When is Purchase Order Factoring Right For You?

For many growing businesses, financing is a problem that comes up sooner or later. It’s also a very pressing concern when the financing is absolutely required for the company to survive. But many companies are finding out that purchase order factoring may be a viable solution for their problems.

In purchase order factoring, your company gets the funding it needs not through a standard bank loan but through a process that uses a purchase order as collateral.

So is this financing option right for you? Here are some factors you need to consider:

  1. You’re a government contractor, distributor, wholesaler, or reseller of manufactured products. This is a very common requirement, although some finance companies will accommodate businesses that manufacture products themselves, while others may finance service providers.
  2. You don’t have good credit and you are experiencing cash flow difficulties. The cash flow issue is why you need a loan, and the lack of good credit is preventing you from securing a bank loan in the first place. That’s why you need purchase order factoring, because with this option your credit is not important.
  3. You received a large purchase order that you don’t have the resources to fulfill. This can lead you to reject the purchase order, which is not exactly a good thing as far as your reputation and profit margin are concerned. But with purchase order factoring, you can get the necessary resources to take the order and complete it on time.
  4. Your purchase order comes from a creditworthy company, such as a large firm with a stellar reputation for paying promptly. While your credit isn’t very important to the factoring company, the credit of your customer is absolutely crucial. If they have bad credit, the financing may not be approved.
  5. You may have suppliers who demand that you pay upfront. This is what’s causing the cash flow problems in the first place, and this is the problem that the factor addresses right at the start. Your suppliers get paid upfront or receive a guarantee or a letter of credit from the finance company.

Financing companies differ as to how much of the supplier expenses they will cover. Some factors may cover only part of the cost that your current cash flow cannot cover, while other factoring companies may cover the entire supply expenses.

  1. You get a significant gross margin. While again, the standards here are different depending on the financing company you talk to, it’s very typical for them to require that you at least get a gross profit of 20%. If it is too small, then using the purchasing order may be futile because the financing company may take a large chunk of the profit instead.

While there are several options for businesses to secure financing, with purchase order factoring you can get the help you need right at the beginning. This kind of financing is much easier and faster to secure, and it’s a godsend if you have bad credit, little or no collateral, and a large purchase order from a reputable customer.

 

Special Considerations for Small Business Equipment Loans

Small business equipment loans are loans that will enable you to buy equipment. As a small business owner, your equipment may be an integral part of your company’s operations.

There are basically three types of equipment:

  1. One type of equipment refers to the “usual stuff” that most businesses need. This includes furniture, computers, printers, and other common office equipment.
  2. The next type of equipment defines your business or is a mandatory tool or appliance which you can’t operate without. For example, if you’re planning to run a taxi service then there’s no way you can continue without a fleet of vehicles.
  3. Finally, there’s a type of equipment that functions as a way of differentiating your company from your competitors. For example, you can tout your hi-tech medical equipment in your clinic, such as the latest laser devices in your dermatology clinic. This equipment makes you unique and better than the other clinics.

When Do You Need to Buy Equipment?

Even though you may have had the capital to buy the equipment you needed when you first put up your business, at some point you may have to buy or lease new equipment. It may be because your original equipment broke down or malfunctioned and thus needs a replacement. Your original equipment may also need to be replaced because it has become obsolete and newer models are cheaper or perform better. You may also decide to add to your equipment inventory to extend the range of your services or improve your operations.

When you’re getting new equipment, you don’t really need to spend your working capital, which may already be earmarked for other purposes. You can get small business equipment loans instead.

Leasing or Buying Equipment

You have the option of either leasing or buying your equipment, and the particular situation will decide which option is more suitable.

Leasing is a better option if you can’t get the loan you need, or if the loan application process is too bothersome or time-consuming. Leasing is a less expensive option in the short term, and it also gives you the opportunity to confirm whether or not its use is actually helpful for your business. It’s also better to lease the equipment when you need to constantly update your equipment.

On the other hand, buying equipment has its advantages too. While it is more expensive at first, in the long run the price of ownership tends to be less than leasing the equipment. In addition, it may even be possible for the cost of the equipment to be tax deductible.

Buying is also much more appropriate when the equipment will be used for a long time. For example, restaurants should buy refrigerators and freezers, and farmers should buy basic farming equipment. These things don’t really improve all that much over the years.

For small business equipment loans, your best bet is a lending firm that specifically offers this type of funding. You’ll probably need to have good credit, a solid business plan, and prepared personal and business financial statements to qualify for a loan.

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Screening Unsuitable Small Business Factoring Companies

Factoring can be a lifesaver for companies struggling with working capital issues. Small business factoring companies can also enable your company to grow by giving you the capital you need. It is much easier to set up a factoring agreement than to get a bank loan, and the entire application process takes only days instead of weeks or months.

The way factoring works is simple enough. You sell your invoices to your factor, and in return you get a cash advance right away, at around 80% of the value of the invoice. The rest of the payment comes to you when the customer pays in full and after the factor takes its fees.

But while factoring can be a very helpful funding tool, not all small business factoring companies are equal. Some factors are more suitable for your business than others.

Do You Fit the Requirements?

Like banks, some factors have specialties and preferred customers. For example, some factors specialize in medical factoring or in construction. They have the experience working in these fields and they know a lot about the details of the industries they cover. So if you’re not in any of these industries, then its better for you to consider other options.

Other factors have minimum or maximum funding requirements. For example, some may require a minimum of $250,000 in total invoice value, while others can offer funding of only up to $50,000.

What Are the Advances and Fees?

Some factors offer the typical 80% advance while offering lower fees as a come-on. Others offer 90% advance or even more, although their fees for their funding can be anywhere from 1 to 6 percent. It’s up to you whether the higher advance rate or the lower fees are more important. If you’re really lucky, you may even find a factor that offers a high advance rate and low fees.

The first thing you need to look out for is the transparency of the rates. The best small business factoring companies tend to spell out their rates clearly on their websites. Others make the information more obscure, and some even trot out misleading information about their rates. You need to know about all the hidden fees involved so you can compare the rates of the factors you’re considering.

You should also take note of the penalties for late payments. Some penalties can be rather harsh.

And then there’s also the matter of long-term contracts. Some may lock you into a factoring agreement for 2 years, charging exorbitant fees should you opt out. But others may not require contracts, and some even allow you to pick and choose which invoices they can factor.nsuitable Small Busine

Reputation Matters

This can be a very subjective aspect to consider, but nonetheless it’s important. So perhaps you may want to check out some finance-related forums to find out how a particular factor really operates. You also need to make sure that they treat their customers’ customers fairly, because in most cases they oversee the payment and collection process.

It’s undeniable that factoring can be invaluable to your business. Just remember to pick the right factor, because unsuitable small business factoring companies can create more problems instead of solving them.

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The Benefits of Medical Business Factoring Loans

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The term “medical business factoring loans” is actually a misnomer. Factoring isn’t technically a loan at all. It involves the sale of your invoices to the factor. You get the typical cash advance that’s 80% of the value of the invoice, and then the rest of the payment is sent to you once the customer pays in full and the factor gets its fees.

Medical factoring is very different from bank loans, and in some ways, it’s better than bank loans.

  1. Factoring can be availed quickly. You only need a few days for your application to be evaluated and decided upon, unlike bank loans which can take weeks. And as a bonus, medical factoring has a higher approval rating than a bank loan. Banks reject the majority of loan applications from small businesses.
  2. You get your cash advance fast. Once you give the factor your invoice, it may only take as little as 48 hours for the cash advance to show up in your bank account. This can be a good thing for your business, because of the way insurance companies and other customers pay. You can boost your working capital, so that you can meet payroll, pay for utilities, and make payments for the various expensive medical equipment you’re using.
  3. Medical factoring, with the right factor, can be very flexible. Some factors may require you to finance in bulk. But other factors may allow you to choose which invoices to finance. This means you can control just how much financing to pay for, instead of getting advances when your working capital levels are doing great.
  4. You don’t have to collect payments from insurance companies. Dealing with insurance companies can be infuriating, to say the least, and you certainly don’t need the added stress. Your work in the health care industry is stressful enough as it is. It’s a well-known fact that getting insurance companies to pay is like getting water from stone.

Since the factor takes care of the payment collection and the invoice tracking, you’re freed from this difficult task. You also don’t have to hire personnel to do this for you, since it’s already part of the factor’s services. The factor can handle Medicare and Medicaid payments as well.

Conclusion

There’s a widespread anger in the health care industry against private insurers, and clinics and hospitals are closing down at an alarming rate. The lack of funding and the intransigence of insurance companies have certainly contributed to the “malaise” in the healthcare industry.

Medical factoring is a way to help revive the health care industry. It offers timely financing in a time when banks are no longer as generous in granting loans to small businesses such as pharmacies and medical clinics. And doctors and nurses can concentrate on healing the sick and the injured, while the factor deals with insurance companies in an efficient manner. With medical business factoring loans, everyone can get better.

What Are Your Non Recourse Factoring Options?

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Many small businesses are familiar with the concept of factoring. This is a funding method in which you get a cash advance that’s normally 70-80% of the value of the invoice, and when the customer pays in full you get the rest of your money once the factor has taken its fees from the payment. Normally, you’d have to return the cash advance if the customer doesn’t pay, but that may not be the case in non-recourse factoring.

The Specific Definition of Non-Recourse Factoring

Each factor has its own definition of non-recourse factoring. Now it may be a perfect situation for you if the factor accepts all the risk of nonpayment, but that is almost always never the case. This isn’t a time when you tell your factor about “buyers beware”. Usually, part of your agreement with the factor is a clause requiring you to buy back the invoice from the factor when payment isn’t made.

Almost always, the definition of non-recourse factoring involves only nonpayment due to insolvency. Now here again the term “insolvency” needs to be defined clearly in the agreement with your factor. Some factors have different definitions, so you have to be on the same page.

This clearly means that if the customer declines to pay you because of a payment dispute or a disagreement regarding the quality of the goods you were supposed to deliver, the factor doesn’t assume the bad debt. Instead, you’ll be required to return the money you received as a cash advance.

Time Periods for Payment

Usually, even in non-recourse factoring there’s a time period within which the customer must make their payment in full. Most of the time, this is anywhere from 60 to 90 days. But some factoring agreements call for a return of the cash advance in just 45 days, while other factors even offer up to 180 days. This is one of the non recourse factoring options you may want to negotiate with your factor.

Payment Options

If the customer doesn’t pay for any reason other than insolvency, then the factor can recourse or ask you to buy the invoice back. This is rarely the matter of returning the money in cash. Most of the time, you’d have spent that money already.

But the factor can ask that you submit another invoice for them in exchange, and they can get the payment for the earlier cash advance from the new invoice when that new customer pays in full (and meanwhile you don’t get a cash advance from that new invoice).

Another option is to get the money back from the reserve accounts (the money not part of the cash advance). This is the money held back by the factor for this very purpose.

Conclusion

Non-recourse factoring is more expensive than conventional factoring, but clearly you need to know the details and definitions of their service. Take note of the non recourse factoring options, but the first thing you need to do is to determine if this type of factoring actually serves your needs.

 

Where to Get Staffing Agency Funding

If you’re running a staffing agency, then it’s very likely that you’ll need extra funding sooner or later. Working capital is probably going to be your most probable problem, because you’ll need sufficient staffing agency funding to cover your payroll needs.

But then this leads to another problem: where exactly do you get staffing agency funding?

Here are some of the more common options:

  • Banks. This needs to be at the top of the list, simply because it is the first option most business owners think of. But you’ll first need to choose the right bank. For a small staffing agency, the bigger banks may not be the best option unless you can truly demonstrate how low the risks are for your lender.

Smaller community banks are more viable options. In fact, by 2011 the volume of small business loans provided by small banks grew to $302 billion.

You may also want to consider an SBA-backed loan. This involves an inordinate amount of paperwork, but banks are more likely to help with your financing when the government guarantees the repayment of as much as 85% of the loan.

The main problem with a bank loan, however, is that the application process will take time, which isn’t really of much help to you when you have a payroll disaster on the horizon. Even getting a loan can be difficult, especially when you don’t have enough assets to offer as security. You may even have to offer the house you own as collateral.

  • You can get the help of venture capitalists, or even angel investors. The essence of the deal is simple. You get the money you need immediately, but in return you give up a percentage of the business.

The main drawbacks of this approach are rather obvious. For one, you end up losing a part of the company and therefore part of the future profits that you could have kept to yourself. And there’s also a very good chance that you can no longer make your own decisions without consulting with your partners. After all, they now own part of your business.

  • This method isn’t much help for startups, but it can be very useful for staffing agencies that are already established. Factoring addresses the peculiar inequity when it comes to payroll and customer payment schedules. So since you need to pay your workers at the end of the week, you also immediately get as much as 80% of the value of the invoices generated, instead of having to wait for two months until the customer company pays in full.

Factoring is comparatively much easier to secure, and the application process may only take a few days.

Most people use their own savings as well as loans from family and friends when they start a small business. That may not be enough for a staffing agency, but at least you still have other staffing agency funding sources to consider.

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The Top 5 Uses of Staffing Company Cash

If you’re thinking about starting a staffing company, the first thing you need to really think about is your working capital cash. You will, in fact, need a lot of staffing company cash at the outset because of the inherent nature of the industry.

Here’s a short list of the most important uses for working capital:

  1. Payroll. This is without a doubt the most important consideration of them all. Your temporary workers are the lifeblood of your company without which you can’t qualify as a staffing business.

But here’s the rub: you’ll need to make sure that you have enough money to cover payroll for all your workers, and that means having the payroll cash ready each week.

At the same time, your customers are companies which have their own red tape procedures to deal with. They’ll need to verify attendance, work records, overtime, and the number of workers. All these need time, so it’s common for a company to take as long as 50 days or more to pay the invoice for your services in full.

So that means you’ll need to make payroll even though your customers haven’t paid you yet.

  1. You’ll need to get the word out that you’re hiring temporary workers and that means spending money for advertising. You’ll probably need a website, and then you may have to hand out fliers and even pay for newspaper ads too. This is going to be a constant drain on your cash, because many workers will leave your company when they’re offered permanent jobs by other companies.
  2. Training your workers. In an ideal world, your workers have all the necessary skills that your customers are looking for. But we don’t live in a perfect world, so that means you may have to offer some training modules for new hires and even refresher courses for older employees.

For some situations, your workers may have to take special aptitude tests to confirm that they have the necessary skills needed by your customer-companies. This is common in industries like health care, in which workers must have the necessary credentials and pass the needed tests.

  1. Paperwork fees. Running a staffing company means paying special taxes, and of course you will need to take insurance premiums into consideration. Coverage for your workers is often mandatory, and failing to do so creates legal risks for you.
  2. Advertising for customers. You also need to find more customers for your business to survive—this is a common goal of advertising after all. But this can also be a double-edged sword for your company. The more customers you get, the more cash you need to pay for the additional hires.

Of course, some of the other uses for staffing company cash are much like what any company would need, regardless of industry. Paying rent and utilities will also need to be covered. Add them all together, and that means several sources of funding, such as bank loans, venture capitalists, and factoring companies, must be considered.

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The Advantages of Small Business Factoring Invoice

A lot of small business owners immediately think about their banks when they need additional funding. But banks are – at best – a toss-coin proposition, because they’re just as likely to reject a loan application as approve of it. And that’s why small business factoring invoice funding has become so popular in recent years.

Banks Are Not All Too Willing

According to the most recent news released last February 15, 2015, big banks only approved 21.3 percent of small business loan applications in January 2015. And that small approval rating is actually an improvement from the previous month, which was only 21.1 percent.

Small banks are more generous, but even they tend to reject the loan applications of many small businesses. According the latest data, in January 2015 small banks approved only 49.6 percent of small business loan applications, and that’s down from the 49.7 percent approval rating of the previous month.

How Factors are Helping Small Business

Factors tend to have higher approval ratings because they don’t look at your credit history or collateral. What’s more important to them is the credit of your customers. So if you have reliable customers who tend to pay in 30 or 60 days, you can get the factoring funding you need. And since it doesn’t require a lot of paperwork, you will know the status of your application in just a few days, instead of having to wait weeks.

Fast Working Capital through Factoring

The emphasis on time is part of the benefits of factoring. You get about 80% of the value of the small business factoring invoice right away, instead of having to wait 30 or more days to get paid. When you have immediate needs for payroll, utilities, or supplies, this fast turnaround allows you more breathing room.

With factoring, the money allows you to stay afloat or even fuel your growth. You don’t have to worry about having enough money to cover an order, because the cash advance you get can cover your needs sufficiently.

Extra Services

Factors also handle your collection for you. They’re the ones that your customers pay directly. When your customer pays in full, the rest of the money is forwarded to you after the factor has deducted its fees.

While this may be of some concern when your customers need direct communications with you, for the most part you’re alright as long as you get a factor with a long history in your industry and a reputation for courteous and professional collection process. An experienced factor will know the best way to notify your customers about payments, and they can be very polite so your business relationships aren’t affected.

Also, since factors investigate the credit of your customers, you can use them to screen out potential risks among your new customers. If your factor doesn’t think your new customer will pay in full and on time, you can avoid them as they may be too much of a bother for your business. With small business factoring invoice funding, you can concentrate on your business and have enough working capital to boot.

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The Challenges of Securing a Staffing Company Loan

Staffing companies often need substantial amounts of cash to get started and also to fund day to day operations. By its very nature, staffing companies need to pay its workers on a weekly basis, but it’s not uncommon for its clients to take almost two months before they pay for the services they availed. This often leads to working capital shortage which explains the need for a staffing company loan.

The Special Needs of Staffing Companies

Like any business, a staffing company needs sizeable capital to set up their business. They have to pay the usual registration fees as well as set aside money for office rent, furniture, and utilities. But obviously they also need to hire (and pay) staffing personnel and these workers don’t just grow on trees.

They have to recruit workers and that means paying for advertising and even recruitment companies and headhunters. Then the workers must also be screened and oftentimes additional training is provided. Then there are also the insurance payments and the taxes to consider.

In short, running a staffing company can really drain the working capital cash.

Additional problems can exist too, especially when current economic situations are not so favorable. For example, your staffing company clientele may begin to hire workers full-time instead of relying on you to provide them with workers on a contract-basis. And workers may also leave your employ when they find permanent job positions in other companies.

And even if you can cover your current work requirements, new customers and demands for more workers mean that you need to hire more people to meet the increased demand, and that means you’ll need more funding.

Getting a Bank Loan

A bank loan is often the first option you think of when you need extra working capital. But securing a loan is not an easy proposition for a small business, and that’s especially true for a staffing company. You usually don’t have enough assets that you can use as collateral, and banks are always hesitant to grant loans to companies that have difficulty meeting their own staff’s payroll.

And even if you’re lucky and you do get the loan you need from your bank, the entire process will take a lot of time. For emergency funding to cover payroll, this delay makes bank loans very impractical.

So how are these problems overcome? Actually, more often than not these problems are virtually insurmountable. This is a fact that many staffing companies realize too late. A staffing company loan is extremely difficult to secure from banks and other traditional lenders.

And it’s for that reason why more creative financing possibilities must be explored if a staffing company wants to survive. Factoring is one of these possible solutions, and it has proven quite useful for many staffing companies.

Factoring is very easy to secure, and you get your funding much faster too. In addition, it’s not technically a staffing company loan at all, so your credit is largely unaffected by the transaction. With factoring, you can get the funding you need at the time you really need it, and this can help your company stay afloat during lean times and foster growth when the opportunities present themselves.

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