Improving Cash Flow with Invoice Factoring and Purchase Order Financing

Managing cash flow can be a challenge for many businesses. But creative funding options like invoice factoring and purchase order (PO) financing can make the job much easier.

These financial solutions offer convenient, cost-effective and immediate access to working capital. Invoice factoring and purchase order financing are suitable for companies in just about any industry. They can provide financial support to expand, manage business surges or even meet day-to-day operating expenses. And they’re ideal if your company is newer and can’t obtain a loan.

The Ins and Outs of Invoice Factoring

Invoice factoring is easy to set up and terminate. To qualify, you should have no existing primary liens or claims on your accounts receivable. And you must have creditworthy clients who pay their invoices promptly and in full.

When factoring customer invoices, you can receive quick cash advances often within 24 hours. Your cash advance is based on the overall value of the invoices you provide as collateral. Typically, you can get 80 percent of the invoice value upfront and the remaining value after your client pays the invoice minus a three to five percent factoring fee.

Your customers pay the factoring company directly. And the factoring company takes responsibility including any loss for the collection of their debts. It’s important to note that invoice factoring is not a loan, so there are no repayments to make. You are simply using the good credit of your clients to release your own assets to be put back in your own business.

Historically speaking, factoring is a well-established form of business financing that produces cash payments at the time of shipping, delivery and invoicing. Its origin has been traced to the days of the Roman Empire or even earlier, but the U.S. factoring industry dates back only about 200 years to the early nineteenth century. Factoring companies, known as factors, evolved from U.S. selling agents for European textile mills. Currently, about 70 percent of the volume of traditional factors is still in textiles, apparel and related industries that highly value credit guarantees, according to the Commercial Finance Association.

Invoice factoring can provide the working capital your business needs to handle new projects, fill large orders and pay creditors on time or even early. In essence, factoring can keep your cash flow running smoothly while your business grows. This can enable you to stop worrying about finances, and concentrate on productivity and how to profitably expand your business. Factoring also can help you avoid wasting time tracking down accounts receivable or handling bad debts.

Here are some other important factors (no pun intended) about invoice factoring:
– There is no application or set up fee.

– You choose which accounts to finance.

– Invoices eligible up to 30 days from the date of invoice.

– There is no a minimum funding requirement or requirement to factor all invoices.

– The funds wired directly into your bank account.

– Customers send their checks directly to our lockbox.

Cashing in on Purchase Order Financing

PO financing can provide quick cash flow reserves for manufacturers, importers, exporters and distributors. This type of short-term funding is used to finance the purchase or manufacture of specific goods that have been presold by the client to its credit worthy end customer. Funding involves issuing letters of credit or providing funds that allow companies to secure the inventory they need to fulfill customer orders.

With PO financing, working capital financing is protected by a security interest in existing purchase orders and the proceeds of the purchase orders. Normally, the security interest is perfected by the lender taking possession of the inventory or raw materials.

PO financing can pay for the cost of your goods directly to your supplier, freeing up cash for other critical business expenses. This can help your company ensure timely deliveries to customers, grow without increased bank debt or selling equity, and increase market share. To qualify for PO Financing, you must provide financial information about your company, information about your buyer and supplier, and buyer and supplier invoices.

PO financing is available for finished and non-finished goods, although finished goods are generally easier to finance. Finished goods involve transactions where the goods go directly from your supplier to your buyer. You never touch them or take direct possession.

Non-Finished Goods are when you, the seller, take possession of the goods either in a raw state (such as yarn to make blue jeans) or a semi-finished state (partially sewn blue jeans). In either case, you must take possession of the product.

Purchase order financing can help solve a variety of cash flow dilemmas. Here’s a prime example: Your suppliers want you to pay cash on deliver (C.O.D.) and your buyers want to pay you net 30 to 60 days. You have no cash flow during manufacturing, while the goods are in transit, and until your invoices are paid.

PO financing may be right for your company if…

– You need additional working capital.

– You lack expertise to handle the financing.

– You need a quick response to an immediate sales need.

– You don’t want to incur additional credit risk, be it foreign or domestic.

– You want your buyers and sellers to not know each other.

– You want the opportunity to make additional profit.

Purchase orders can be used for U.S. and foreign buyers and suppliers. Consider this scenario involving a U.S. supplier and U.S. buyer: You’re an apparel manufacturer. You’ve been in business for six years and have a good profit and loss statement and balance sheet. You just received a large order and are maxed out on credit from your suppliers. Your sales price to your buyer is $100,000 and your total cost to produce the goods is $75,000. Your gross margin is 25 percent. The financing company will purchase the goods for you from your supplier, give you 45 days to produce the goods, charge you a 5-percent purchase order fee ($5000, 5 percent of $100,000) and factor your receivables.

Invoice Factoring- The Best Solution

If you are involved in business, then you know the importance of cash flow. Cash flow is the biggest business necessity, and when it runs short, there is a serious problem. This is where invoice factoring can help. Invoice factoring is a cash flow tool used by a variety of businesses because of its ancillary services. It provides easy and ready cash necessary for a business to run smoothly.

Invoice factoring is the easiest way to get cash in the event of a financial emergency. All a business has to do is sell its invoices for cash. An invoice factoring company will pay you cash for your open invoices- by far the best option available to you if you should find yourself in an emergency. It is wise to be prepared for these kinds of situations, but it is not always possible- and invoice factoring can help you out.

When pressed for cash, most businesses first impulse is to apply for a loan from a bank. This is not a wise step, as the majority of banks have been stockpiling their loan loss reserves over the last several years; invoice factoring is infinitely more practical. A little-known fact is that this easy financial option has been used for centuries.

Invoice factoring is a smooth cash flow tool used by a variety of businesses, both upcoming and established. The benefits of invoice factoring are as follows:
Invoice factoring easily eliminates bad debt. This non-recourse factor simply presumes the risk of bad debt and eliminates this expense from the business’ income statement.
The majority of the work associated with processing invoices, such depositing checks, posting invoices, entering payments and producing regular computer reports is handled by the factor.
An unlimited source of capital, invoice factoring is the only source of financing that increases with your sales.
You need not lose money by offering early payment discounts and volume discounts.

If you are in need of urgent cash, invoice factoring is the best solution. For more information on invoice factoring, factoring invoices and invoice factoring rates please visit.

Invoice Factoring: Cash Now, No Waiting, No Debt – Your Competitor Is Doing It, Are You?

What are Your costs for NOT Factoring?

Consider the time value of money and the benefits of improved cash flow to your business. By having, cash for your invoices within 24 hours are you able to pay your suppliers faster and receive better discounts. Are you able to fulfill your next order to XYZ Company and make payroll without tapping your line of credit at the bank? Can you offer longer terms to larger customers and attract more business? Can improved cash flow help your business grow or survive without incurring more debt at the bank? Can the financial benefits of improved cash flow to your business offset the fees of Factoring, and then some? Sure it can, the savings alone in taking discounts from your vendors can equal the cost of Factoring. All the other savings are in your pocket! Factoring is a smart business decision. Why are you doing it?

Is Cash needed immediately for growth or survival?

Is long billing cycles putting a strain on your business cash flow? Despite increasing sales, does the management of receivables and payables seem like a juggling act? Could your business increase sales by offering better terms to your new and larger customers? Are you spending too much time collecting from slow paying customers and not enough time building your business? Is your bank turning you down for traditional financing due to years in business, profitability, lack of assets, personal guarantees or financial strength?

Have you considered turning away new business due to slow cash flow?

These are challenges many businesses face that can be solved with Factoring.

Benefits of Factoring Receivables

Simplicity

The advanced funding you receive for your receivables and the discount fees you will pay are based solely on the financial strength and credit worthiness of your customers, not your business!

You receive Cash for your unpaid accounts receivable invoices. Usually the factoring company buys the invoice from you for an amount less than its actual face value (70-90%). When the Factor later collects the full amount of the invoice from your client, you will receive the remainder of the advance less the factoring fee (discount rate). Fees will vary depending on the total dollar amount you intend to factor on a monthly basis.

Flexibility

Need a flexible financial solution that can help your business be more competitive while improving your cash flow, credit rating, and supplier discounts? Factor as much as your want or as little as you want. You decide. No obligations. There are No minimums and No maximums in the amount you can factor. No binding contracts, if that is what you want.

Unlike traditional bank financing, factoring relies on the financial strength and credit worthiness of your customers, not you. Here’s why you should use Factoring services:

Offer Better Terms – Win More Business

With Factoring, you can attract more business by offering better terms on your invoices. Most companies negotiate on price to win business in a competitive market, but with Factoring, you can negotiate with terms instead of price.

To your customers, better terms can be more attractive than better prices.

When using attractive terms to win business, you can build the cost of factoring into your costs of good and services.

Example: A new customer may choose to do business with your company because you can offer NET 30 or NET 45 terms while your competitor (who isn’t factoring) requires payment up front but has a 3% better price. If you factor the subsequent invoice at a discount of 3%, you have leveraged factoring services to win the business at no extra cost and improved your cash flow at the same time.

Improve Cash Flow * NO Additional Debt *WIN over customers

Your Business Receives:

* Get cash in 24 hours or less from your outstanding invoices! Eliminate long billing cycles.

*No new debt is created. Factoring is not a loan. This allows you to preserve your financial leverage to take on new debt. Improved credit rating.

*Purchase capital equipment to expand your business.

* Increase inventory for quicker shipments or handle seasonal inventory needs.

* Market for additional business.

* Take trade discounts. This alone can offset Factoring fees and all the other savings are gravy!

* Pay off nagging, expensive delinquent obligations.

* End payroll worries.

* Meet tax requirements on time. No more exhaustive penalty fees.

* Negotiate discount purchasing.

* Unlimited sales and profit potential.

You Receive:

*Cash stability

*Simple to start and use

*You keep control

* Reduce stress, improve planning, focus on what is critical to make money.

Customer Credit Services:

*Reduce bad debt expense, work with experts at collecting.

* Streamline credit approvals for new customers.

* Improve decision-making on new business.

* Reduce administration costs: long distance calls for collection and credit investigation, postage, staff, monthly statements and more.

* Larger customer credit lines and better terms, which increase sales.

* As you grow, your payroll budget for credit and collection department is minimal.

Accounts Receivable Management:

* Reduce administrative costs. Factor will post invoices and apply cash applications.

* Improve customer relationships. You are no longer the bad guy looking for payment.

* Improve receivable turns. Fact: Customers pay Factors before independent businesses.

* Improve accounting performance; timely reports, online access and more.

* Redirect your critical resources to marketing and production

If you are looking to receive an increase in cash flow and increase your bottom line profits, you need to factor your invoices now!

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What is Invoice Factoring and Invoice Discounting?

The Romans were the first civilization to sell promissory notes at a discount, beginning the industry of factoring. America was built largely on the possibilities of factoring, when colonial businesses were factored by Europeans willing to invest cash in exchange for the promise of large returns, and government bonds also use the same principles applied by businesses when they engage in invoice factoring.

Invoice factoring is, at its simplest, the sale of the right to collect cash owed on your outstanding invoices. Most businesses engage in invoice factoring when they need cash up front quickly, or when they have customers that are slow to pay and don’t have the resources to build an accounts collections department. Though some companies are large and established enough to get accounts receivable financing through a regular bank, it can be handy to have access to invoice factoring companies as well.

Most businesses use invoice factoring to get fast cash. In the intense and fast paced business environment of today, ready cash can be invaluable. With the sale of your invoice futures, you can get the cash today you need to capture customers that will move your business forward.

Invoice factoring is not a loan; rather, it’s an outright sale of an asset. Another way of looking at it is as a cash advance: you give up a certain portion of the money you expect to receive in the future in exchange for ready cash today. While some businesses purchase invoices outright, others give you a down payment toward the invoice, paying you the balance less their fee when they receive payment from the customer. One of the best things about invoice factoring is that your credit has no bearing on whether you are approved; instead, your customer’s credit qualifies the invoice for factoring.

Many different industries take advantage of invoice factoring, including:

  • Transportation
  • Manufacturers
  • Distributors
  • Wholesalers
  • Staffing and consulting firms
  • Telecommunications companies
  • Service providersBecause ready cash is so important in their business, industries that are heavily vested in human services and need to be able to meet payroll are among the best able to leverage invoice factoring. However, any business that generates at least ten thousand dollars in accounts receivable should be able to use invoice factoring, provided they’ve acquired creditworthy customers.

    Other situations that might make invoice factoring a wise choice for you include:

  • A young company with creditworthy customers, but not sufficient credit history for your own business to be considered creditworthy by banks
  • A company with the necessity of taking advantage of new, time-limited sales and profit opportunities, but inadequate cash flow currently to do so
  • Companies with income, credit, or tax problems
  • Companies that have filed for bankruptcy, but that stand to turn a profit
  • Companies that are growing too rapidly for ready capital to keep up with business needs
  • Companies poised to grow very soon but do not want to incur debt
  • Companies that are growing rapidly, but do not have good enough credit to take out bank loans.
  • Start-up companies with no capital base currently
  • Companies with seasonal sales patterns or uneven sales patterns