Factoring 101 Blog - Acounts Receivable Factoring and Other Industry News

The Factoring 101 Blog is your one stop destination for all things factoring related. With well over 100 posts dating back to 2011, if you have a question about accounts receivable factoring, purchase order financing, fintech, managing accounts receivable, or anything else, chances are you will find an answer to your question right here on the Factoring 101 Blog. If there is something that you can't find the answer to, or you want more information about it, please feel free to give DSA Factors a call at 773-248-9000 as we are always happy to help you with any questions you may have.

Finding the Lowest Factoring Rate

July 5, 2016

How to Find the Lowest Rate for Accounts Receivable Factoring
There are a lot of different accounts receivable factoring companies out there, and for most businesses looking to factor, the biggest concern is how much factoring will cost them...
Avoid The Pitfalls of Online Lending

Avoid The Pitfalls of Online Lending
Online lending, often referred to as Fintech, is becoming increasingly popular and is a major disruptor in the world of finance...
January 8, 2019

Purchase Order Financing vs Accounts Receivable Factoring

Purchase Order Financing vs Accounts Receivable Factoring
There are many different financing options available to businesses that could use improved cash flow...
May 3, 2017

Finance in the High Tech World

Factoring vs Fintech: Finance in the High Tech World
For most small business owners, obtaining a line of credit from a bank has never been easy...
December 30, 2016

What To Look For in a Factoring Company

December 31, 2018

What To Look For in a Factoring Company
Every accounts receivable factoring company is different, it is important to know the questions you need to ask when looking for the correct factor for your business...
Accounts Receivable Factoring Services

Accounts Receivable Factoring Services
Cash flow is typically the main concern for any company that is looking for accounts receivable factoring...
June 19, 2017

Micro Factoring - Funding Your Small Business

Micro Factoring for Your Small Business
Micro factoring is just like normal accounts receivable factoring, only it is on a smaller scale...
February 7, 2017

fixed rate vs adjustable rate accounts receivable factoring

Fixed Rate vs Adjustable Rate Accounts Receivable Factoring
There are two different types of rates that most factoring companies quote potential clients these days, fixed rate (or flat rate) and adjustable rate...
January 4, 2017

Purchase Order Financing vs Accounts Receivable Factoring

May 3, 2017

Purchase Order Financing vs Accounts Receivable Factoring
PO financing and factoring are considered alternative financing options, as the process is much faster and easier to obtain than a traditional SBA loan from a bank...
Purchase Order Financing and Accounts Receivable Factoring can work together to fund your business.

Factoring and PO Financing: Working Together to Fund Your Business
There are many different ways to fund your business out there, but choosing the correct funding method for your business can sometimes be difficult...
December 4, 2019

A Guide to Purchase Order Financing

A Guide to Purchase Order Financing
Explore the two most popular ways to obtain purchase order financing, from a purchase order financing company and an accounts receivable factoring company...
July 19, 2021

Accounts Receivable Factoring vs Fintech

September 1, 2016

Traditional Factoring vs Fintech
There has been a lot of talk about fintech lately. However, factoring has always been an alternative financing method, and has a long track record of success...
Fintech: Balancing Speed and Availability with Service and Privacy

Fintech: Balancing Speed and Availability with Service and Privacy
Fintech is becoming increasingly popular each year. The success of Fintech is primarily driven by the ease and speed of getting access to funding...
January 15, 2020

Accounts Receivable Factoring vs Supply Chain Financing

Accounts Receivable Factoring vs Supply Chain Finance
With each passing day it seems like a new technology is disrupting a traditional business model...
May 2, 2018

Accounts Receivable Factoring in many ways predates Fintech in the field of financial technology.

How Accounts Receivable Factoring Fits Into the Fintech World
It may seem strange that accounts receivable factoring, a form of financing that dates back further than the Silk Road, could fit into the modern world of Fintech, an industry that is less than a decade old...
May 9, 2017

A Guide to Net Payment Terms

December 18, 2019

A Guide to Net Payment Terms
Net payment terms are when you offer your customers a fixed amount of time to pay you back. Net 30 day terms are the most commonly used payment terms...
Having a good collections process is key to turning your receivables into cash, but that doesn't mean that you need to be doing the collecting.

Collections: Turning Your A/R Into Cash
You've developed a product or service that everyone loves. You've marketed it. You've sold it. Now all you need to do is get paid for it...
December 9, 2019

Nothing is worse than when you sell a product to your customer and then they don't pay you for it. The solution to this problem is to acquire credit insurance.

A Guide to Credit Insurance
For any business owner, there is nothing worse than when you sell a product to your customer and then they don't pay you for it...
January 7, 2020

Just like personal credit for consumers, businesses also have credit that can be used to determine their ability to pay for merchandise and services.

Performing Due Diligence: Credit Checking a Business
In the same way that we have personal credit that determines our ability to make purchases, businesses also have credit that can be used to determine their ability to pay for merchandise and services...
December 31, 2020

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B2B Financing

As the old saying goes, it takes money to make money. One of the most important parts of running any successful business is having the finances available to keep it running smoothly. While financing can be difficult for any business, it is often most difficult for businesses that operate B2B, or business to business. To understand why financing is so crucial for B2B businesses, it is important to understand the differences between B2C (business to consumer) and B2B (business to business).

What is Business to Consumer?

Business to Consumer, more commonly known as B2C, would be a retail business. When people think of businesses, it is B2C businesses that typically come to mind first. Whether it is a restaurant, clothing store, barber shop, or bowling alley, all these businesses deal exclusively with the end user of the products or services they are selling, consumers. For businesses that operate B2C, sales are typically small, and they make lots of separate sales. For example, a restaurant’s typical sale may only be $100, but they will serve 50 families at lunch time. A barber shop may only charge $25 for a haircut, but each hair stylist may see 25 customers each day. The transactions are small, and typically most consumers will either pay them with cash or credit, as a result, financing isn’t a huge problem for B2C businesses.

Of course, not all B2C businesses deal with lots of small orders, some have larger orders and make fewer sales. An example of this would be a furniture store, where maybe they only make a handful of sales each day, but each sale is for several thousand dollars. As a result, financing does become a concern for these businesses because many of their customers may not have the ability to pay several thousand dollars all at once. This is why furniture stores typically partner with banks to offer their customers consumer financing. This gives their customers the ability to pay for a $3000 bedroom set over the course of a few years. A more extreme example would be a car dealership, where pretty much every customer is going to need to finance the purchase of their car. Again, this is handled by banks who can utilize tools such as credit scores to offer financing options to consumers. In these situations, financing plays a major role in the day-to-day operation of some B2C businesses as their customers need to be offered financing if they want to make a sale. However, the financing is for the consumers, not for the business.

What is Business to Business?

Business to Business, more commonly known as B2B, refers to the companies who supply to the B2C businesses. For example, a B2B business would sell the lettuce to the restaurant so that they can make salads, they sell the shirts to the clothing store for them to hang on their racks, they sell the shampoo to the barber shops so they can wash their customers’ hair, or they sell the pins to the bowling alley so that bowlers can get a strike. However, besides the fact that they are selling to businesses and not consumers, there is another very major difference between B2C and B2B, B2B orders are always much larger than B2C orders. While a diner in a restaurant isn’t going to ask to finance their $10 salad, the restaurant is going to need to purchase 100 heads of lettuce to make all of their salads for a day, plus large quantities of other foods as well. It is quite possible that a restaurant will purchase thousands of dollars worth of food each day, on top of making payroll, paying rent, and paying all their other expenses. As a result, they are going to ask for time to pay for that food, typically thirty days. The same is true of the clothing store who is purchasing a handful of different styles of clothing in a wide variety of sizes, the barber shop who needs purchase large quantities of shampoo, conditioner, and other styling products, or the bowling alley who has to purchase many pairs of bowling shoes and even new pins occasionally. In all of these examples, orders are going to be large and the customer, the B2C business, is going to want to have time to pay for them. In all of these situations, the B2B business is going to have to offer their B2C customers financing and give them thirty days to pay. In the case of furniture sellers or a car manufacturer, this is even more important. Furniture stores may be placing orders of $10,000 or $20,000, and a car dealership can easily place orders that reach into the millions, and both are going to need time to sell the product to pay for the orders. So, it is crucial for pretty much any B2B business to offer financing to their customers.

How do B2B businesses offer financing?

So, it is clear that offering financing is a major part of running a B2B business. However, unlike retailers who are able to partner with banks to offer consumer financing to their customers, there are no banks who are going to partner with a B2B company to offer their customers financing. While banks may be willing to offer a business loan or line of credit to well qualified businesses, the process requires that the business shares financial statements and establishes a relationship with the bank. Oftentimes the business would be expected to have checking and savings accounts with the bank, and acquiring a loan can be a process that takes several months. Banks however will not offer on-the-spot financing to a business that is purchasing merchandise in the same way that they would offer on-the-spot financing to a consumer purchasing a car. As a result, it is up to the B2B company to offer the financing solutions that their customers need themselves. This leads to our next problem, how to B2B companies pay for the products they sell in the first place.

Businesses that operate B2B of course have expenses themselves that need to be covered. If they are a manufacturer, they will need to purchase raw materials from suppliers that are also B2B businesses. If they are importers, they will need to purchase product from a factory overseas, another B2B business. While a domestic supplier of raw materials may be willing to give credit to their customers, and overseas supplier or factory absolutely will not extend credit to their customers, and will instead typically require payment prior to shipping the product. It is not uncommon for Chinese factories to require anywhere between a 30% - 50% deposit just to start production for an order, and then require the balance to be paid prior to the product being placed on a ship. This means that importer will typically need to pay their factory 60-90 days before they receive their product, and then wait at least an additional 30 days before their customer pays them for it.

While larger B2B businesses may be able to qualify for bank loans and lines of credit, and some may even have enough available funds to finance these transactions on their own, for most small and medium sized enterprises (SMEs) this can be a huge problem. Fortunately, there are solutions available that offer financing to B2B businesses. With purchase order financing, SMEs can get a short-term loan to cover the cost of paying their suppliers, and with accounts receivable factoring, they can cover the time period between when they ship to their customers and their customer sends payment. Best of all, both of these solutions can work together to give them a single seamless solution to their financing needs.

What is Purchase Order Financing?

When a B2B business receives a large purchase order from a customer, they can then use that purchase order as collateral in order to receive a short-term loan so that they can pay their suppliers to produce the order. This loan gets paid off with the proceeds of the resulting sale, so small businesses may qualify for much larger loans than they would normally, giving them the fund necessary to pay their suppliers for the order. As a result, SMEs don’t have to shy away from larger orders and can grow their business at a quicker rate than they would be able to relying on their own funds.

What is Accounts Receivable Factoring?

Accounts receivable factoring, often simply referred to as factoring, is the act of selling your accounts receivable to another party, a factor, at a discount. So instead of waiting 30 days or longer to get paid by a customer, a B2B business may factor their receivables and get funding the same day they ship merchandise to their customer. Since they are selling their receivables, they are not just getting funded earlier, but they are also passing along all the risk associated with offering credit to their customer to their factor. The factor becomes responsible for collecting from the customer, and in the case of non-recourse factoring, fully insures the receivables against non-payment.

How do PO Financing and Factoring Work Together?

Typically, in the world of finance, only one financing solution can ever be utilized by a company. The reason behind this is because each financing solution requires collateral, and most of the time a lender will place a blanket lien over all of the borrower’s assets. As a result, other lenders are then unable to work with the borrower. However, many factoring companies offer purchase order financing in addition to accounts receivable factoring, giving their clients the ability to utilize both financing tools.

In this situation, a business will present a PO to their factor and tell them how much they would like to borrow. The factor then loans them the requested amount so that they can have the order produced. Once produced and received, the business will ship and invoice their customer and then factor the resulting receivable. The factor will apply a portion of the proceeds towards the PO loan, and will send the balance to the business.

Of course, there is a cost associated with both purchase order financing and accounts receivable factoring, but that is true of any type of financing. In order to save money, most businesses will factor most or all of their invoices and only use purchase order financing when absolutely necessary. Typically, the proceeds from factoring provide B2B businesses with the cash flow that they need in order to keep their business running smoothly. Purchase order financing is really only necessary for exceptionally large orders, or to get a seasonal business through their busy season. Factoring is available on any size orders and is also a debt free form of financing.

If you are looking for Purchase Order Financing and Accounts Receivable Factoring to help fund your business, look no further than DSA Factors. We are a family owned and operated business that has been factoring for 35 years. As a small business ourselves, we understand the difficulties that many small businesses face and are always available to speak with our clients and come up with solutions to funding their business. Give us a call today and 773-248-9000, email us at info@dsafactors.com, or chat with us here on our website and secure your business’s financial future. At DSA Factors we have money to make your company grow!

The Changing Furniture Landscape

The Changing Furniture Landscape

August 27, 2021

Over the past decade we have slowly been watching the retail landscape transform from traditional brick and mortar stores to online shopping. However, as a result of the COVID-19 pandemic, 2020 not only experienced the greatest shift towards online shopping, but for the first time direct-to-consumer e-commerce sites have taken the largest share of the furniture market. After leading in growth rate for the past seven years, these online retailers grew by an incredible 47% in 2020. According to Furniture Today, online retailers now have a 20.8% market share of the furniture market, where traditional furniture stores only have a 20.5% market share. After that, lifestyle furniture stores have a 14.3% share of the market, discount department stores have a 13.4% share, manufacturer-branded furniture stores have a 11.5% share, bedding specialists have a 8.7% share, warehouse clubs have a 7.4% share, and finally rental centers only have a 3.4% share. This shifting marketplace can be seen by taking a look at the top 10 furniture retailers for 2020...

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Net Payment Terms vs Credit Cards

Net Payment Terms vs Credit Cards

August 23, 2021

Having time to pay for an order is important for any business in managing their cash flow. Forcing a customer to pay for a product up front is a great way to kill a potential sale and what could amount to a long term relationship. Therefore, it is in the best interest of any wholesaler to allow their customers time to pay for their orders. There are two ways of doing this, net payment terms and credit cards. However, while both of these methods offer your customers time to pay, there are major differences between the two methods. Let’s compare some of the various features of these two payment options from both the customer’s and the vendor’s perspective...

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What is Accounts Receivable?

What is Accounts Receivable?

July 29, 2021

Quite simply, accounts receivable is money owed to your business by a customer (a debtor) who purchased either goods or services on credit and will be paid in the short term. While accounts receivable are listed as an asset as far as accounting goes, a business does not have access to these funds until they collect on them. As a result, a company that has most of its assets in receivables, does not have access to very much working capital and may suffer from poor cash flow...

Read More

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