DSA Factors

Supply Chain Finance vs. Accounts Receivable Factoring

Supply Chain Finance

Supply chain finance is a process where your customer offers to pay you early for an invoice in exchange for a discount.
  • Initiated by purchaser
  • Available on only select receivables
  • Not available from all customers
  • Funding available 3-7 days after invoicing
  • Discount can vary with each receivable
  • Customer can reject your offer if they want a higher discount
  • No credit checking, No credit insurance

Accounts Receivable Factoring

Accounts receivable factoring is a process where you submit your receivables to a factoring company for immediate funding.
  • Initiated by vendor
  • Available for all receivables
  • Available for all your customers
  • Funding available same day of invoicing
  • Discount rate is fixed for all receivables
  • Credit approval guarantees factor will purchase your receivable
  • Factor provides credit checking and insurance

Similarities between Supply Chain Finance and Factoring

While there are many differences between these two forms of financing, they do have similarities as well.
  • Improved cash flow by converting receivables into cash
  • Low discount rates, typically comparable to a credit card processing fee
  • Grow your business without taking on any debt.

Why do I need credit insurance?

The dangers of supply chain finance

It may not make any sense, if your customer is offering to pay you early, then why do you need to have credit insurance? There are actually a few different reasons why credit insurance is important even with supply chain finance.

First of all, under United States bankruptcy law, you may be required to return any payments you receive within 90 days of a bankruptcy to the bankruptcy court if it is believed that you have received preferential treatment in receiving payment. Given that you are offering your customer a discount to pay you early, it would be impossible to prove that you did not receive preferential treatment if your customer does file for bankruptcy. Prior to the Toys'R'Us bankruptcy in 2017, Toys'R'Us had partnered with C2FO to offer supply chain finance, and offered early payment to their vendors up until the day they filed for bankruptcy. In fact, C2FO even prominently displayed the Toys'R'Us logo on their web page for several months after the initial bankruptcy filing. There is no doubt that any vendors that took a discount to receive early payment would have been required to return those funds to the bankruptcy court.

Secondly, with supply chain finance, early payment has to be offered to you by your customer. If your customer can't afford to pay you, then they are not going to offer you early payment with supply chain finance.

Finally, supply chain finance is typically only offered by very large corporations, if you also sell to smaller mom and pop stores, supply chain finance will not be available on those invoices. As a result, if they are unable to pay for the merchandise, then you will ultimately be out that money.

Mitigate your risk with factoring

When you first get a new account, you do not know if they will offer you supply chain finance. Furthermore, a company may choose to stop offering you supply chain finance at any time, and they are not required to give you any advance notice. For these reasons alone, it is always important to run credit checks when you pick up a new account, and to continue monitoring their credit as you continue to do business with them. Credit checking is something that all factoring companies will handle for you, and at no additional charge to you. If a company is not credit worthy or in danger of filing for bankruptcy, your factoring company will let you know so that you don't get stuck with bad receivables. Even as Toys'R'Us was requesting larger and larger discounts for early payment via C2FO, which is a major signal of financial distress, C2FO did not communicate this with any of their vendors and continued to facilitate early payments from them.

With non-recourse factoring you also receive credit insurance. So in the event that a customer files for bankruptcy, goes out of business, or simply is unwilling to pay their bills, your factoring company has you covered. The funds you received for your receivables are yours to keep. Even if the bankruptcy courts require a payment within 90 days to be returned, it is your factoring company's responsibility.

Factoring is also available for all of your accounts, big or small. So you are covered even on those accounts who don't offer you supply chain finance.

Your factoring company will also handle all of the collection work for you, so you won't need to worry about making collection calls when an invoice becomes due. While you may not need to make collection calls on invoices that you get paid early on with supply chain finance, you will still need to do so on any invoices that don't get paid early.

Why Factor With DSA?

DSA Factors may not be partnered with Amazon, Walmart, TJX, or Costco, but we still work with all of these companies and many more. In fact, we can provide you with factoring for all of your customers, we are not limited to just a select few companies that have agreed to partner with us. However, while we are able to factor all of your accounts, we still put you in the driver's seat, if there is an account that you do not wish to factor you are not required to factor it.

At DSA Factors you can request a credit approval as soon as you receive an order. Since are credit approvals are good for 90 days, you don't need to start producing an order without knowing whether or not you will get funded for the receivable. Once we give you an approval you can produce the order knowing that we will ultimately purchase the resulting invoice.

Our low flat-rate fees are pretty much identical to the discount you will have to offer your customers for early payment. Plus, you know exactly how much you are going to pay for funding up front before you even produce the order, so you can easily build it into your pricing. We also offer funding the same day you ship and instant online credit approvals. With supply chain financing you typically aren't offered early payment for at least 3-7 days after a product is received by your customer, and approval of your offer typically takes 24 hours with payment coming another 24 hours after that.

By continuously monitoring the credit of your customers, you can avoid having to subscribe to expensive credit rating agencies, or risk getting phony credit references. We also manage all of your collections so you no longer have to make phone calls or send out account statements. Plus, we offer you credit insurance with our non-recourse factoring program.

We also offer purchase order financing to our clients. With PO financing, we provide you with a short term loan so that you can pay your suppliers in order to procure merchandise to fulfill a large purchase order. This is funding you can receive long before there is a receivable, and long before early payment would be made available through supply chain finance.

Furthermore, DSA Factors is a family owned and operated company. Whenever you call you will always be able to speak with one of our principals, whether it is Howard, Ben, or Max Tolsky. After all, we are a small business just like you. It is unlikely you will get a chance to speak with a principal at one of the supply chain finance firms or any of your large customers who they have partnered with.

We have no minimum volume requirements, no credit limits, and no long term commitments. Plus, we have over 30 years experience in accounts receivable factoring and over 60 years experience in finance.

Want to learn more? Give us a call right now at 773-248-9000, or chat with us here on our web page, and one of our principals will be more than happy to speak with you about how we can help grow your business.

The DSA Factors Advantage

Certainly there are a lot more financing options available to small businesses these days. From factoring, to supply chain finance, to fintech, small businesses in America have more options for financing now than ever before. The chart below will compare these options for you.

Click inside each box to expand and learn more.

AR Factoring with DSA Factors

Supply Chain Finance

Fintech

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A factoring fee is very comparable to a credit card processing fee.
Typically, a customer will accept a discount similar to a credit card processing fee.
Fintech companies tend to charge exorbitant fees, with typical APR's ranging from 50-100%.
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Factoring companies are purchasing your receivables, not giving you a loan.
Supply chain finance offers you early payment from your customers, not a loan.
Fintech companies typically provide you with a loan using your receivables as collateral.
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DSA Factors offers instant credit approvals available online and will fund you the same day you ship.
Supply chain finance typically isn't available until 3-7 days after the merchandise is received, and then requires a 24 hour turn around for early payment to be approved.
Fintech companies typically provide you with instant online approvals and fund you the same day.
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DSA Factors allows you to choose which accounts you want to factor.
Supply chain finance requires your customer to offer you early payment on any particular receivable, but you than have the option of making an offer for early payment.
Fintech companies may allow you to choose which invoices to use as collateral on a loan, but in reality, they have a lien on all your receivables.
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There is no limit to how much you can factor, as your receivables grow so does your funding.
There is no limit to how much in early payments you may receive with supply chain finance.
Since fintech companies are giving you a loan, there is a strict credit limit to how much funding you can receive.
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DSA Factors has always been willing to work with startup businesses. We are proud that we have been able to help a large number of startups grow into much larger companies.
Supply chain finance has no restrictions on who they work with, but your customers may not be willing to offer you early payment if you are a startup and don't have a track record with them.
Most fintech companies require that you have been in business for a minimum amount of time as well as require that your monthly volume reaches a certain threshold before they will be willing to work with you.
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With DSA Factors if you are currently offering terms, you can eliminate expensive subscriptions to credit rating agencies and accounts receivable payroll. If you were accepting credit cards for payment, you eliminate credit card processing fees. You also eliminate all bad debt with non-recourse factoring as our service provides you with credit insurance.
Working with supply chain finance may eliminate some collection work, but you still need to stay on top of all of your receivables as your customers are not required to offer you early payment. You will also still need to subscribe to credit reporting agencies, and your receivables are not insured so you can still get stuck with bad debt.
With Fintech it is still business as usual, you are simply receiving a loan. The only service they may offer you is if you assign receivables to them then they will process payments for you. But it is doubtful that you will be able to eliminate any expenses.
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DSA Factors will handle all of the credit checking for all of your accounts.
With supply chain finance you are still responsible for credit checking. If one of your customers is having financial difficulties then they will most likely stop offering you early payment or require much higher discounts, but it is unlikely that they would inform you of this in advance.
Even though fintech companies may claim to offer factoring, they really are only providing you with a loan based on your receivables. They assign you a strict credit limit based on your ability to repay them for the loan as they do not take any time to check out the credit worthiness of your customers.
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DSA Factors will handle all of your collection work. You no longer need to worry about making collection calls. DSA Factors also has greater leverage than you do in collecting, as we most likely factor for several other vendors who also sell to your customers.
While you won't need to make collection calls on invoices paid early with supply chain finance, you will still need to handle collections for any invoices not paid early.
Fintech companies may require your customers to send payments to their drop box or bank account; however, they do not help you collect. They also may ask you to send out a letter of assignment to your customers, but even if you do, they still won't help you collect.
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DSA Factors is proud to offer non-recourse factoring to our wholesale clients, meaning that your receivables are insured.
Supply chain finance gives your customers the opportunity to offer you early payment. Toys'R'Us was working with C2FO up until the day they filed for bankruptcy, meaning that anyone who received early payment in the 90 days prior to that would have had to return those funds to the bankruptcy court, and any unpaid receivables at that time would never get paid.
Fintech companies do not insure your receivables. If they give you a loan based on a receivable and a customer doesn't send payment to them, then you are responsible for repaying the loan.
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DSA Factors offers purchase order financing to our clients. With purchase order financing you can get a short term loan to pay your suppliers in order to fulfill a large purchase order.
Supply chain finance is only available once your customer receives and inspects your merchandise. It is never available to help you with production.
Fintech companies either provide you with a high interest loan based on previous sales volumes or funding based on accounts receivable. They cannot fund you based on a purchase order.
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DSA Factors is a fourth generation, family owned and operated business. Whenever you call you can always speak with a principal, whether it is Howard, Ben or Max Tolsky.
Supply chain finance companies such as C2FO are large corporations owned by large investors including banks and overseas corporations. They act strictly as a middle man for negotiating with large corporations and all transactions take place online.
Fintech companies can be publicly traded companies, or private companies owned by banks and venture capitalists. Like supply chain finance, they handle all transactions online only.

Click inside each box to expand and learn more.

AR Factoring with DSA Factors

Supply Chain Finance

Fintech

How do we do all this at such a low price? Easy, at DSA Factors we don't receive millions of dollars from venture capitalists or IPO's. Instead we earned our money through hard work and dedication, just like you do. We also don't spend millions of dollars on advertising or computer software, and that money we aren't spending means that we can offer you financing at a much lower cost with better service than the larger fintech companies. If you really want to work with a company that understands small business, shouldn't they also be a small business themselves?

Contact Us Today

DSA Factors - Money to Make Your Company Grow!

PO Box 577520
Chicago, IL 60657

 773-248-9000

 773-248-9005

 info@dsafactors.com

 

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DSA Factors
International Factoring Association


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