Category Archives: factoring

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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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.

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.

Why spot factoring works

spot factorWhat is spot factoring and how does it work? More importantly, why are more and more entities finding the need to use such method of financing? Let’s all find out.

First of all, what is it? Spot factoring falls under the category of receivables financing wherein a business entity makes use of a selected sales invoice from which to draw cash from. It is a sale transaction wherein the company sells its right to collect against it to a party called the factor in exchange for an advance of its value.

It is for the above reason as to why the method is an asset transaction thereby producing zero amount of debt. It doesn’t even have the effects and consequences of one. How is that possible?

In spot factoring, the business chooses a particular invoice. Oftentimes, it pertains to an account that has significant value and which can cater to the financial need of the entity. It is then sold to a factor who in turn gives about 80%-95% of its value. The remaining it shall retain and release only upon complete collection from the owing customer. The company shall then make use of the cash received whichever way it sees fit. Upon the invoice’s maturity, the factor shall then collect from the owing party and then release the remaining balance less fees to the company.

One very important reason as to why this method is preferred is because of its immediacy. Most if not all providers can arrange for the cash to be released in a matter of twenty four hours. This is not possible with other financing mediums. Furthermore, there are not as much frills and requirements to deal with making it less of a hassle.

Spot factoring also helps hasten collection and shift the burden. Apart from selling the rights to collection, the company also transfers the burdens thereof. If you remember, we mentioned that the collecting agent here is already the factor not the business. The entity shall no longer have to wait for the invoice’s maturity to receive the cash locked in them which spells good for liquidity, cash flow and working capital purposes.

Moreover, spot factoring can be used by everyone. Unlike bank loans and mortgages for example that are only available to established and heavily funded entities, the method is open to small to medium scale enterprises as well and even to startups and businesses in recovery. This is because the providers do not bank on the company’s creditworthiness but instead that of the customer’s.

Improve Cash Flows with the Help of Factoring Companies

cash flowFactoring companies can surely help businesses with their cash flows dilemma. We’re not kidding. They really can and today we’ll help you get to know more about the services they offer and what makes them one of the business industry’s top financial sources!

Factoring is a type of financing wherein a company sells its right to collect against its accounts receivables or invoices to a third party at a discount in exchange for an advance of its value.

Because many businesses offer sales on credit, it cannot be denied that cash flow problems can occur if customers do not pay on time or at all. Even with penalties and interests, cash will still be locked up in invoices making them unavailable for use up until the customer pays them. Factoring fixes this.

What it does is that it allows the company to draw immediate funds from the invoices in even as fast as twenty for hours. The advance it is able to draw against the provider is equal to a majority percentage of their total value, often ranging from eighty to ninety five percent, with the remaining balance forwarded and discounted of the fees after the factoring facility has fully collected from the owing customer.

Its charm lies in the fact that it does not create a loan unlike other financing methods. The company in essences sells its asset as it gives the right to collect against such invoices at a future date. Because of this, liabilities remain the same and only the asset side of one’s balance sheet is affected. A rise in cash occurs alongside a decrease in trade receivables. As mentioned earlier, it is a sale of an asset which is your receivables and not a debt.

It is also immediate in nature and is not coupled by the same long and meticulous application process involved in bank loans, mortgages and similar other forms of finance. This makes it a good source of immediate financial resources allowing a quick injection of cash into the system. Because of this, working capital is strengthened and cash flows are improved.

Moreover, factoring companies can help businesses improve their collection function. With the sale of the invoices comes the responsibility of payment collection. The factor now has that burden and therefore relives it from the company. These facilities are known to have well developed protocols and programs to improve such function so businesses are rest assured that customers are dealt with accordingly, in schedule and appropriately.

Dos and Don’ts When Working with Factoring Companies

factoring-companiesFactoring companies offer invoice financing services that allows business entities to raise funds and capital through their customer receivables. In such an arrangement, the company advances an amount equivalent to around eighty to ninety percent of the value of their chosen invoices with the balance less fees forwarded only upon full payment is received from owing customers. The burden of collection will also be transferred to the factor.

There are benefits to this type of financing that has made it one of the most widely used in the business world today but just like anything else using them in the wrong ways will earn you a migraine. This is what makes it important for business owners and entrepreneurs to get to know the service more. To help you with that, we’ve come up with a list of do’s and don’ts when working with factoring companies.

Do your research well. There are many factoring companies out there so it is you job to find who they are and get to know them better. No two are exactly the same so be sure to research well. Make a list, compare them to your qualifications and short list your candidates.

Do read client reviews and feedback. To know about how quality driven they are, it is best to ask people who have experienced their services firsthand. You can do this in many ways from reading forums and blogs to calling up people personally.

Do understand every clause and sentence you are agreeing to. Again, no two factoring company is the same. They will have varying clauses to their terms and conditions and different processes. Before you sign into any agreement or contract, be sure that you understand every word there is to it.

Don’t settle for lackluster quality. If you want to make the most out of your invoice receivables then do not settle for less. Always go for gold.

Don’t go for the cheapest rate in a heartbeat. Entrepreneurs want to be cost efficient but do not let quality suffer. Just because a certain factor offers very cheap and rock bottom rates do not mean that you have to settle with them. There are other factors to consider and not just price.

Don’t use factoring without knowing what it is. If there are things that confuse you about the financing method, go ahead and ask the factoring companies you are dealing with. They will most willingly love to enlighten you and keep your facts straight.

Factoring Companies and How they Work Magic

Maybe you have heard about Factoring or maybe you haven’t. Either way, you better read up and get to know more about it. Who knows, it might just be the solution that you have been looking for to better your company’s operations. Okay, so let’s get started and discover how Invoice Factoring companies work their magic to help businesses, small and big alike.

But first, what is factoring? It is a kind of receivables financing method apart from discounting that seeks to derive funds from the company’s receivables and customer invoices by hastening their collection. Now who wouldn’t want that?

invoice finance londonA company in its usual operations and trade sells its products and/or services either in cash or in credit. In the latter, this is referred to as trade receivables and is contained in the customer invoices. There is a sale but the receipt of cash isn’t always spot on. When sales are on credit it can take for weeks to months before full collection is attained. In some cases, the owing clients even default in payment, others late while others not at all. But the company may have the need to get hold of the cash locked up in such invoices for several reasons. This is where factoring steps in.

The business sells its customer invoices, a corporate asset, to a financial institution often referred to as a factoring company or simply a factor. The factor in turn gives the selling company an advance which is equivalent to a major percentage of the value of the sold invoices. This can be for as high as eighty to ninety five percent in value.

Another perk of such financing method is that the business is freed up and relieved of the collection process as the factoring company takes charge and holds the responsibility of collecting from the owing clients. Upon complete collection, the factor will give the company the remaining balance of the value of the invoices less the discounts and fees that both parties have agreed upon at the onset. In essence, factoring involves the sale of the customer invoices and the right to collect against them.

The services of factoring companies can be divided into two: bulk or single invoice. In the former, the company sells off all of its invoices and pays a monthly fee. The latter on the other hand is more of a one-time transaction only but should a company wish to use it again then they can do so and the fees involved are only attributed to the invoice at hand.

What You Should Know About Invoice Finance UK

No company can continue operations much less set up with the absence of enough resources. Cash is an asset that keeps any business running and without it we all know where they would end up. In fact money is a universal means of trade for gone are the days of barter although some transactions still resemble it such as exchange deals. However, money is the major means by which business owners acquire resources such as labor, land, buildings and raw materials. Unfortunately, cash is not easy to acquire. There are many methods by which business owners choose to raise their needed resources. Invoice finance in the UK for example is one main method which has also been gaining ground in other parts of the world.

Factoring Vs Accounts ReceivableInvoice financing draws its resources by allowing companies to advance the value of their customer invoices even before actual payment has been rendered by an owing customer. This allows them to improve their cash flows, hasten up receivables and avoid bad debts without having to get a loan and increase their liabilities. Other benefits of it include:

  1. It is a quick way to derive cash and can be made available within a day or two.
  2. It does not require you to present proof of financial capacity to pay as it is your customer’s capability that is required by the financing institution.
  3. It allows for a quick injection of cash in the working capital as it can make non-current assets available for current use.
  4. It does not reflect as a liability in the financial statements.

Invoice financing comes in two forms namely factoring and discounting. These two are found to have similar benefits but differ slightly in their procedures.

FACTORING refers to the sale of the said invoices to a financing institution often called a factor. It is basically the sale of an asset, In this arrangement the company agrees to get an initial eighty to ninety five percent of the value of their receivables from the factor while waiting to get the remaining balance less any fees only after collection from customers have been completed by the factor.

DISCOUNTING on the other hand uses the said invoices as a form of collateral. Here, the company gets the full value of the receivables in advance and proceeds to collect the payment from its customers. Once this is established, the company then reimburses the financing firm of the amount plus any fees or expenses that the latter has acquired.

Single invoice finance Tips From Factoring Companies

We all know very well that trying to borrow from factoring companies and succeeding is not an easy task. But then again, you go through it anyway as projects and plans need funding. Plus, the sad fact daunts us that cash cannot be readily available at all times. They can be tied up in various places, receivables and invoices being two of them.

Two of the many institutions which can provide you with your needed resources are banks and factoring companies. Money is very hard to earn and very easy to spend. Again, that’s another sad fact but we all have to deal with it. We must work our way around it and plan our actions carefully so as to make the right decisions. Also, there are cases when we need funds but do not have any at hand. Banks can provide you with loans but these loans have to be approved first. Meanwhile factoring can provide you the cash provided you give them your invoice in return.

You’ve probably known by now that there are tons and tons (if not a gazillion) number of rejected loan applications. So how do you succeed in getting your application stamped with an approval? Here are some useful tips to help you.

  • business lending moneyAs always, do your research. It would be a very good idea to make a thorough research about your possible options to fund your needs as well as the available institutions from whom you are getting these funds from. Take this for example. There are banks that cater only to loans applied for by companies in a particular industry or sector. At the same time not all banks can provide for every loan applied for. Let’s say real estate.  The amounts needed here can be high as we all know that properties are in no way cheap. Not all banks will say yes to loans that are in huge quantities.
  • Look at yourself. Do you have a good credit score at the present? Are you paying your dues right and on time? If your answer to both questions is a resounding yes then you’re a step ahead, otherwise don’t expect any bank to approve your loan.
  • Express your needs and payment plan preferences. It is important that you communicate well what your needs and expectations are as well as your planned mode or type of payment. It is true that your financial status and ability to pay will be highly questioned and looked into but having a good grade on those two won’t simply cut it. Business lending institutions will want to secure your invoice so they can make sure to get paid from your single invoice finance loan. In the first place, they won’t lend you if they get the idea that you won’t pay them right, on time and within the terms agreed upon.

 

Spot Factoring: What is it?

These two words may sound a little foreign to most people but definitely not to businesses. Single invoice or spot factoring is the strategic process of raising financial resources against individual invoices. Here, cash is released which are still locked up. It is a business financing solution which enables a business to receive cash in advance on a single outstanding invoice. Companies involved in this provide their clients their needed resources by financing client invoices as they are generated and as they are needed.

business lending 01There are some companies which are hesitant about factoring as they are afraid of getting tied up in lengthy contracts and on going commitments which in the long run can be fatal to them. Here the beauty of spot factoring comes in. It is a one time basis and unlike other factoring contracts, they won’t hold you down for far much longer than you would want to.

When looking for spot factoring companies there are three essential elements for you to consider and to study about. The first two are the size and amount of your invoice while the third is about customer impact.

These said companies will check upon your invoice, confirm that your products or services have indeed been delivered or rendered and then underwrites the credit worthiness of the debtor. When these are accomplished, they will advance a percentage of the invoice to the business which will depend upon the agreed proportion. The balance will then be released when the invoice has been fully paid.

Companies use this for several different purposes like unexpected expenses, the need to fund an important and urgent project, for extra income, a boost in employee morale, opportunities for growth and a better chance at reaching out and influencing the general community. Do know that those are only a few of the many things companies encounter that make them need spot factoring.

Whenever businesses urgently need financial resources for whatever reason and cash is not readily available, they would often reach out to banks or lending institutions where they acquire debt. This has been a common practice but is often frowned upon as a heavily indebted company is in very risky waters. When credit risk is so high, investors can get skeptical and scared that they might withdraw. So most companies would then turn to spot factoring. It does not incur them any debt and at the sane time it provides them with the resources they need.