communities, and also because they like to make friends with those with whom they do business.

If they ever thought that the majority of their financial obligations were now under the roof of some other business that is out of their town, or out of their state, then they could be made to feel that the branch had betrayed them.

And that means they would be more likely to move their accounts to another business that they felt would be loyal to them.

Although banks and other business need to earn a profit in order to remain viable, they also need to recognize the importance of serving the customers they have.

If they breach that trust and limit their choice, then they will also lose their loyalty.

Non-notification factoring, if handled correctly, can help your company to achieve all three.