Accounts Receivable Factoring vs Supply Chain Finance

Accounts Receivable Factoring vs Supply Chain FinancingWith each passing day it seems like a new technology is disrupting a traditional business model. Certainly an industry that has been around as long as factoring is not immune to disruption from innovation, and currently supply chain finance is one of these disruptors. However, it is important to understand the differences between factoring and supply chain financing so that you may determine which is right for your business. While they both offer access to improved cash flow, beyond that they don’t really have all that much in common.

Perhaps the biggest difference between accounts receivable factoring and supply chain finance is who decides to use the service. With factoring, the decision rests entirely with the supplier.┬á The buyer has no say in whether or not an invoice is factored. With supply chain finance it is the buyer’s decision when and if to offer quicker payment on an invoice, and it is up to the supplier to accept that offer. As a result, a supplier can not rely on supply chain finance to fund their business since it may or may not be offered to them. If a supplier needs immediate access to working capital so that they can run or grow their business, factoring is the best way to guarantee that they always have access to the working capital they need.

The next major difference is which buyers you can get immediate funding on. In general, factoring companies will work with all of your buyers, regardless of how large or small they are. However, supply chain finance is typically only offered by major retailers as they are the ones who do enough volume to make supply chain financing affordable. Besides, typically smaller retailers are not cash rich and can’t afford to make early payments. To further complicate matters, each one of your buyers who does offer supply chain finance may do so with a different company, meaning you need to manage your accounts across multiple financing platforms, whereas with factoring you only ever work with a single factoring company so it is a much more streamlined process.

Of course the fee is also a major difference. With factoring, the fee is part of the agreement that you have with your factoring company, it does not change. With supply chain finance, the fee is not fixed, you need to make an offer to your buyer and your buyer needs to accept it. If your buyer is cash rich than they may take a lower offer and supply chain finance could be cheaper than factoring. However, for a buyer who is not cash rich or is struggling, they may only be accepting higher offers and factoring could be the cheaper option.

Another issue is timing, many buyers who offer supply chain finance may wait 7-10 days to do so as they need to check your products into their system and make sure nothing is damaged before they can approve it for payment. Then they need to ask you to make an offer. If your offer isn’t acceptable then you typically need to wait until the following day before you can make a counter-offer. With supply chain finance it may take two weeks or longer before you receive funding. However, factoring companies offer you funding the same day that you ship and invoice your customer.

Finally, credit insurance may be the most important difference. Of course, you might say that you don’t need credit insurance if you are getting early payment with supply chain finance, because after all, you are getting paid. However, it isn’t quite that simple. First of all, there is no guarantee that supply chain finance will be available from one of your buyers, even if they did offer it to you in the past, there is no guarantee it will be offered in the future.

The other issue has to deal with US bankruptcy law. When a company files for bankruptcy, the bankruptcy court may require you to return any payments you received within 90 days prior to the filing. The reason being is they don’t want creditors receiving preferential treatment, all creditors should be treated equal. Of course, you don’t need to return these funds if you can prove that you received them in the normal course of business, but if you are offering a buyer a discount to pay you early, then there is nothing normal about the transaction. This recently became a problem when Toys’R’Us filed for bankruptcy. Toys’R’Us partnered with C2FO to offer supply chain finance, and there is no doubt that everyone who received an early payment from Toys’R’Us had to later return those funds to the bankruptcy court.

With non-recourse factoring however, not only does your factoring handle all of the credit checking for you, but they also insure your receivables. So if one of your buyers does file for bankruptcy or goes out of business, you still get to keep the funds that your factoring company gave you. Furthermore, since factoring companies don’t request early payment, it is quite possible that they may be able to prove that payment was received in the normal course of business and they too would not be required to return the funds.

While supply chain finance can potentially be cheaper than factoring with stronger retailers, it can also be more expensive and does not offer all of the benefits that you receive with factoring. Furthermore, it is only available if your customer wants to offer it to you. In many ways, supply chain finance is just a more expensive way of offering your customers a discount for early payment such as “1% 15 net 30” day terms. On the other hand, factoring is a much safer and more reliable way of funding your business. Factoring can be used with all of your accounts, and has very similar pricing to supply chain finance.

If you could benefit from improved cash flow and would like to give a factoring a try, give DSA Factors a call at 773-248-9000. With over 30 years experience helping companies improve their cash flow, DSA Factors has the money to make your company grow.

Surviving the Brick and Mortar Meltdown

Surviving the brick and mortar meltdown.Today Bonton began its liquidation sales, by the end of August there will be no more Bergner’s, Boston Store, Carson’s, Elder-Beerman, Herberger’s, or Younkers. It was only last month that Toys’R’Us made the same exact announcement. On top of that, Sears, J.C. Penny, Neiman Marcus, Lord and Taylor, and Macy’s have all been closing many locations, and now things are looking very bad for Bed Bath and Beyond. Even Walmart closed 63 Sam’s Club locations at the start of the year. Things have gotten so bad that it was barely even news when Nine West filed for bankruptcy last week. So what does this mean for the retail environment?

Certainly things aren’t looking too good. Bonton is a major department store that anchors many malls. For smaller retailers in the mall, losing Bonton could mean loosing foot traffic and maybe even permanently closing their stores as well. For other struggling anchors in the mall, it might give them reason to close their store in the struggling mall. In malls that have already lost an anchor, losing a second anchor could be the end for the mall. While we have seen many big box stores in strip malls close, this is the first time that we are seeing a major department store and mall anchor close all its locations. There is a very real possibility of it having a snowball effect with the other struggling department stores.

Of course, as a manufacturer or importer, you not only have to worry about the next bankruptcy filing, but also losing a major customer. In many ways, the latter can be much worse. The proof of this is Mattel and Hasbro. Both their stocks took a major hit when Toys’R’Us filed for bankruptcy, and then another when they announced they would be closing all their stores. In fact, billionaire Isaac Larian, owner of Little Tikes and many other toy companies, tried to purchase Toys’R’Us out of fear of what its closure could do to the toy industry.

Certainly you need to be selling to┬ online retailers like Amazon, however, you can’t only focus on online. Amazon might be one of the major reasons why all these stores are closing, in fact they announced on Wednesday that they now have 100 million Prime subscribers. But to focus only on Amazon is also problematic, after all, you don’t want to have all of your eggs in one basket or limit where your customers can purchase your product. Plus, many of your customers may want to touch and feel the product before they purchase it, something that isn’t (yet) possible with Amazon.

Of course, selling to brick and mortar can be very scary right now. While one option might be the increasingly popular taking a discount to get paid early, doing so won’t actually protect you. The bankruptcy laws require you to pay back any money you received within 90 days of a company filing for bankruptcy if it is believed you received preferential treatment. Toys’R’Us was working with C2FO to offer its vendors early payment in exchange for a discount prior to filing for bankruptcy, and you can be sure that anyone who received early payment at a discount, is now returning that payment back to the bankruptcy court. What might have seemed like a smart option at the time, in the end did not offer vendors any protection.

Really the only thing that can protect you is by partnering with someone who is doing the credit checking for you, staying on top of breaking news, and offering you insurance. While credit insurance is available for extremely large, credit-worthy accounts, it typically isn’t available for smaller companies or companies that show even the slightest inkling of financial distress. Non-recourse factoring on the other hand provides you with the protection you need on the widest range of customers available.

DSA Factors has been offering non-recourse factoring for over 30 years now. When you partner with DSA Factors, we handle all of the credit checking for you as well as provide you with insurance on the receivables which we approve. As an added benefit, we help improve your cash flow by funding you the same day you ship and invoice your customers. For more information about how factoring can help your business, give us a call at 773-248-9000.

Funding Your First Large Purchase Order

Purchase Order FinancingGrowth can be difficult for any business, but getting your first large purchase order can be especially stressful. Keeping your current customers happy as you try to fulfill a large purchase order can create a nightmare for your cash flow. Getting a bank loan could take months, and there is no guarantee that you will be approved. There must be a better solution.

Introducing purchase order financing and invoice factoring. With purchase order financing you can get a short term loan to pay off your suppliers. Invoice factoring helps free up working capital that is tied up in receivables that may not be paid for 30 days or more. Unlike a bank, factoring companies move quickly, funding you within 24 hours, and making quick credit decisions based on your customer’s good credit.

So what are you waiting for, improve your cash flow with purchase order financing and invoice factoring. Give DSA Factors a call today at 773-248-9000.

How to Request an Online Credit Approval for New Accounts

Getting online credit approvals with DSA Factors is easy!The second video in our online factoring tutorial is here. In this video we show you how to submit a new account for credit approval from our web page. The process is very straight forward, but as a family owned business we pride ourselves on our excellent customer service. So if you have any questions, or want us to walk you through the approval process over the phone, please don’t hesitate to give us a call at 773-248-9000 and we will be more than happy to talk to you.

We hope you enjoy this video and the entire factoring tutorial video series. Our next video will most likely be on how to submit an invoice for factoring. Stay tuned, and as always, if you have any ideas for future tutorial videos, please let us know. Thanks!

How to Request an Online Credit Approval

Getting online credit approvals with DSA Factors is easy!We have just published our first factoring tutorial video. Our plan is to create an entire series of factoring tutorials that our new clients can use as a reference. While much of this is nothing new for our long-time clients, for those of you new to DSA Factors or are considering factoring with us, these videos will walk you through the entire factoring process, from start to finish, and hopefully answer all of your questions. For our clients who have been with us for many years now, hang in there, we hope to create some videos featuring are online reporting tools that might teach you something you didn’t know before!

The first video we are publishing is how to request an online approval (for an existing account with DSA Factors). Of course, as a family owned business we pride ourselves on our excellent customer service. So if you have any questions, or want us to walk you through the approval process over the phone, please don’t hesitate to give us a call at 773-248-9000 and we will be more than happy to talk to you.

We hope you enjoy this video and the entire upcoming video series. If you have any ideas for future tutorial videos, please let us know. Thanks!

Cash Flow for You’re Business – Accounts Receivable Factoring

Factoring gives you the cash flow you need to grow your business.It can be difficult for any business to survive without proper cash flow. Having all your money tied up in receivables can hinder your ability to take on larger accounts and grow your business. The solution to this problem is accounts receivable factoring.

With factoring you get funded for your receivables the same day you invoice your customers. As an added benefit, since your factoring company is purchasing your receivables, you aren’t taking on any new debt. Plus all credit decisions are based on your customers’ good credit, not your own.

So what are you waiting for, give DSA Factors a call today at 773-248-9000 and start getting funded today. At DSA Factors we have money to make your company grow!

Bloomberg Warns that Fintech May Lead to Our Next Financial Crisis

Fintech most likely to be behind the next financial collapse.It’s been almost ten years since our last financial crisis was caused by banks that were too big to fail. However, Bloomberg is warning that the next collapse will be tied to Silicon Valley rather than Wall Street. Over the last ten years the government has tightened regulations on Wall Street to ensure that we won’t find ourselves in the same situation that occurred in 2008. However, there has also been a revolution in the world finance by startup companies incorporating new technologies.

While most people are aware of the new regulations that have been placed on the too-big-to-fail banks. It is now nearly impossible to get a small business loan, and even refinancing a mortgage on your home requires massive amounts of documentation that can take you weeks or months to put together. However, not many people are aware of just how large and diverse Fintech companies have become.

While Fintech has entered the world of factoring, its reach extends well beyond factoring into all other arenas of finance. There are Fintech companies that give out business loans, do crowd funding, give computer generated advice, and there are even virtual currencies such as Bitcoin.

The main issue with these new Fintech companies is that unlike the institutions that existed prior to the crash, these new businesses have no oversight. Not only has the government avoided regulating the industry, but the very idea of Fintech implies that there aren’t humans making the credit decisions, instead decisions are made based on complex algorithms that are hosted on internet servers. Without any human input going into financial decisions, it is quite possible that businesses may learn how to manipulate the systems and receive funding that they shouldn’t qualify for.

Of course the biggest threat to the industry is hackers, who have been breaking into systems and stealing sensitive information at an incredible rate recently. In fact, it was just announced today that Whole Foods’ restaurants had been hacked and credit card information had been stolen. The world of Fintech has already been attacked. In 2014 a security breach put Mt. Gox, the world’s largest Bitcoin exchange at the time, out of business and cost Bitcoin owners $3.5 billion in today’s dollars. To make matters worse, the security breach apparently happened in 2011 and went unnoticed for three years.

While there is no clear cut solution to the problems presented by Fintech, the fact is, Fintech has had an incredible impact on the world of finance over the last ten years. Furthermore, while many Fintech companies have come and gone, overall as an industry, it doesn’t look like Fintech is going to slow down any time soon.

UPDATE: Breaking News

Former Securities Exchange Commission Chairman Arthur Levitt spoke out yesterday at┬áthe Economist’s Finance Disrupted conference in New York. At the conference he stated, “Fintechs tend to march to their own rules.┬áIt’s a new industry with lots of failures and lots of spectacular successes. But regulation is often kind of background music, and the prevalence of scandal and mismanagement and aggressiveness is part of the backwash of innovation.┬áHardly a day goes by where there isn’t a recording of some scandal or another”

At the same conference,┬áScott Sanborn, CEO of Lending Club said “We do need to take responsibility in [Silicon Valley] where there is a mentality of growth at all costs, and if you don’t have the right checks in place, the right kind of board in place, and plenty of people with audit and risk experience that are providing the right kind of governance, you can have problems.”

Alexa, ask how long until Thanksgiving?

DSA Factors has created a new Alexa skill that tells you how many days until a given date or holiday.There are 77 days until Thanksgiving, which falls on November 23rd. Thank you for using the Birthday and Holiday Countdown presented by DSA Factors. Have a nice day!

So it may not be about factoring, but as the number one factoring company in creating new Alexa skills, we have created an Alexa skill that tells you how long until a certain holiday or date. All you need to do is ask Alexa, ask how long until… and from there you can choose just about any holiday or give it a date such as your birthday. We won’t bore you with a list of every holiday available in the skill, but lets just say it is a lot! It can tell you how long until any American holiday, as well as Christian, Jewish, and Chinese holidays. That’s right, it even knows when holidays based on a lunar calendar will occur.

So what are you waiting for, find out how many days are left until your birthday, until you go on vacation, or until you get to go trick or treating! As a bonus, if you ask Alexa the day before or the day of some holidays, she might even have a special message for you!

Alexa, open invoice factoring

Alexa now has a new Invoice Factoring skill.Alexa just got a whole lot smarter. Earlier in the month we introduced our Accounts Receivable Factoring skill which would tell you exactly how much it will cost to factor an invoice, and it was so popular it even got written up on the Small Business Trends blog. So DSA Factors is proud to introduce our newest Alexa skill, Invoice Factoring. Simply tell Alexa to open invoice factoring, and then start asking anything you have questions about.

You can ask simple questions such as what is factoring, or more complex questions about recourse vs. non-recourse, purchase order financing, credit checks, submitting invoices, and virtually anything else. Of course, you can’t expect Alexa to be able to give you the personalized service that you have come to expect from DSA Factors. Furthermore, Alexa can only answer questions about general knowledge and not about your accounts. That is why you can still give DSA Factors┬áa call anytime at 773-248-9000 and one of our principals will be available to speak with you over the phone.

Alexa, open accounts receivable factoring.

DSA Factors introduces a new accounts receivable factoring Alexa skill.DSA Factors is proud to announce that we have published our first skill for Amazon’s Alexa service. If you own an Echo, Dot, Tap, or any other device that supports Alexa, you are no longer just limited to playing music, turning on lights, asking how to spell words, listening to a news report, or asking about the weather. You can now ask Alexa to open accounts receivable factoring and learn exactly how much it will cost you to factor an invoice. That’s right, DSA Factors has created the world’s first ever factoring skill for your smart home, and there is no telling how this skill may revolutionize the world.

You will of course have to tell Alexa how much your invoice is for and what you factoring rate is for the invoice. After that Alexa will do the rest for you and will tell you exactly what the factoring fees will be and how much will be held in reserve (assuming it is 10%), so that you can know exactly how much funding you can expect to receive.

So go ahead and make your smart home even smarter by activating the accounts receivable factoring skill today.

P.S. If this news wasn’t exciting enough, we have more skills in the works… stay tuned!