Good Information Articles

Factoring Financing : How to grow your business without debt or loans

What is factoring?

Accounts receivable financing, also known as factoring, is a powerful financial tool that has fueled the growth and success of a number of companies.

Factoring enables companies to capitalize on their unpaid receivables by selling them to a factoring company for immediate payment. With factoring, companies

immediately get paid for their invoiced work from the factoring finance company, while the factoring company waits to be paid by the customers. Factoring

strengthens a business' cash position by shortening the time to get invoices paid to 48 hours and providing the needed funds to meet current expenses and

target new opportunities.

Factoring Benefits

As opposed to loans and lines of credit that require that the client have tangible assets and strong financials, factoring relies more heavily on the

financial strength of the clients' customer. This is a critical feature, since many new and small businesses do not meet the financial criteria of traditional

lending institutions. However, many small businesses have a roster of financially strong customers that can be leveraged. Factoring empowers businesses to

capitalize on their customer list, and provides them with a tool to transform outstanding receivables into immediate cash, without generating debt. Since

Factoring is not a loan, it is an ideal financial product for the following:

o new and emerging businesses including small and home businesses, consultants and solo-preneurs. O Businesses with financially strong customers o Businesses that are preparing to grow significantly o Business with intangible assets (e.g. consultants) o Businesses that do not want to take a loan

An additional benefit of factoring is that the factor usually assumes part of the clients' credit risk for the customer. This means that if the customer

becomes financially insolvent due to bankruptcy and does not pay the invoice, the factor will assume the loss. This is a critical service for small companies

who may not be able to afford the bankruptcy of a customer.

Costs

The costs of a factoring transaction - also known as the discount - vary based on a number of variables such as the financial strength of the customer and

the amount being factored. Generally, the discount is a percentage of the invoice's face value that increases with time until the invoice gets paid. Small

businesses, those that have between $20,000 and $300,000 in yearly revenues, can expect to pay a discount rate of about 2% for every ten (10) days that the

invoice remains unpaid. Businesses with factorable revenues in excess of $300,000 can expect lower discount rates.

Factoring at Work: Business Services and Products, Inc. Case Study

Business Services and Products, Inc. (BSP, Inc.) is a small fictional company, which provides business consulting and equipment to local companies. It has

$300,000 of annual revenues and during the past year BSP Inc. has enjoyed significant sales growth. Although most business owners would be very happy to

manage such a company, Jane Sullivan, BSP Inc's president, is very worried about her company's financial position.

Most of BSP Inc.'s customers are large companies with a good reputation for always paying their invoices. However they always take between 30 to 45 days to

pay them. BSP Inc., however, needs to pay their employees every two weeks and their vendors every four weeks. This discrepancy between the time that

customers pay their bills and the time BSP Inc. needs to pay their employees and vendors has created cash flow problems in the past. Furthermore, these cash

flow problems have already caused Jane to delay payroll twice this year and have placed her trade (vendor) credit in jeopardy multiple times. This has also

caused her to pass on a number of significant business opportunities because she was unsure of the company's financial ability to hire and pay for additional

staffers. Unfortunately, BSP Inc. did not have a large enough financial cushion in the bank to afford paying employees while waiting for 45 days new clients

to pay their invoices.

The following table provides an overview of BSP, Inc's current financial position.

Business Services and Products, Inc (without financing)

Yearly sales: $300,000 Lost new sales opportunities: Unknown Total Sales: $300,000

Variable Costs (60% of Sales): $180,000 Fixed Costs (Rent, phones, etc): $20,000 Total Costs: $200,000

Profit (Sales - Costs): $100,000

Although the company's prospects appear great, Jane may have to stall her company's growth until she builds a large enough cash cushion at the bank to

finance her company's growth. After careful consideration, Jane decided that a factoring line of working capital could help strengthen her company's

financial position. Furthermore, factoring her invoices would enable BSP Inc. to take on new customers and continue growing, knowing that she could

capitalize on her slow paying customers. BSP Inc.'s financing agreement will provide the company with an advance of 70% of her invoiced services. This means

that the company can get 70% of the face value of the factored invoices within 24 to 48 hours of submitting them to the factor. The remaining 30% of the

funds, less the factoring fees, will be quickly rebated as soon as the customer pays their invoice.This line of working capital strengthened the company's

financial position and bank account, enabling Jane to pay for new employees to service new contracts. Jane also decided to use the extra capital to pay her

vendors early, obtaining quick payment discounts and helping to reduce the cost of factoring.

BSP Inc. customers pay their invoices within 30 days of receipt. The discount (factoring fee) for these invoices is 6%. Every time an invoice is paid, the

factor rebates BSP Inc. the remaining 30% that was not advanced less the factoring fee. This means that once the transaction is completed, the factor rebates

24% (30% - 6%) to BSP Inc. Thanks to the factoring line of working capital, Jane was also to secure an additional $120,000 worth of business, bringing her

annual revenues to $420,000.

The following table shows BSP Inc.'s financial position a year after using factoring.

Business Services and Products (with factoring)

Existing Sales: $300,000 New Sales: $120,000 (factored) Total Sales: $420,000

Variable Costs (60% of Sales): $252,000 Fixed Costs (Rent, phones, etc.): $20,000 Cost of Factoring (6% of $120,000): $7,200 Total Costs: $279,200

Net Profit (Sales - Costs): $140,800

As can be seen from the above table, factoring helped BSP Inc. increase profits substantially from $100,000 to $140,800 - a 40% increase. It placed BSP Inc.

on a more stable financial footing, priming it for growth. Furthermore, the cost impact of factoring on the bottom line was minimal, as it was easily

absorbed by the additional business, showing that factoring was paid for directly by the growth.

For More Free Resources visit www.greatindustrialguide.com

Other Article Sites

findabook.com  moneycd.info  a-mortgage.info   about-lemon-laws.info  aboutstudentloans.info
all-about-publishing.info  auctions-articles.info  bestcollege-university.com  bestispconnection.com
biblefolder.com  blogger-website.com  books-used.info  brokers-guide.info  buywindows.info  cable-dsl.info
career-miner.com  carpel-tunnel.info  cashinaflash.info  cashloanreviews.info  casinobell.com  chat-house.info
clearmycredit.info  collegeloantips.info  crones.info  depression-articles.info   dirnic.net  dishguides.info
divers-below.com  expodog.info   financewizz.com  fire-insurance.info  getgood.info  handleit.net   it-idea.info
health-supplies.info  hosting-right.com  insidealert.com  insurance-facts.info  jobs-employment.info
justgood.info  lookgold.net   lowcost-travel.info  money-source.info  myhostzone.info  numisblog.com
peoplesearchfinder.info  pr-articles.info  realeas.com   refinancing-guides.info  spyware-remove.info
telelot.info  the-law.info   toppaid.info  travel-deals.info  travelcorrect.com  wedding-guide-site.com
your-blog.info  your-credit.info

MORE ARTICLES:

Online Business Broker: Stress Free Help Selling Your Business
You've spent several months, perhaps years, putting everything you have into building a thriving, high-demand online business and now you have decided to sell your baby.Thousands of businesses change hands everyday, oddly enough the channels you can use to get maximum price and exposure for your online business are extremely limited.

Business Finance and choosing the right one
One of the main reasons as to why new business ventures fail is due to a lack of financial funding to get the business venture off the ground. Many people dont realise how much opening and running a business actually costs. If you dont research and seek out business finance you will be unable to pay for your business premises, all of your necessary equipment, your bills and your staff wages as well as any of the stock that you will need.

Insights of Running a Work From Home Business
For anyone who wants to earn more money than they'd ever get with a day job, then the only real answer (besides winning the lottery) is to start their own business. Of course, starting a business can be very costly, something that puts starting a traditional business out of the reach of many people.

529 College Plan, the Ticket to your Child's Bright Future
Now is as good a time as any to start thinking about your children's future. College costs continue rising each year and if you save up for higher education costs when they are already in high school, it may already be too late. To help parents save up for their children's pursuit of higher education, 529 college plans have been developed. These plans are based from Internal Revenue Code section 529 where tax advantages are awarded to individuals or families who invest early for their children's higher educational needs. To have a deeper understanding of how 529 college plans can be the ticket to your child's bright future, take a look at the two types of plans available as well as the benefits that you can get from investing in 529 college...

Saving Thousands on your House Plans at Home Design Central.com
HomeDesignCentral.com launches new interactive website with thousands of the most-popular home plans from the nation's leading building designers and architects...

Protect the Shell of Your Home With Buildings Insurance Cover
Anyone who takes out a mortgage will have no option but to take out buildings insurance cover While it is compulsory and the mortgage lender will ask that you protect the outer shell of your home, you do not have to take cover from the lender

DeAngelo's Soul Food, Deli & More along with TCA Travel Club Sponsors Chicken Waffles and Smooth Jazz with Jazz Guitarist Lawrence Barris on Friday,
Jazz Guitarist Lawrence Barris heats up Detroit's Jazz scene bringing his smooth stylings to the Upper Room Entertainment Complex.

Roman Blinds: Making Your Home More Inviting
Do you want that classic look for your modern or traditional home?

Fair Isaac Blaze Advisor 6.5 for .NET Brings Enterprise-Class Business Rules Management to Microsoft Platform
Updated release of market-leading business rules management system optimized for Microsoft .NET.

Internet Poker - Taking Cash Games To A Whole New Level
Internet poker has gone to a whole new level Never before have over 3 million people at the SAME TIME online

A Review of the Demarle at Home Income Opportunity
When you are considering a career as a network marketer, you should refine your interests What do you get interested in and what can you sell that will make you feel pleased with yourself

ByAuctionOnly, LLC Helps Struggling Home Owners by Launching ``By Owner' Home Auction Sales System
ByAuctionOnly, LLC, a Florida based "For Sale By Owner" home auction service company, today launched its "home auction sales system," a system that provides hope to struggling home owners. The system includes their internet based, global listing and bidding system, auction exposure services, consulting, and services that ensure a closed sale in a timely manner. ByAuctonOnly, LLC makes the auction process easy and cost effective by allowing sellers to choose the day their home will sell and offers buyers the opportunity to bid in a secure, open marketplace.

First Home Buyer Tips
If you are buying your first home, it may be tempting to go with whatever is the cheapest, but experts tell us this is not the best solution. You will almost certainly want to sell your home one day in the future, so a home in a good area will be a better investment.

Chicago Department of Public Health Implements Cities Readiness Initiative with Help of Electronic Knowledge Interchange (EKI) and Datacap
Datacap Inc., the leading document capture and forms processing software developer, and Electronic Knowledge Interchange (EKI), a technology solutions provider, today announced that the Chicago Department of Public Health (CDPH) has implemented Datacap Taskmaster software as part of its Cities Readiness Initiative (CRI), an important new element in urban disaster preparedness.