Archive for the ‘Factoring Receivables’ Category

By Barbara Kiviat

There are plenty of reasons to believe that small businesses aren’t getting the credit they need. In the last three months of 2009, business lending at smaller banks, which tend to cater to smaller companies, was down at a 13% annual rate, according to the Federal Reserve. Not only are loans harder to come by, but they’re also more expensive. That has the potential to slow down economic recovery, since firms that can’t borrow often can’t expand.

Policymakers have responded with a number of programs to boost small-business lending, including an Obama Administration proposal to repurpose $30 billion of bank-bailout money to spur more business lending at community banks.

Talk to business owners, though, and the picture is a lot more complicated. A poll conducted at the end of last year by the National Federation of Independent Business, a small-business trade group, found that companies were overwhelmingly more concerned about slow or declining sales than access to credit. A full 51% of businesses cited sales as their top concern, while only 8% cited the ability to borrow money. An additional 22% cited uncertainty as their biggest worry. In unstable times, even healthy companies are unlikely to want to take on debt.

A topic that has come up the last week is the lack of funds for new or young small business.  Many entrepreneurs are being given so much advice in this economy that often they don’t see how to get going or get working capital for their new business.  Banks and local credit unions are not lending and to go on the internet to look for funds is often a wild proposition.  There is a way and is rather simple.  Is more like a plan.  My advice which you can say it’s based on the plan that I have formulated for my friends and clients is this:

1. Get your business registered-started.  Get your DBA, corporation and internet domain name.  You can get a DBA or “doing business as” registration for a nominal charge.  You can also incorporate, (S, C or LLC) for very cheap.  Get your business on the clock so when lenders ask for how long you have been in business you can say a date other than “Last week”.
2. Get a business checkingsavings account.  This is a minimum requirement for any business.
3. Get a Business Plan. Having one is not necessary but will help you in organizing your business and identifying your market base.
4. Set up a merchant account.  This will help you in taking credit cards as payment which will make it easy to get more business as not all people pay in cash.

After 3 months in business you can use your credit card receivables as the qualifier to get the working capital loan that you need to expand and get rolling.

Granted, the initial cost to get your business started might run you $700-1000, but that will get you going so you can get your customers which in turn will keep you alive for the initial 3 months until you can qualify for the credit card based loan.

Are you presently factoring, or thinking of factoring your receivables?

If that is the case then there are some things you need to know before you embark into a factoring relationship.  And YES, it is a relationship. First, being in the factoring business for many years I have seen my share of business proposals where the client is seeking a factoring facility and decides to shop around for the “best rates”.

Please take time to read this article because I will save you lots of money and time.  Other competitors will disagree into telling a client what the real aspects of factoring are before they get into.  Many will argue that what they don’t know it won’t hurt them.  I disagree.

I prefer to work with a wise factoring client. Why, because he can see what the real benefits and advantages are in what I am proposing and even tailor their factoring facility to their business.  This will make the client happy as the results will be better than anticipated.

Wise or Smart clients tend to make good and informed decisions about whom they wish to work with.

So lets get to the issue of “Factoring Rates”.

Like other lending products, factors quote a “rate”, but neglect to detail the true effective cost, or rate, of the capital being accessed.

Rate and effective rate are 2 different figures, and total up to 2 significantly different results!

For example, when you read the fine print for a bank loan or mortgage, you’ll see terms like “rate” and “Apr” for the same loan.

Often, APR is a higher, but unless there are substantial loan origination points, the difference between “rate” and “Apr” are almost negligible.

However, sometimes there can be a large difference between the rates you think you’re paying versus what you actually pay — the effective rate.

And, funding companies, including many well known factoring companies, disguise the true cost of your capital.

So what is the real issue on this article.  Simple; Whenever you hear a “great low rate” by “Company or Factor A” you will find it to be considerably different than the actual true ‘effective rate’ is.

Inevitably, when confronted with this fact you are likely to be met with utter silence.

The more honest factors may actually admit they have no idea about what you are referring to, or they’ll flat out concede that they have no idea what the difference is and what they are paying.

If you don’t know the answer either, don’t feel bad. You’re not alone.

Here’s the real issue: funders of all types — not just factoring companies — can dramatically enhance their returns, meaning their effective rates through transactional structuring.

Here are some examples of return enhancers for factors. Do they look familiar to you?
term agreements

• minimum monthly fees

• fee periods longer than 10 days,

• minimum fee periods

• volume requirements and associated penalty requirements

• reserve escrow accounts

• fee float days

• credit approval charges

• blanket assignments of all accounts,whether factored or not treatment of non-factored invoices

• clever tack-on fees for itemprocessing or electronic transfers

• requirements that all invoices be factored or that all be factored at once without the option of aging prior to factoring

• batch accounting rather than individual invoice accounting

As you can see there are quite a few items in this list that can easily be justifiable that will effectively increase your cost for the money.

Can you see how an initial low rate can be disguised this way to get you on the hook for all these fees?

If you are already factoring some receivables you will certainly recognize some of these fees if not all.

Are these fees standard in the industry?  Absolutely not.  Specially not when working with First Capital Funding Corporation.

Wouldn’t you prefer if your factor stated what these fees are ahead of time and how they affect your effective rate?

If you are experiencing any of these items listed above, I can assure you that your actual effective cost of capital is higher than you’ve previously thought.

How can we help?

Indeed I can.  I must admit that there are many aspects of a factoring transaction that can confuse most business owners.  Fortunately you are not alone and we are here to help you weed through all these uncharted waters to get the best deal you can possibly get.
If you are interested in a no cost consultation simply call 800-346-0136 Ext 2.  or click this link