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Sep 14, SiteSell Services For Small Business Web Site Development
By Kent Harlan
One of the biggest challenges for an operator of a temporary staffing company is maintaining an adequate amount of working capital. At the risk of oversimplifying the situation, cash goes out quicker that it comes in. Invoice factoring is a great solution for temporary staffing companies with cash flow issues.
The problem isn’t profitability. A company can show excellent earnings, yet have a hard time making payroll and other operating expenses. With the temporary staffing industry, this pattern is all too common. The main reason is their credit customers typically pay anywhere from 30 to 60 days after they’ve been invoiced, but disbursements, especially for labor, occur much sooner. With accounts receivable factoring, the imbalance between outflows and inflows is eliminated, which allows the business to pay bills in a timely manner and grow.
The mechanics of invoice factoring
When a company factors invoices, they receive an advance, typically between 70% to 85% of the amount billed another company. The factoring company will often contact the customer to verify that the services have been performed satisfactorily and the invoice will be paid without any offsets or deductions. The verification process is very important because factors utilize bank credit lines to advance funds to their clients. They MUST know that the invoice(s) they’re advancing funds on are valid, due, and payable. At the onset of the factoring relationship, letters are sent to the client’s customers which instructs them to send payments to a lock box controlled by the factor. Once payment is received, the reserve (total invoice amount less the advance made) less the factoring fee, is wired to the customer’s account.
How to set up a factoring account
Getting access to working capital via accounts receivable factoring is relatively simple. The client first fills out an application, which requires the submission of basic information about the company and its owners. Although financial statements are part of the application, the company’s financial standing or credit rating is not a major variable in being qualified. The credit standing of the client’s customers is of utmost importance in the decision, as their track record of paying invoices in full and on time motivates the factoring company to advance funds to the client. That’s why a master list of the customers is required, along with a current accounts receivable aging schedule and articles of incorporation (or LLC documentation). The application is processed quickly and a letter of intent is issued to the client which outlines the advance rate and fee structure. Fees generally range from 2.5% to 5%, depending on the industry and credit standing of the customers.
Benefits temporary staffing companies can derive from invoice factoring
Although invoice factoring is a widely-used financial tool, many business owners don’t know they can unlock the power of their accounts receivable. There are many benefits of factoring:
Factoring is not a loan. It is an off-balance sheet transaction
Funding is limited only by the pool of a company’s receivables
Most factoring companies offer professional collections
Funds can be available as soon as three days from the time application is received
No personal guarantees
Free credit screening
Invoice factoring isn’t for every company, but it is certainly tailor-made for the temporary staffing industry. Cash flow is important for all firms, but it is literally the life-blood of staffing companies. Without adequate working capital, it is nearly impossible to grow and thrive.
Kent Harlan has been a CPA since 1984 and has provided consulting, accounting and financial services to several industries. He is the owner of Ozarks Capital Funding, LLC, a Springfield, MO based company offering financing for business and healthcare providers.
Does your company need working caital? [http://ocflink.com/invoice-factoring-services-118.html]click here for more information.
Contact information:
EMAIL: [mailto:kenth@ocflink.com]kenth@ocflink.com
PHONE: (417) 849-7394
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How Invoice Factoring Can Provide Cash Flow to Temporary Staffing Companies
By Marco Terry
The biggest challenges that many import companies have is finding a way to pay suppliers when a customer places a large order. As is common in import transactions, you must pay your suppliers using a letter of credit and then wait until the goods are delivered to your customer before your customer pays you. This creates a window of time, sometimes as long as 90 days, between the time that you pay your suppliers and the time that your customers pay you.
But what happens if you don’t have the funds to obtain a letter of credit? Or, if you can’t wait for a long time to get paid? Do you pass on the order? Well, you don’t have to. Not if you decide to use purchase order finance.
Purchase order financing is a tool that allows you to easily make large orders – even if you don’t have the money to pay suppliers and if your company is new. It provides you with up to 100% of the funds needed to pay your foreign suppliers, enabling you fulfill your large orders and grow your company. And it works for almost all companies because of a unique feature. Almost any company can qualify, provided you have a purchase order from a government agency or a strong commercial customer. Indeed, your collateral for the transaction is the reliability of your customer. This make po financing a very unique tool for importers that are buying goods from China, Taiwan, Brazil, Russia or almost any country in the world.
Purchase order financing easily integrates to your company and is easy to use. Here is a sample transaction:
1. Your commercial or government customer places a purchase order with you
2. Your company places an order with your local or foreign supplier
3. The purchase order finance company provides a letter of credit to pay your supplier
4. Your supplier delivers the goods to your customer 5. The transaction is settled once your customer pays for the goods
As you can see, this transaction is completed with little if any of your own funds and the financing company covers most costs. This is ideal for new companies or companies that have exhausted their capital.
Many times, a customer may take up to 60 days to pay for the goods. This is especially true if you are selling goods to large companies that demand payment terms. In that case, you may need to also use factoring financing. Combining invoice factoring, which costs less than po financing, with po funding enables you to lower the total transaction cost.
Your transaction cost will vary based on a number of variables such as size and credit worthiness of the buyer. Generally speaking, larger orders from credit worthy customer (or government agencies) will have the lowest costs.
Both factoring and purchase order financing are offered by factoring companies, although not every factoring company offers both.
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How Import Companies Can Benefit from Purchase Order Financing
By Gaston Castro
The Capital Access Network recently surveyed 276 small business owners in the fields of restaurant/hospitality, health/medical, retail, service, etc, all of which accept specific credit cards within their businesses. 87% of the surveyed business owners feel that access to a readily available line of credit is important, especially in today’s economy. And although 76% of those business owners still feel that banks are one of the most trusted sources of capital, 42% feel that it is important to have a back up plan, in case the bank does not come through.
For a small business owner, there are many reasons why a bank would not approve a small business loan. These reasons may include poor personal credit history, low business cash flow and lack of collateral. A small business loan may also be denied if the business in question has not been in existence for three or more years. Therefore, a person who is just embarking upon his/her entrepreneurial journey, attempting to finance a startup business, is very likely to have difficulty finding a bank that will approve a loan. This has created a catch-22, producing a desire for alternative sources of small business financing.
87% of surveyed business owners who requested capital and were not provided these funds by their banks, stated that the banks did not offer an alternative method of funding, and 69% stated that they would consider an alternative had the bank proposed one.
Although many banks may not be offering alternative ways for small business owners to receive funds, there are other options. Many companies offer small business cash advances to business owners. A small business cash advance is similar to a loan, as owners are offered a large amount of money and required to pay it back to the lender. However, these cash advances are easier to obtain than bank loans. They have fewer requirements and utilize an automatic repayment plan where the lender deducts a percentage from each credit card sale until the cash advance is completely paid off.
These cash advances are specifically designed for small business owners who are unable to get approval for a bank loan, therefore providing the alternative that 69% of surveyed small business owners would have considered if offered.
According to a survey released by the Federal Reserve, many banks have admitted to tightening their lending practices over the past three months. Credit risks are increasing and the economy is weakening “…due to rising energy costs, turbulence in the secondary credit markets…and the anticipated impact of relaxed underwriting standards over the past few years…” sates the survey. The survey predicts these tightened practices to continue over the next year, possibly producing more potential seekers of small business cash advances.
Gaston C. writes articles about [http://www.cashprior.com/cash_advances.php]Merchant Cash Advance and [http://www.cashprior.com]Business Loan Alternative for Merchant Resources International.
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Merchant Cash Advance - The Business Loan Alternative
By Michael Russell
One of the biggest problems in any growing business is the long delay it typically takes to get paid. It is not uncommon for it to take 60 to 90 days from the time a company completes a job or contract to the time when the company actually gets paid. Ninety days is almost an industry standard interval from receipt of a service or goods by a large commercial customer to the time that payment is sent out.
In the meantime, the companies’ employees are expecting to get paid on time; which is usually weekly, and most of the operating expenses need to be covered on a monthly basis. Some of the bills even need to be paid right up front. It can be tough for a growing or new company to make ends meet before the 90 days are up and the payments start coming in.
To help cover this financial gap an industry called factoring has emerged. Let’s use an example to explain how factoring works. Let’s say company A makes and sells super computers. They make a computer, sell and ship it to company B and soon after send out the bill for the computer. Now by standard industry practice, company B usually does not have to start making payments for 90 days. This is where factoring enters in. A third company, company C, is the factoring company. The factoring company is usually a financial institution or bank of some sort. The factoring company pays company A up to 85 percent of what is owed them by company B right up front then and there. They hold out a percentage, usually 15 percent, to cover any disputes that may arise between A and B. Once company B gets around to paying for the super computer, the payment gets sent directly to the factoring company. Company A never sees the check sent out by company B. Basically company A’s accounts receivable are transferred to the factoring company. The factoring company then sends the 15 percent that was held out to cover disputes to company A, minus their factoring fee for all of this. The factoring fee is usually 1.5 to 2 percent. They basically cover company A for the payments that are owed them. They act as an intermediary between A and B to help smooth everything out financially.
Of course, a big consideration for the factoring company is the financial reliability of A and B. If B is very reliable and pays its bills on time, then the factoring company will probably give company A better factoring fee rates. If A’s super computer is very reliable and never causes problems for its customers, then the factoring company will probably reduce the amount it holds out to cover disputes.
So why wouldn’t company A simply borrow money from the bank? Actually, factoring is a specifically targeted way of borrowing money. Because it is an ongoing relation between A, B and the factoring company the rates are generally lower and the amount that A can borrow is generally more compared to a basic bank loan. Plus, it gives A more time to spend making super computers; and less time worrying about collecting bills.
Michael Russell
Your Independent guide to [http://factoring-guideto.com/]Factoring
Excerpt from:
How The Factoring Industry Works
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