Cash Flow Mistakes and How Spot Factoring Can Help

spot-factoringCash flows, as its name suggests, refers to movement of actual money received and spent. It showcases the pattern of income and expenses, and its consequences for how much money is available at a given time. Despite its description being straightforward and easy to understand, the same cannot be said when it comes to its management. It can be tricky and at times pretty hefty. Luckily, spot factoring is a life saver in such cases.

So what mistakes do most entrepreneurs make against cash flows that can seriously threaten the company’s liquidity? Here take a look.

Mistake: Long Outstanding Receivables

Accounts receivables are not bad per se but if they become long outstanding then they cease to be quite the promising asset they were supposed to be. Long outstanding accounts mean that they have gone past their maturity. They remained uncollected and therefore useless and illiquid. Overtime they can even be written off as losses.

Mistake: Overestimating Sales Volume

There is nothing wrong about optimism in business but everything has to be set on a realistic scale. Your sales won’t triple in a month by some miracle. If you overestimate and make use of unrealistic and proof-less basis then you are in for a bloody treat. You might even spend more thinking that you are going to earn more which can be fatal.

Mistake: Poor and Lenient Credit Terms

Regardless if you are the vendor or the buyer, it is important that you take a good look at the terms and conditions you set out or are set before you. As a vendor, make sure that you are not lenient when it comes to credit policies offered to your customers. As a buyer, understand all terms first before signing into the contract.

Mistake: Mismanaged Records and Transactions

To better gauge and assess one’s cash flows, proper records and management is necessary. There has to be a system set in place to raise red flags when disadvantageous circumstances arise. Accuracy and timeliness are also crucial here. If records are erroneous or are not recorded and made available in time then all efforts will remain futile.

So how does spot factoring fit in all these? Of the mistakes listed above, long outstanding receivables or simply a high bulk of trade receivables threaten liquidity as it traps cash within invoices for significant periods of time thereby preventing the business from using its resources. With spot factoring, companies can advance their value prior to their maturity thus hastening acquisitions and providing a quick financing option without having to settle with debts.

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Mistakes Entrepreneurs Make with Their Export Funding

mistakes-to-avoidExport funding is crucial simply because it pertains to resources needed to make foreign transactions run. Unfortunately, some entrepreneurs commit a number of mistakes that puts their business at risk thereby creating losses instead of profits. This is bad considering that the financing used is really hard earned, took time to pool or is sourced through credit. Moreover, this puts one’s export operations on a tight rope.

But if there’s one thing that entrepreneurs can do, it’s to avoid making those mistakes and one way to do so is to know exactly what they are. This way, we’d be aware of what to avoid, what not to do, the warning signs and the immediate fix should things have already gone off course.

Mistake #1: Failure to Budget Wisely

It is of common knowledge that proper allocation of one’s resources is crucial to its success. This is true for every single penny regardless of how it was raised. When one takes out their export funding regardless of size and source, it is imperative to have a plan as to how it will be used and allocated to entity’s needs. We cannot just use them loosely and mindlessly because that can lead to wastage and shortage. Nobody wants that and it’s a sure way to dismantle hard work.

Mistake #2: Absence of Planning

There are many types of export funding from restricted earnings to savings to receivables financing to borrowing. When it comes to the latter, it is imperative to plan about its payment. Those liabilities will have to be repaid as mandated by the terms one has agreed upon with their chosen financial provider. This will ensure that there will be no missed payments or penalties. As they say, with every borrowing comes an exit strategy.

Mistake #3: Lack of Proper Accounting

Once the amount gets approved and enters the company’s books, be sure to have accounted for the transaction properly. The books, records and reports must state its presence so that it will be reflected in the financial statements and be visible when decision making and evaluations are performed. Failure to do so will likely have the business and its staff overlooks the export funding leading to unwise use of it.

Export funding is a tire that works to keep the company running. If it’s not used properly, chances are it won’t serve its purpose as expected.

Ending Single Invoice Finance Misconceptions for Good

How To End Single Invoice Finance Misconceptions

Single Invoice Finance single-invoice-financecomes in two forms namely factoring and discounting. Both methods have become superstars in the world of finance and have been two of the most sought after among business owners and entrepreneurs alike. However despite their popularity and widespread use, a good number of misconceptions still continue to hunt them. That’s bound to end today as we lay down the facts from the fallacies with this list.

The Misconception“It’s another form of debt.”

Of all the lies and misconceptions about single invoice finance, this is perhaps the most rampant. It’s not that surprising given that a good majority of financial options in the market fall under the category of credit. Just keep in mind that this one begs to differ as it is an asset transaction. It generates funds by virtue of advancing the value of an invoice, one that is yet to mature and yet to be paid at a future date. In the books, it appears as a decrease in trade receivables coupled by an increase in cash.

The Misconception“It’s only for the established entities.”

Most small to medium scale enterprises, recovering entities and startup companies often shy out of trying to finance their endeavors with the help of financial providers thinking that their application will get rejected anyway. The good news is, single invoice finance is no debt thus it comes without interest and collateral. Even the smallest and youngest entrepreneurs can apply for it because it has no asset level requirements. This makes it faster to process too. Plus in terms of creditworthiness, providers need that of the customer’s to whom the invoice is attached to not the company’s.

The Misconception“Receivable value is lost in the process.”

Let’s review the process. First, the provider gives the company an advance of the chosen invoice’s value even before the owing customer pays for it. The amount is equivalent to at least eighty percent and as much as ninety-five percent of the total value. The remainder shall only be released and forwarded to the company once the customer has paid in full which is decreased by a predetermined fee.

The Misconception“It’s expensive.”

As previously mentioned, single invoice finance only involves a predetermined fee which is agreed by both parties at the onset. Moreover, since this is a onetime transaction the fee also happens once. There are no lengthy contracts and obligations involved.

What is invoice finance?

More on invoice finance at http://workingcapitalpartners.com.

How and Why Export Finance Works

Exporting-financeBusiness, as it is, is not an easy venture. It takes a lot of dedication, hard work, finances and of course guts. If opening up shop domestically is already a massive undertaking, imagine how magnified everything becomes when we think internationally. Exportation both frightens and excites an entrepreneur. But to us, it’s not something to be scared of especially when we’ve got export finance to back us up.

To a lot of people, export finance is something new and foreign. But given its perks and benefits, you’d be at a disadvantage if you never get to hear about it and we’re here to fix that.

By definition, export finance is the method by which companies get to trade internationally without the usual burdens of documentation and threats to collections and liquidity. This is done by selling the rights to collect against export sales invoices in exchange for an advance of their value to be received earlier than their maturity.

Majority of sales transactions happen on credit. If you look at your accounting books, you’ll realize that sales occur either on cash or on credit. With foreign trade, majority of importers opt to defer payment. This means that they shall withhold payment until a set maturity date which is oftentimes the time by which the goods are received or when they have been resold.

The very reason why many businesses find it useful is because it helps avoid issues with collection and liquidity. International trade means additional administrative costs and the need to fine tune certain processes to comply with the culture and laws of a specific country or territory. Additionally, export finance providers tackle the administrative requirements in terms of collection which saves the company both time and resources.

Moreover because it speeds up the collection process, the level of cash inflows grows as sales increase. This alone strengthens working capital and improves the entity’s state of liquidity and solvency. The process even helps minimize if not completely avoid financial risks namely credit, foreign currency and interest rate risks.

Overall, export finance help business entities who wish to take advantage of the opportunities presented by the world market. By cutting down and removing factors that present risks or negate benefits, it allows even the smaller companies to venture further. Even startups can make use of it as it does not have the strict requirements and application process that most funding methods and institutions require.


Learn more at workingcapitalpartners.com

On Choosing Spot Factoring Companies

choosingChoosing spot factoring companies is just as important as picking which among the wide array of financing alternatives to use. It spells either the success or the ultimate failure of one’s endeavors. After all, despite the method’s effectiveness things will still boil down to whether or not the provider can indeed supply what they claim to do so.

So the question goes like this. What do we look for?

1.    COMPETENT STAFF

As they say, a company is only as good as the brains behind it. No one can continue walking the path to success with an incompetent team. Make sure that the people and the professionals are indeed skilled and qualified as they say they are. Check for qualifications, licenses and even ask for previous experiences and services.

2.    CUSTOMIZED SERVICES

Not all companies belong in the same industry. Not everyone has the same transactions. They don’t sell the exact same products and offer completely parallel services. Businesses differ in one way or another making it a must that your factors should be able to provide you with a service that is personalized and custom built for you. Sure, the policies and other standard procedures will hold steadfast but there will be items that should depend on the company being serviced.

3.    PUNCTUALITY

One of the reasons why business entities decide to factor their receivables is to hasten the recognition of cash. If the provider is unable to do so in a timely manner then the very purpose of one’s actions will be foregone. We all know that time is an important factor in business and those who cannot deliver on time are dead weight.

4.    REVIEWS AND FEEDBACK

One of the important parts of running research and background checks on the available spot factoring companies is to look for relevant and reliable customer reviews, feedbacks and testimonials. These should come abound. With the help of the internet, they are easier to find among forums, blogs and industry websites. Recommendations from friends, family, colleagues, employees and partners are also welcome but make sure to take them with a grain of salt.

5.    REASONABLE PRICING

This is something to consider when looking for spot factoring companies. We surely do not want anyone to charge us with a price so high that it becomes so much of a burden. Make sure that they too do not come with hidden charges making them affordable upfront but expensive later. Always consider things at the long run.

Single Invoice Finance Options to Choose From

Invoice letter head with pen and calculator / selective focusIn this world, being given options can either be a treat or a challenge. For the former, this allows us to dabble into alternatives. We get to take a look at the potential of each one and this enables us to adapt and to incorporate the best possible choice for our needs. As for the latter, it can be taxing in the sense that they can be overwhelming. It’s not uncommon for people to be confused when presented with various ways of doing things. Single Invoice Finance is no different.

This strategic process of raising financial resources against individual invoices has more categories under its umbrella. For us, it is important to carefully understand what each one presents so that we can decide and assess if they’re the perfect fit.

  • Factoring – In this method, the right to collect against the invoice is sold to the provider, called a factor. In other words, the responsibility and burden of collection is passed on to and assumed by the factor. The amount received as an advance will only be around 80-95% of the total invoice value with the remainder held by the factor until complete collection is achieved. Once done, it shall then forward the remaining value less fees to the company.
  • Discounting – Here, the responsibility of collection is retained by the business. The invoice is used as a form of security in exchange for the advance. After maturity and once collection is completed, the company shall then repay the provider for the cash advanced plus fees.
  • Confidential – Specifically applied in a factoring arrangement, some entities choose to make the transaction confidential. This leaves the customer to whom the invoice is attached to out of the picture so as to avoid confusion when collection period rolls in.
  • Disclosed – The complete opposite of a confidential agreement, this fully discloses the use of the invoice to generate additional cash for the business entity.
  • Funding Limits – Also known as with recourse financing, this alternative stipulates that in the event that the financing institution cannot collect against the invoice due to the owing customer’s non-compliance, the company is required to buy the invoice back.
  • Without Recourse – This single invoice finance option strips away the risk of nonpayment for the company. Should the owing customer fail to completely pay on time or at all, the loss shall be absorbed by the financial provider.


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How Export Funding Can Help Your Dreams Come True

export-fundingWhen you ask just about any entrepreneur on the face of the planet, they’ll tell you that one if not the biggest dream they have for their company is to go global. That’s no surprise. Who doesn’t anyway? But that’s no saying that it’s an easy job. It’s actually pretty tricky, arduous and risky even. Luckily, brands that aim to export their products found help through export funding. Why? Read on to find out.

Diving into and tapping the international market sounds like a dream. It opens up a lot of opportunities. For instance, there’s a bigger market. This allows potential for increased sales and with that profits too. Per unit cost of production can also decrease and seasonal losses will be avoided. There is better risk diversification as well because the business is supported by both domestic and international markets.

But as we’ve said earlier, exporting is serious business and it comes with costs, a lot of work and risks.

First of all, there are the added administrative expenses. Either increased labor hours are required and there’s a need for more capital to fund for equipment and office space or the company needs to set up a satellite office to facilitate off-shore accounts. Remember that collection will be done over massive distances. Luckily with export finance, the provider will shoulder the collection function so there’s no need for added administrative costs and capital.

Second, trading internationally involves a lot of meticulous documentation. Invoices for instance can be tricky because language barriers can be a pain most of the time. The entity also has to conform to the laws, regulations and standards of each territory it wishes to bring its products to. But with an export finance arrangement, all of these documentations will be handled by the provider’s team who has been trained, are educated and are experienced about the laws, customs, traditions and language of various countries.

Third, export finance allows companies to diversify their risk as well as minimize if not avoid them. One of the method’s main services is the advancement of the value of export invoice sales thus allowing the company to make use of its resources immediately and as sales occur. This removes the risks of cash flow and liquidity issues. It is also because of this reason that credit, foreign currency and interest rate risks are best avoided.


Check out workingcapitalpartners.com to learn more about financing.

Traditional and Spot Factoring: What’s the Difference?

spotfactoringInvoice finance has come to bread various methods under its belt, each of which has their own unique perks and benefits. Take traditional and spot factoring for example. The two have almost the exact same advantages but they’re still different, if by a smidge. There’s a thin line that draws them apart and unique from each other and today we’ll explain further and help you understand them.

Traditional Factoring

In this type, the entire invoice or receivable bulk is subjected to the financing method. In other words, each and every invoice is advanced thereby allowing the company to receive the cash attributed to them prior to their maturity and before actual payments by customers are made.

This involves a long term contract which can last from a few months to years depending on the terms agreed upon by the parties involved.

Control and burden of collection of all receivables shall now cease to be the company’s as it is shifted to the factor that carries such responsibilities.

Spot Factoring

On the other hand, spot factoring only involves a specific and single invoice purposely chosen by the company itself for whichever reason it deems fit.

It is therefore a onetime transaction and does not involve any lengthy contracts or arrangements. The company may choose to use it whenever and how often it wants and the choice of the invoice used lies completely up to them as well.

In the same manner, cash equivalent to the value of the receivable is advanced prior to its maturity and before payments by customers are made. The task of collecting also rests with the factor or the financing institution.

Benefits

As mentioned previously, both traditional and spot factoring still carry a good number of similar benefits. The thin line that separates them after all is the number of receivables used and the length by which the transaction or relationship between the parties exist. To be specific, here are the two major perks of using them:

  • They strengthen working capital. – By allowing for better liquidity and freeing locked up cash within invoices, both provide for a better cash flow thereby empowering working capital and making resources available for immediate use in operations.
  • They’re no debt. – Both traditional and spot factoring are asset transactions. In that sense, they are no liability or loan so they do not come with the strings attached to one such as interest. They even reflect in the books as a decrease in receivables and an increase in cash.

How Single Invoice Discounting Differs from Factoring

factoring vs discountingWhen it comes to receivables financing, two options reign supreme: single invoice discounting and factoring. However, the two often get mixed up and mistaken for the other. Today, we look deeper and try to differentiate the two.

Single Invoice Discounting

The method involves the use of a specific customer invoice as a security or form of collateral in exchange for an advanced received which is equivalent to its value. The company gets to use the cash immediately before its actual maturity. Once it has matured and collection from customer is completed, it must then comply with its responsibility towards the financial provider by repaying it of the sum advanced plus fees.

Single Invoice Factoring

The method involves the sale of the rights to collect against a specific customer invoice in exchange for an advance of its value. Such advance is equivalent to at least 80% of its total value and is received immediately. The company goes on to use the fund received. The burden of collection is also passed on to the financial provider. Upon maturity and once full collection is received, the provider forwards the remaining balance less the fees to the company.

In terms of benefits, the two pretty much produces the same perks as follows:

  • Both are not a liability. – Both discounting and factoring are not a debt, a loan or a form thereof. They are both asset transactions so they also do not come with interests. The fee is set beforehand and does not compound.
  • They hasten collection. – Most providers are able to release cash within a day’s time. The advance also paves the way for immediate cash recognition as companies no longer have to wait for maturity in order to use the funds attributed to the invoice.
  • They are a onetime transaction. – Only a single or selected invoice is used in both methods. The choice of which invoice and when to use it shall be completely under the discretion of the company. It does not involve lengthy contracts as well.
  • They inject cash into the system. – Its immediacy allows for a quick injection into the cash flow which helps in terms of liquidity and ins strengthening the working capital of the business entity.

We hope we cleared the confusion between single invoice discounting and factoring. So, which of the two are you going for?

Export Funding and Risk Aversion

exportfundingExport funding has become a very important and effective tool that has allowed companies to trade overseas without the usual hefty complications, one of which being the financial risks.

Admit it. We all hate risks and we’d do everything in our power to avoid them. The thing is, exporting and diving into the international market is tough business. It’s not for the weak and it demands so much that it may appear extremely taxing. However, businesses know that when done right it can lead to endless opportunities, expansion and growth that is simply hard to ignore.

Now, what are the types of financial risks that export funding helps shun away? Let us all find out by reading the following list.

1.    Credit Risk – Investopedia defines it as “the risk of loss of principal or loss of a financial reward stemming from a borrower’s failure to repay a loan or otherwise meet a contractual obligation.” In other words, it occurs when the buyer or importer misses or fails to pay up. Delays are by itself already numbing. Absence on the other hand screams nightmare.
2.    Currency Risk – This arises from the change in price of one currency against another. Trading overseas mean that one will sell goods and receive the payments thereto via the local currency of the exporter. Over time, these fluctuations can create losses especially when certain economies abruptly surge up or down.
3.    Liquidity Risk – This is the risk that the entity could no longer meet its short term obligations, often due to the inability to convert a security or hard asset to cash without a loss of capital and/or income in the process. Importers are known to defer payment up until goods have been delivered or until they have been resold. This can create a liquidity issue for the exporting company as its cash will be locked up in their invoices. When this grows to a certain degree, it will put a strain on the cash levels and thus affect liquidity. Export funding helps remove this by allowing companies to advance the value of such invoices even before actual payment is administered.

By minimizing or even eliminating credit, currency and liquidity risks, export funding allows companies to better maximize the benefits of the trade. This reduces if not removes the fear of having to face these threats that could in a way hurt the business to a crippling degree.