 |
Further
Reading ...
|
|
Tunnel Vision - Anne Sallee Miles
"I want this gazebo on the brochure cover" I just looked at her, one of my beloved clients, holding up an image I'd never seen expectantly. I had agonized for hours over the picture choices for her mock-up, analyzing for content, contrast, color...
Everything I Ever Needed to Know about the Consulting Business, I Learned in Manufacturing - Stacy Strunk
Like most writers, I have two jobs: consulting work and a "real" job. I'm not ashamed to say, for a long time, my consulting business was haphazard, at best. While, I'm a strong writer and designer, I knew little about running my own business until...
How To Build Up Your Samples for your Portfolio Without Professional Experience - Rachel Goldstein
Article submitted by http://www.Allfreelancework.com - 1000s of freelance jobs What should you do if you have no professional examples to place in your portfolio? If you are in a situation where you don't have any professional samples to place into...
Private Student Loans – dispelling the myths - Vanessa McHooley
Private Student Loans – dispelling the myths If savings, grants, scholarships, and federal loans don’t cover the cost of your education, it’s time to turn to private loans. But young college students can’t qualify for a private loan, can they?...
|
|
|
factoring.Cash Without Borrowing.
|
 |
Written By:
Fred Coutts
|
|
|
The Facts on Factoring: How to Increase Cash Flow Without Borrowing By Fred Coutts, CPA, CMA
Cash flow is one of the main reasons businesses fail. At one time or another, every business, even successful ones, have experienced poor cash flow. Cash flow does not have to be a problem any more. Do not be fooled -- banks are not the only places you can get funding. Other solutions are available and you do not have to borrow.
What is Factoring? One solution is called factoring. Factoring is the process of selling accounts receivable to an investor rather than waiting to collect the money from the customer.
Oh, the Irony… Factoring has an ironic distinction: It is the financial backbone of many of America's most successful businesses. Why is this ironic? Because factoring is not taught in business colleges, is seldom mentioned in business plans and is relatively unknown to the majority of American business people. Yet it is a financial process that frees up billions of dollars every year, enabling thousands of businesses to grow and prosper.
Factoring has been around for thousands of years. Factors are investors who pay cash for the right to receive the future payments on your invoices.
An unpaid receivable or invoice has value. It is a debt your customer has agreed to pay in the near future.
Factoring Principals Although factoring deals exclusively with business-to-business transactions, a large percentage of the retail business uses a factoring principal. MasterCard, Visa, and American Express all use a form of factoring in their retail transactions. Using the purest definition of the word, these large consumer finance companies are really just large factors of consumer paper.
Think about it: You make a purchase at Sears and charge it to your MasterCard. The store gets paid almost immediately, even though you do not make payment until you are ready. For this service, the credit card company charges Sears a fee (typical fees range from two to four percent of the sale).
The Benefits Factoring can offer many benefits to cash-hungry companies. Rather than wait 30, 60, 90 days or longer for payment on a product or service that has already been delivered, a business can factor (sell) its receivables for cash at a small discount off the amount of the invoice.
Payroll, marketing efforts, and working capital are just a few of the business needs that can be met with this instant cash.
Factoring provides the means for a manufacturer to replenish inventory and make more products to sell: There is no longer a need to wait for earlier sales to be paid. Factoring is not just a cash management tool for manufacturers: Almost any type of business can benefit from factoring.
Generally, a business that extends credit will have 10 to 20 percent of its annual sales tied up in accounts receivable at any given time. Think for a moment about how much money is tied up in 60 days' worth of invoices: You cannot pay the power bill or this week's payroll with a customer's invoice, but you can sell that invoice for the cash to meet those obligations.
Factoring is a fast and easy process. The factor buys the invoice at a discount, usually a few percentage points less than the face value of the - continued below ...
|
|
|
continued ...
invoice.
The Drawbacks People consider the discount a small cost of doing business. A four-percent discount for a 30-day invoice is common. Compared with the problem of not having cash when you need it to operate, the four-percent discount is negligible. Look at the factor's discount as though your business had offered the customer a discount for paying cash. It works out the same.
Companies consider the discount the same way they treat a sales price: It is simply the cost of generating cash flow, much like discounting merchandise is the cost of generating sales.
Factoring is a cash flow tool used by a variety of businesses, not just those who are small or struggling. Many companies factor to reduce the overhead of their own accounting department. Others use factoring to generate cash, which can be used to expand marketing efforts and increase production.
Why Factoring Appeals to the Start-Up Factoring is especially appealing to young and rapidly growing companies. Since the process shortens their business cycle, these businesses can grow faster. The ability to make more products to sell while waiting for invoices to be paid is largely eliminated. Such businesses usually net much more profit with factoring than without, even when the discount is considered.
Factoring vs. Bank Loans So, why not simply go over to the friendly banker for a loan to alleviate cash flow problems? A loan can be difficult if not impossible to receive, especially for a young, high-growth operation, because bankers are not expected to decrease lending restrictions soon. The relationships between businesses and their bankers are not as strong or as dependable as they used to be.
The impact of a loan is much different than that of the factoring process on a business. A loan places a debt on your business balance sheet, which costs you interest. By contrast, factoring puts money in the bank without the creation of any obligation. Frequently, the factoring discount will be less than the current loan interest rate.
Loans are largely dependent on the borrower's financial soundness, whereas factoring is more interested in the soundness of the client's customers and not the client's business itself. This is a real plus for new businesses without established track records.
There are many situations where factoring can help a business meet its cash flow needs. It provides a continuing source of operating capital without incurring debt, which can result in growth opportunities that dramatically increase the bottom line. Virtually any business can benefit from factoring as part of its overall operating philosophy.
Every good businessperson must understand the concept and benefits of factoring in order to operate as profitably as possible. The following chart can help you understand the differences between factoring and other sources of funding.
For more information on factoring and other non-traditional ways to obtain funding, contact Fred Coutts at (206) 364-9613 or Fred@FredCoutts.com. Please visit my website at http://www.FredCoutts.com for more information on powerful funding programs without going through a bank
Fred Coutts, CPA, CMA.
About the Author
None
|
|
|
|
 |
|
|
| _Additional Resources ... |
|
First Aid For Writer's Block - Marcia Yudkin
Stuck? Not for long when you try these remedies for creativity on call. 1. Go somewhere else. One of my clients hops a train whenever she has a deadline and writes on board. 2. Freewrite. Right this second, copy the following starter phrase and...
Desperate Architects: Want to Know a Secret About Architectural Drafting? - Lucky Balaraman
Copyright 2005 The Magnum Group It’s about twenty after 9, on a Tuesday morning, I’m an architect and I’m thinking that life is bed of roses. But it wasn’t like that a year ago… This time last year, the revenues of my practice were shrinking...
Great Interview Skills - Colin Ong TS
Going for a job interview can be a harrowing experience. The reasons are varied: A job applicant may not have the necessary relevant working experience or may be worried about the inability to answer difficult questions. Even the pressure of...
|
|
|
|
|
|
|
|
|
|
