Receivables Funding 101
. . Or Time , Money, and Opportunity
. . .Your True Cost of 'Credit' !
Tick...Tick...Tick...Tick... 60 Seconds Per Minute, 60 Minutes Per Hour, 24 Hours Per Day, 7 Days Per Week, 52 Weeks Per Year. Time marches on. We all have the same amount of time available to each of us. But, time marches on and time waits for no man. Not you, not me, not anyone. Time can't be 'saved'.
You will always be a day older at the end of the day.
Time can be one of the greatest allies a company can have available or one of its worst enemies. With time, a company can beat its competition to the market place. Without time available, your competition will beat you !
We can all choose to waste our time, or use it wisely. But time gone by can never be retrieved again. While time used wisely is the opportunity to achieve the goals we strive for in business and in life.
When time is wasted, opportunity is lost limiting our chances for the achievement of the goals we set for ourselves in business and in life.
It can take a heavy toll far beyond the cost in mere dollars that we feel the price to be.
In any business, we sell our products or services to our clients in return for the money they pay us to meet their needs.
In the best of all possible worlds--our client would give us a certified check for the full amount of the purchase price for the product, or service, we would be providing them when they gave us the purchase order !
Yeah ! Right ! - - - How often does that happen ? ( If ever ! )
If we can sell all of our products or services for cash, check, or C.O.D., then we won't ever need the use of a receivables factor.
If we sell any of our products or services in any other way, we are giving some form of credit to our customers, (whether we realize it or not), and the use of a receivables factor in the day to day operations of our company, to help provide adequate working capital, should at least be considered in our overall business strategy.
If your client pays you by credit card, the credit card company deducts a small percentage and you get your money credited to your account within a few business days.
Otherwise you will invoice your client for the amount of the order when you deliver the product or service for a future payment after a specified amount of time.
My friend, you are now in the credit business whether you like it or not, or even realize it or not !
Your invoice terms might read: 2 % discount within 10 days, net amount in 30 days. If everyone paid within the 10 days, you would probably be yielding about the same as if they had paid by credit card. (But you would be getting the credit card money sooner.)
If your client does not pay you quickly, you now have your money tied up in a future payment that you would like, or need now, to meet your present and previous obligations to those who have extended you credit.
This is your time lost and opportunity lost simply because you do not have the cash available now to take advantage of opportunities that become available during the time you are extending credit to your customers.
You say: "But that's how business is done.", or "We've always done business this way."
Look at the amount of your money you now have tied up in your invoice receivables in a month, in two months, in three months ! Look also at the obligations you have to others for you to pay them during these same periods of time.
WHAT DISCOUNTS ARE YOU 'NOW' LOSING THAT YOU CAN'T TAKE ADVANTAGE OF ?
HOW MUCH OF 'YOUR' MONEY IS INVOLVED ?
You can't meet your payroll, or pay taxes, or pay your suppliers with an invoice !
If you would just consider using a receivables factor to purchase your invoices, then you would have cash in hand to take advantage of the business opportunities that do present themselves and that you could now actively pursue.
You could then take advantage of term discounts or quantity discounts on materials used in your business. You might be able to take advantage of substantial discounts for cash for equipment. You could perhaps hire additional staff to better support your company operations or take on new projects.
Beating your competition to the market place sooner with new and better products. All without taking on any new debt !
These savings that are generated can often more than offset the fees associated with factoring, while allowing for greatly improved company operating efficiency and profit.
My friend, you have now created your own self funding credit line !
The cost of giving credit can, and should, be calculated into your cost of goods or services sold. This should then be compared to the discount rate charged by your receivables factor provider in providing you cash in hand shortly after your invoice is issued.
You will probably find that the discount rate charged by your receivables factor compares very favorably to all of the cost of giving credit you are now absorbing anyway.
Perhaps after proper analysis, you might be able to attract more profitable business by offering extended credit terms to your customers and immediately factoring their invoices to get the cash you desire now.
You can have your money now with all of the economic opportunities that you can now pursue, or you can have it later with the time opportunities lost that you could not take advantage of.
Receivables factoring gives you cash in hand now which means you have financial flexibility without new debt.
Money Talks! AND CASH TALKS LOUDEST !
Receivables factoring should simply be considered as another credit tool you can use to stimulate your company's sales growth.
You give discounts to customers for early payment. You provide credit card point of sale access to customers so that you can get your money quickly.
So why not sell your receivable invoices to receive your money quickly also ?
The cost to you to do each type of credit transaction is probably near the same percentage range, give or take, per transaction. These credit costs can be included in your business plan and in your cost of sales projections so that you will have adequate working capital that will insure continuing efficient company operations and company growth.
You are not required to use factoring all the time. But it should at least be available when you might need it. You could factor all your invoices one month, some the next, or even skip a month or two if you want. But using your receivables factor regularly could mean you would not have to incur new debt to sustain or expand operations.
Receivables factoring could mean you could pay your bills on time improving your credit rating while also taking advantage of any discount opportunities that might present themselves.
You may be paying some of your invoices right now to receivable factoring companies, instead of directly to your creditors, and maybe not even realizing you are doing so!
All kinds of companies, large or small, new or old, are finding it pays them CASH to factor their receivable invoices now !
Many companies are now using receivables factoring to improve their balance sheets simply because cash on the balance sheet looks better than accounts receivable do.
This helps them look better to potential investors if they decide to go into the equity markets for additional capital, or obtain funds in the bond markets with a better bond rating and a lower cost yield percentage.
More then 75 % of all the businesses that do use receivables factoring do so in a stable or expanding business operating environment.
Receivables factoring will certainly help start up firms, or firms facing financial problems, sustain their business operations until they can reach profitability without taking on any new debt load.
Otherwise they would be forced to seek additional capital at often less favorable terms or get an outside investor who would demand a say in how the company is run as well as a share in all future profits.
Many companies are now finding themselves in an undercapitalized condition in these challenging economic times. Receivables factoring can be the cheapest way to get cash for day to day operations for many companies now facing these financial challenges.
For many firms, receivables factoring of client invoices is the only way to get needed cash without giving up some ownership interest to an outside party.
It is said that about 92 % of all business start ups will fail in the first year or two of operation, in spite of all the blood, sweat, and tears that are put into them by everyone involved !
Why ?
What does the other 8 % know, or do, that the 92 % don't ?
Working hard for your business really isn't 'working hard' !
We do it all the time ! We put in 60 to 80 + hours a week and still take work home at night ! What we all need to do is learn to work smarter with all the business tools we have available.
Receivables factoring of your business invoices is such a business tool and a very effective one. Factoring your invoices now can give you the cash you need to have the financial flexibility to avoid being in that 92 % failure group later.
You never know when opportunity will 'strike' for you !
Let a program to factor your company receivable invoices now be the opportunity you take advantage of, that allows your company to have adequate working capital without creating any new debt load.
You will quickly see the results in your newly stimulated company growth, improved net bottom line rate of return, and ultimately a greater net worth for your company !
