As a factoring company, financing is what we do! However, there are many forms of financing available out there and we discuss them all here on the Factoring 101 Blog.
December 15, 2020
It is quite common for consumers to be offered financing options when making a large purchase. While a home mortgage or car loan might be the first two things that come to mind with consumer financing, it is quite common for consumers to receive financing when purchasing other big ticket items such as furniture or appliances. Being offered a payment plan that allows a consumer to make monthly payments over a specified period of time allows them to purchase big ticket items that they may not be able to afford otherwise. However, in the world of B2B (business to business), payment plans are not available, instead businesses are offered net payment terms. With a net 30 day invoice, a business is given 30 days to pay, but must pay the entire balance after 30 days. Offering longer payment terms will benefit the company purchasing a product, but will hurt the vendor as they need to wait even longer to get paid or pay a higher fee to factor the receivable. However, there is a happy medium and that is offering net 30-60-90 day terms.
Net 30-60-90 day terms is a simple way of offering a business a payment plan. They pay one third of the invoice in 30 days, another third of the invoice in 60 days, and the final third of the invoice in 90 days. While it may not be the same as the 36 months a consumer gets to pay for a new sectional, it does still allow the business to spread out payments over three months and make smaller installment payments rather than pay the full balance all at once.
From the vendor’s point of view, it is much better to offer customers net 30-60-90 as opposed to just offering them net 90 day terms. Receiving a portion of the invoice after 30 days, another portion after 60 days, and the balance after 90 days, instead of waiting for 90 days for the entire amount, helps improve cash flow. If the vendor is factoring the account, while they would get funded when the order ships in either scenario, they are able to reduce the factoring fees if they are offering net 30-60-90 day terms. Instead of having to pay a fee for net 90 day invoice, the vendor is effectively only paying a fee for net 60 day invoice since the payment terms average out to 60 days.
Another benefit of net 30-60-90 day terms over net 90 day terms is that is makes it easier for the customer to make the payments. Paying for a third of an invoice is always much easier than having to pay the entire balance. Even though the entire invoice still gets paid over 90 days, its oftentimes easier for a business to pay a smaller amount several times than to make one large payment all at once. For one it is much easier to budget for as it is smaller monthly payments, but there is also no need to set aside money each month for a large payment that is due in 90 days.
If you feel you could benefit from offering your customers net 30-60-90 day terms but are worried about how it may affect your cash flow, now would be a great time to consider factoring. DSA Factors is a family-owned and run business that has been factoring for over 35 years. We work with a wide variety of industries and also have the ability to provide purchase order financing. Give us a call today at 773-248-9000, email us at firstname.lastname@example.org, or chat with us right here on this web page to learn more about how you can offer your customers more time to pay.
Running a small business is not an easy job, and while your business may be small, the decisions you need to make are oftentimes big ones. Of course, one of the most difficult decisions you will make is deciding how you are going to finance your business. While finding a financial partner may seem like a daunting task, especially since most banks probably aren’t willing to work with you, the truth is that are plenty of options out there available to you. To further complicate matters, there are many more companies out there that are offering these financing solutions to small businesses. So the tricky part is not just finding a solution that is right for you, but choosing the partner that is right for you as well. One important aspect to keep in mind is that you want a company that is willing to work with you to meet your needs in the same way that you are willing to work with your customers to meet theirs. Luckily, financing solutions are available to small businesses from other small businesses, so you know that you will receive the level of support you need to keep your business well financed and running smoothly.
Accounts receivable factoring is one of the most popular ways to finance a small business. To qualify for factoring is simple, as long as you are billing other businesses for your goods and services you can factor your receivables. Factoring only works with B2B, or business-to-business, transactions, so is a great option for manufacturers, importers, and wholesalers.
There are handful of reasons why factoring is a great option for small businesses, but one of the most important reasons is that credit decisions are based on your customers’ good credit and not on your own. When you factor a receivable, your factoring company is actually purchasing your receivables, or invoices, from you. As a result, it is the responsibility of your customer to pay back your factoring company and not your own. This of course brings us to another important feature of factoring, it is a form of debt-free financing. With non-recourse factoring you are under no obligation to pay back your factoring company if a customer is unable to pay an invoice. We will cover more on non-recourse factoring later.
The main reason most companies choose to factor is for the financial benefit of having improved cash flow. Factoring companies will pay you for your receivables the same day you invoice your customers, speeding up your cash flow by 30 days or more. You no longer need to wait until an invoice becomes due to receive payment. If you’ve held off on offering payment terms to your customers because you are unable to wait to get paid, with factoring you can offer your customers the payment terms that they are asking for. Not only will doing so make your customers happy, but it may even encourage them to place larger orders knowing that they will have time to pay for them.
However, factoring companies do much more than just speed up your cash flow. Factoring companies will also handle all of your credit checking for you, helping to ensure that your customers will be able to pay their bills. The benefits of this are two-fold. First, you get the reassurance that your customers are credit worthy. Second, is you don’t need to subscribe to expensive credit rating agencies as your factoring company will do this for you.
Another benefit of factoring is that your factoring company will handle all of your collection work for you. You no longer will need to call your customers requesting payment as this becomes the responsibility of your factoring company. Not only does this free up more of your time, but it also allows you to focus more on making additional sales to your customers when you call them instead of having to ask them to pay their bills. Factoring companies also typically are able to collect a bit faster because if a customer falls behind on their payments to a factoring company, then they may be unable to place new orders with several other of their vendors who use that factoring company. When customers pay their bills faster, they also able to place reorders faster as well which could lead to increased sales for you.
Finally, there is the benefit of having credit insurance. If your factoring company offers non-recourse factoring, then that means that they are fully insuring your invoices against non-payment for financial reasons. While credit checking your customers should go a long way in ensuring that your customers have the ability to pay for their order, no one had a crystal ball. Just because a customer appears to be in good shape when they place an order, does not mean that they will still be in good shape when a bill becomes due. Unfortunately, two years ago we saw a perfect example of why credit insurance is so important. When the pandemic hit, most businesses were forced to close their doors temporarily, but for many those closures became permanent. If you had outstanding receivables with a company that didn’t survive the pandemic, then you would simply be out that money unless you had credit insurance to cover it.
Of course, just like with any industry, there are some factors who are very large and some factors who are small businesses themselves. While most factors are willing to work with small businesses, choosing one that is a small business itself can be quite beneficial. Of course, when you work with a small business you get the satisfaction of helping out another family-owned small business, but there is a lot more to it than just a sense of personal satisfaction. All factoring companies have rules that need to be followed, however, a small business is much more likely to bend those rules to help you out if they are able to do so. A perfect example may be with deadlines. A large factoring company may have a strict cutoff of noon to submit invoices for funding, while a smaller factoring company may have that same cutoff but it probably isn’t as strict. While it is true that all factoring companies have to deal with rigid banking deadlines, usually cutoff times for submitting invoices for funding occur before those banking deadlines as the factor needs time to process the invoices and your payment. As a result, if you have smaller factoring company, oftentimes you can tell them that you will be a little late in getting your invoices in, and they will then work extra hard to ensure that they can get them processed and paid before their banking deadline.
Another benefit of working with smaller factoring companies is who you get to speak with. Larger factoring companies will assign you an account manager. These account managers are simply employees who will do their best to answer your questions and make sure that you get funded. While they may be great for anything that is business as usual, the problem is when you may have an unusual request. They may not have an answer to your question or be able to help with an unusual funding request. You also may have to deal with someone unfamiliar with your business should they go on vacation, or find a new job. With smaller factoring companies, you typically can speak with the owners of the company. As a result, they can answer pretty much any question you throw at them, and if you have an unusual request then they will figure out a way to make it work. While it is true that they too may go on vacation from time to time, you will still be able to speak to other family members of principals at the office who are also very familiar with your business and will be able to help you out with whatever you need. Of course, you’ll never have to worry about the owner of a business leaving because they found a new job!
Finally, small business factors may be able to offer you help beyond just factoring. Many small business factors also offer purchase order financing to their clients. With PO financing you can get an advance to pay your suppliers in order to fulfill a large purchase order. This advance then gets paid off through the proceeds of factoring the resulting invoice. PO financing can be extremely valuable when you first start selling to major retailers, or when a major retailer starts placing larger or more frequent orders for your products. Having access to PO financing is crucial for anyone who is hoping to grow their business.
DSA Factors is a small family owned business that has been providing accounts receivable factoring for over 35 years. At DSA Factors we pride ourselves in the service that we are able to offer to our clients. Whenever you call us you will always be able to speak with one our principals, and we can make credit decisions for you quickly, even over the phone if you are in a rush. If you are looking to finance your small business or simply just have questions about accounts receivable factoring please don’t hesitate to reach out to us at 773-248-9000, email us at email@example.com, or chat with us right here on this website.
There is no denying that Amazon is one of the most important retailers to work with, and having your products available on Amazon is a great way to raise your sales volume. However, for most companies, a large increase in sales volume is not sustainable if they don’t have financing available. While there are financing options available for Amazon, it is important to understand that Amazon offers two very different ways of getting your products onto their site which they call Seller Central and Vendor Central. Depending if you are on Seller Central or Vendor Central will determine what types of financing may be available to you. Let’s take a deeper look at these two options, discuss the pros and cons of both, and see what sort of financing options will be at your disposal.
If you are on Seller Central, then you are a third-party seller on Amazon’s marketplace. In this case, you get paid when one of your items is purchased by a consumer on Amazon. You also have the option of allowing Amazon to handle the fulfillment or handling the fulfillment yourself. Should you wish for Amazon to handle fulfillment, along with customer service and returns, you need to ship your merchandise to their warehouses.
There are quite a few pros to being on Seller Central. First, anyone and everyone is invited to be on Seller Central. If you want to sell a product, or products, all you have to do is create an account. Of course, they do have rules about what types of products can be sold on their site, but so long as you comply you can become a seller.
Perhaps one of the biggest pros to Seller Central is you get to control the pricing of your products. As a result, if you also sell your merchandise to other retailers, you can make sure that the price on Amazon is the same as it is in other retail stores. This of course will keep your other customers happy as they won’t have shoppers looking at the price on Amazon and deciding to purchase the product from them instead. Another benefit is that you can adjust the price, so if a competitor lowers their price you can do the same
Another pro with Seller Central is that you are in complete control of how your product appears on Amazon’s site. You are uploading the images, writing the copy, and control the SEO. Therefore, if you are good at marketing and SEO you have a very good chance that you can get your product to rank high on search results and have greater sales. Of course, this can also be a con if marketing isn’t your strong suit and you don’t have a good understanding of Amazon SEO, which is different from Google SEO.
The other pro about Seller Central is short payment terms. In theory, Amazon will pay you as soon as your product sells, there is no waiting 30 days to get paid. The con however is that this is only in theory. If you are handling fulfillment yourself, Amazon needs to trust that you are actually shipping the products and that they arriving on time. Furthermore, regardless of who is handling fulfillment, if you have returns then Amazon needs to be able to recoup the money they returned to your customer from you. So, if Amazon sees that you are having problems with shipping or have a high rate of returns, they may withhold payment from you for however long they feel is necessary to protect themselves.
As for cons, you have two major cons. First, if you choose to have merchandise fulfilled by Amazon then you need to pay them for this service. This can be rather expensive, especially if the items you sell are cheap. This really is only practical for expensive items. Should you fulfill it yourself, then you either need to build the shipping expense into your products price, or charge additional for shipping, either way, your product won’t be eligible for Prime delivery which can hurt your sales figures. Regardless of who is doing the fulfilling, you will still need to pay Amazon any fees or commissions that they charge you.
The other major con is that products being sold by third-party sellers simply don’t sell as well as products being sold directly by Amazon. Part of the reason for this is trust, consumers trust Amazon but don’t trust a third-party seller who they’ve never heard of. That trust is further eroded by the fact that many third-party sellers are located overseas. The other issue is that you aren’t just competing with other third-party sellers, but with Amazon themselves. Obviously, it is in the best interest of Amazon to sell their own products over someone else’s products. Not to mention, no one knows better how Amazon’s SEO works than Amazon.
Being on Vendor Central is a more traditional way of selling your merchandise. You are one of Amazon’s vendors and are therefore selling your products to Amazon, not to consumers. It is no different than having your product appear on a shelf at a grocery store, department store, or any other brick-and-mortar retailer. You are only responsible for shipping your merchandise to Amazon, after that Amazon takes over how they sell it to customers and how they fulfill customer’s orders.
Perhaps the biggest pro to being on Vendor Central is the fact that you have made a sale. Amazon has provided you with a purchase order, you shipped them the merchandise, and in 30 days you will get paid. You don’t need to worry about whether or not Amazon’s customers purchase your product as you are getting paid either way. Of course, as products sold by Amazon tend to perform better than products sold by third-party sellers, you should expect your merchandise to sell well on Amazon and to receive future purchase orders.
Another pro is that you don’t need to worry about the marketing of your product, that will be handled by the professionals at Amazon. They will decide how your product listing should look on their site and will be in charge of handling all the SEO. So, if marketing and SEO aren’t your strong suit, you don’t have anything to worry about.
A very important pro for anyone, especially those who sell cheaper products, is that fulfillment is not your responsibility and you do not have to pay for it. Amazon is solely responsible for fulfilling orders of your product, and your product will be eligible for Prime delivery. That said, Amazon will sometimes place restrictions on certain items stating that they will only ship with orders of $25 or more, but in general this not have too big of an effect on sales as most consumers will want to purchase more than just your item on Amazon.
Amazon also gives their vendors better tools. From better marketing tools to allowing them to participate in subscribe and save programs, vendors are given the tools needed to increase sales and therefore receive faster reorders. Plus, if you are on Vendor Central you can participate in Amazon Vine where you can send out free products to influential reviewers to ensure that your product has plenty of quality reviews before it starts showing up in search results.
Of course, there are cons to being on Vendor Central as well. Perhaps the biggest is that you have no control over the pricing of your products. Amazon is able to work on razor-thin margins because they make their profits by selling in large quantities. Plus, while Amazon may have to pay for shipping, they aren’t paying rent for expensive retail space and in general have fewer salaries to pay than a physical store would due to their highly automated warehouses. That means that Amazon may be able to undercut other retailers who you sell your product to. If consumers can purchase your product for less on Amazon, they may not be willing to purchase it from a brick-and-mortar store that they are shopping in. This of course can make other retailers mad and unwilling to carry your product in the future.
Another con to Vendor Central is the fees that you will have to pay. While you aren’t paying the fees and commissions that third-party sellers and Seller Central are paying, Amazon does take very large deductions for co-op fees and damage allowances. This of course will all be spelled out in the purchase order, but is something that you need to be aware of and build into your price.
With either Seller Central or Vendor Central, financing your business is crucial, especially if you start to experience sales growth as a result of Amazon. While Seller Central may pay you quickly, you still need to wait for a consumer to purchase your product before you will get paid. You also need to worry about Amazon slowing down your payments if they see a delay in shipments or an increase in returns. With Vendor Central, you may not need to wait for consumers to purchase your product or worry about returns because a customer changed their mind, but you will need to wait 30 days to get paid and hopefully will be receiving additional purchase orders during that time period. Unfortunately, there is no one-size-fits-all solution for financing your Amazon sales. The solutions available for Seller Central and Vendor Central are completely different.
For Seller Central your options are limited. Pretty much the only viable solution is Amazon’s own Amazon Lending program. While this is certainly a great option for third-party sellers on Seller Central, access to it is by invite only and Amazon determines who is invited and how much funding is available. Unfortunately, if you don’t receive an invite, Amazon Lending is not option. Banks or SBA loans are also most likely out of the question as they will require collateral, namely receivables, which you won’t have with Seller Central. There are other businesses who specialize in financing for Seller Central, but we are unaware of how reputable any of them are.
With Vendor Central you will have many more options because you have receivables. For one, getting a bank or SBA loan may be a possibility, but applying for these is a long process and they are difficult to obtain. Accounts Receivable Factoring, on the other hand, is a very viable option for Amazon vendors. With accounts receivable factoring rather than waiting 30 days to get paid by Amazon, your factoring company will purchase your receivables and fund you the same day you ship. As a result, with factoring you are speeding up your cash flow by 30 days. Another solution at your disposal is purchase order financing. Once you receive a purchase order from Amazon, you can then borrow the funds necessary to produce that order. For companies experiencing massive growth, purchase order financing can be an extremely powerful tool to have at your disposal. Often times factoring companies will offer purchase order financing to their clients, although it can also be obtained through companies that specialize in only in purchase order financing.
It is important to keep in mind, regardless of whether you are on Seller Central or Vendor Central, while there may be multiple financing options, you will be limited to choosing only one of them. The reason for this is that you can only pledge your collateral to one financial institution, with the most valuable collateral being your receivables. It is also important to keep in mind that with the exception of Amazon Lending, financing solutions will apply to more than just Amazon and will be available for all of your customers. Even if you are on Seller Central, it is possible that you could finance your Amazon sales through the factoring of receivables that you have for other accounts. It is important that you look at the entire picture when determining what financial solutions are available to your business and will meet your needs.
The decision between Seller Central and Vendor Central is one that you need to make for yourself, assuming that you’ve been invited to participate in Vendor Central. There is no correct answer here, and it is possible that you may wish to utilize both options as Amazon may only want to purchase certain SKUs on their Vendor Central platform, meaning that you could sell other SKUs via Seller Central.
DSA Factors is a family owned business that has been providing accounts receivable factoring for over 35 years. We work with many clients who are part of Amazon’s Vendor Central program, but also provide financing of receivables for other major retailers as well as mom-and-pop stores. In addition to accounts receivable factoring, we also offer purchase order financing to our clients. If you have any questions or would simply like to learn more about factoring you can give us a call at 773-248-9000, email us at firstname.lastname@example.org, or chat with us here on our website.
When it comes to factoring there are a lot of different aspects that need to be looked at when determining the best factoring option for your business, however, the decision between recourse and non-recourse is probably the most important. Quite simply, recourse means that if a customer does not pay an invoice, then you are responsible for paying back the advance you received on that invoice. Non-recourse on the other hand means that you are insured against a customer who doesn’t pay for an invoice, so there is no need to pay back the factoring company if they don’t pay. While this may seem like a simple difference, there is actually a lot more to it than what these simple descriptions state.
With recourse factoring you are receiving an advance on your invoices, but your factoring company is not purchasing your receivables, they are simply offering you an advance. While your factoring company will try to collect on your invoice on your behalf, ultimately you are responsible for paying back your factor if one of your customers does not pay for an invoice that you received an advance on. Of course, you won’t be asked to pay back this advance on the day that the invoice is due. While the exact amount of time may vary between different factoring companies, typically you’ll be asked to pay back your factor once an invoice becomes 90 days beyond terms. Some factoring companies may demand the entire value of the advance at that time, while others may be willing to work with you to set up a repayment plan. The terms of repayment are something that you would have to discuss with your factoring company.
With non-recourse factoring your factoring company isn’t just providing you with an advance, but they are actually purchasing your invoices from you along with all the associated risks. Non-recourse factoring is much more than just receiving credit insurance with an advance, because with non-recourse factoring there is no need to file claims, there are no minimums or deductibles that need to be met, and there are no premiums to pay. It is important to note that non-recourse factoring covers you only in situations where a customer is unable to pay, and it is important to understand which situations your factoring will cover. All factoring companies will cover you in the event that a customer files bankruptcy or goes out of business, although not all factoring companies will cover you in the event that a customer is simply a deadbeat. What isn’t covered is customer satisfaction, for example, if a customer takes a deduction because a product arrives damaged, it is still your responsibility to take care of it, whether that is providing a replacement or offering a credit. In general, factoring companies will hold back funds in reserve that are intended to cover them in the event that a deduction is taken. The amount of reserve taken depends on the factoring company but typically falls between 10-20%. Once a factoring company receives payment for an invoice, they will return any funds held in reserve to you. It is important to note that even with recourse factoring, your factoring company will still hold 10-20% in reserve.
While it is clear that non-recourse factoring offers benefits that recourse factoring does not, there of course is more that goes in to the decision between recourse vs non-recourse. You also need to consider cost, approval rates, collection efforts, credit limits, and debt.
Some factoring companies may offer you an option between recourse and non-recourse factoring, and in this case they may offer a lower rate for factoring with recourse. Other factoring companies will only offer one option. However, just because one factoring company may offer a lower rate for recourse factoring, that doesn’t mean that it is necessarily the best rate. There is a lot that goes into a factoring rate, and recourse vs non-recourse is just a small part of it.
Besides differences in the rates of factoring, there are other costs that you need to consider. With non-recourse factoring there is no need to purchase credit insurance, however, you may wish to purchase credit insurance if you are using recourse factoring. In this case, you need to consider the cost of premiums as well as minimums and deductibles. It is also important to note, even I you file a claim at the same time that your factoring company asks you to return an advance you received, it could take anywhere between 30-90 days to receive payment from your insurance company.
Should you choose to forgo credit insurance, then it is important to consider what your losses may be. This is a little bit more difficult to calculate and these numbers can fluctuate wildly between any given year, and it can be very difficult to predict when the next economic turndown will take place which could lead to higher losses than expected. In general, to figure out these costs, you probably will need to look at a decade’s worth of data, and even that won’t prepare you for extreme events such as the COVID-19 pandemic.
Another thing that some factoring companies promise is a higher approval rate with recourse factoring, although this can be difficult to substantiate and actually may not be beneficial at all. Performing credit approvals is a very important aspect of factoring and one of its primary benefits. Your factoring company will check out the credit worthiness of your customer before you produce an order to ensure that your customer ultimately has the means to pay you for it.
With larger invoices, for example an invoice for $100,000, there will be little difference in the credit approval process between recourse and non-recourse factoring. Both types of factoring companies will do a deep analysis of the customer to ensure that they are credit worthy. In the case of the non-recourse factoring company, they will ultimately be out the money if a customer is unable to pay. However, the same is true of the recourse factoring company as most likely you will not have $100,000 available to pay them back in the event that a customer does not pay. So in all likelihood, there is very little difference in the approval rate of large orders between recourse and non-recourse factoring.
Where you may see a difference in approval rates is with smaller orders. An order for $250 may receive two very different approaches. A recourse factoring company may not even bother to credit check the customer and may just automatically approve your order. To them, if the customer is unable to pay, they know that you will be able to afford to pay them back the $250. So while they are giving you a credit approval, they are actually doing you a disservice as they may be sticking you with bad debt. A non-recourse factoring will run the appropriate credit checks knowing that they will be out $250 if the customer is unable to pay. That doesn’t mean that the non-recourse factoring company is unlikely to approve them, most factoring companies are willing to extend a small line of credit to new businesses or businesses that haven’t established any credit yet. However, if a factoring company is willing to give a small line of credit to a company that is trying to establish credit, they are assuming all the risk associated with doing so.
One of the main benefits of factoring is that your factoring company handles all of the collections for you. However, just like with credit approvals, recourse and non-recourse factors may take different approaches when it comes to collecting. For a large order there is little doubt that a recourse factoring company will try their hardest to collect it, knowing that if they can’t collect it will be very difficult for you to pay them back. It is the small orders that are more problematic. If a factoring company is having a difficult time collecting a several hundred dollar invoice, they may give up if they feel it would be easier just to collect the amount from you. The same can not be said of a non-recourse factoring company. Since they are on the hook for the invoice, they will work their hardest to collect even on the smallest of invoices. Of course, whether or not your factoring company is able to collect, you have nothing to worry about as you are fully insured.
There really shouldn’t be any difference in the credit limits assigned to your individual accounts by either recourse or non-recourse factoring. Assuming that they are credit checking the customer, their credit limits should be consistent. However, if a recourse factoring company isn’t really checking out your accounts in too much detail because they can charge back an invoice to you, then they may assign a higher credit limit. However, where credit limits come into play is when it comes to sending funding for you. A recourse factoring company may assign you a credit limit across all of your accounts to ensure that invoices don’t get paid, that you will have the ability to pay them back still. Presumably, most accounts are going to pay, so this credit limit should be very high, however, it could prove to be problematic if your business starts growing at a faster rate than expected or you get a very large order. On the other hand, you have no credit limit with a non-recourse factoring company. Since you have no obligation to ever pay back your factoring company, you have no debt with your factoring company. As a result, the sky is the limit when it comes to how much you can factor with non-recourse factoring.
The final major difference between recourse and non-recourse factoring is debt. One of the best features of factoring is that it is a form of debt-free financing. Certainly this is true in the case of non-recourse factoring where your factoring company is purchasing your receivables and you are under no obligation to pay them back, the receivables will be paid back by your customers. However, this isn’t entirely true with recourse factoring. While the vast majority of your customers should and will pay their bills, you are still responsible for the ones who don’t. When a customer is unable or unwilling to pay, it becomes your obligation to pay back your factoring company, meaning that you are in debt to them.
While it would be simple to say that non-recourse factoring is better than recourse factoring, it is just one of the aspects that needs to be considered in determining which factoring company is right for your business. Oftentimes the industry that you work in will determine whether or not non-recourse factoring is an option and which factoring company would be the best fit for you.
At DSA Factors we are proud to offer non-recourse factoring to all of our wholesale clients. We are a family owned business that has been factoring for over 35 years. If you have any questions about factoring, whether they pertain to non-recourse or any other aspect of factoring, please don’t hesitate to give us a call at 773-248-9000, email us at email@example.com, or chat with us right here on this web site.
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).
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.
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.
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.
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.
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.
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 firstname.lastname@example.org, 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!
Access to working capital is crucial to the success and growth of any business. It is very common for businesses to take on debt in order to grow or get through a tough time. However, oftentimes, paying off that debt can prove to be more difficult than whatever struggles required them to take on debt in the first place. For this reason, finding debt-free sources of financing can be very desirable. Typical solutions to debt-free financing include taking on investors. However, this will result not only in loss of ownership of the business, but also a loss of control over how you run the business. Rolling over retirement savings may avoid the pitfalls of taking on investors, but draining your nest egg can put your future in jeopardy. Besides, you’re limited to only what you have in savings. That said, there is a debt-free option that doesn’t force you to give up control of your business or use your own personal finances. With accounts receivable factoring you get all the benefits of being debt-free without any of the drawbacks.
Accounts receivable factoring is the act of selling your receivables to another business (a factor) at a discount. Since your factor is purchasing your receivables from you, you are not taking on any debt. Doing this gives you access to working capital that you otherwise wouldn’t have access to for at least another 30 days, greatly improving your cash flow. Furthermore, there is no limit to how much financing is available. As your receivables grow, so does the amount of financing available to you. Factoring is also a quick and easy process with funding available in as little as 24 hours.
Any business that sells or provides a service to another business (B2B) can qualify for factoring. Best of all, your factor is extending credit to your customers, so all credit decisions are based on your customer’s good credit instead of your own. Plus, factoring isn’t available just to established businesses, but to startups as well.
Since factoring does not involve taking on debt, there are no restrictions on how you use the funds, and your factor won’t ask you how you are using them. Since your factor isn’t an investor, they also don’t have any ownership stake in your business. With factoring, you are completely free to use the funds and run your business anyway you like.
There is no catch, your customers still get the terms they desire, and you benefit with a healthy stream of cash flow. Although factoring is much more than just improved cash flow, you get other benefits as well. With factoring, you are outsourcing your accounts receivable to your factor. That means that they will handle all of the credit checking and collection work for you. Since factoring companies work with many vendors, they are probably already familiar with most of your accounts, and accounts tend to pay factors quicker than they do vendors who don’t factor. Quicker payments of course can lead to faster reorders and even higher credit limits, which translates into more sales for you. Furthermore, with non-recourse factoring, your receivables are fully insured against non-payment.
Getting started is a quick and easy process. Typically, all it takes is a 15-minute phone call to answer any questions you may have, followed by a short application. It isn’t unusual to be factoring your first receivables within 24-48 hours of that initial phone call. If you want to give factoring a try, give DSA Factors a call at 773-248-9000, email us at email@example.com, or chat with us right here on this web page. We are a family owned business that has been factoring for 35 years. We have the experience necessary to help you grow your business without taking on any debt.
Purchase order financing is nothing new, but for many businesses that are finding it difficult to finance their business this past year and a half, purchase order financing is becoming very popular. However, like anything in the world of finance, there is no one way to do something, and purchase order financing is no exception. In this article we will explore the two most popular ways to obtain purchase order financing, from a purchase order financing company and an accounts receivable factoring company.
It may seem like a no brainer that if you want purchase order financing you would go to a company that specializes in giving this. While these companies are an excellent option for many importers, they also have fairly strict requirements for financing that not all importers will be able to meet. The first requirement from these companies is that all products must be completely manufactured overseas, they will not finance anything manufactured domestically or that is a work in progress. Secondly, the product must ship directly from the manufacturer overseas to the customer who ordered the product, it can not transit through your warehouse. This means that you can't have product for other customers or for additional inventory in the same container.
Purchase order financing companies fund deals by obtaining a letter of credit from a bank. However, since they are dealing with a bank, and banks traditionally move at a very slow pace, you will need to ensure that you give them enough time to get you the letter of credit. If you need the funding tomorrow or even next week, then working with a purchase order financing company is not going to be an option.
Finally, these companies are only willing to handle very large deals such as half a million dollars, a million dollars, or even more. Since it can take a month or more to obtain the letter of credit, the last thing a purchase order financing company wants is for you to find the funds needed somewhere else during that time. When this happens, the purchase order financing company has invested time and money into securing a letter of credit that you ultimately will not need and will not pay for. Combined with the fact that it takes just as much time and effort to secure a small letter of credit as it does a larger one, it simply isn't worth it to purchase order financing companies to fund smaller deals.
Meeting all these requirements may prove difficult for many small businesses. However, if your company fits into these requirements then giving a call to a purchase order financing company would be a good idea.
If you don't meet the above requirements to work with a purchase order financing company, then working with an accounts receivable factoring company is probably what's best for your business. As the name suggests, accounts receivable factoring companies specialize in paying you for your receivables, meaning you have already shipped to and invoiced your customers. However, many factoring companies are also willing to give an advance based on a purchase order to their clients. They are also much less restrictive than purchase order financing companies, which makes them an ideal option for many small businesses.
In general, factoring companies do not provide a letter of credit, but instead provide you directly with funds. They don't require that products are made overseas, and are willing to fund a work in progress. The best part, the product can pass through your warehouse, so you can include additional product in the container whether it is for other orders or just for inventory. However, unlike purchase order financing companies, factoring companies prefer smaller deals. A typical deal for a factoring company might only be between $5,000 and $100,000 dollars, although if you have established a good working relationship with your factoring company, they may be willing to go much higher than that.
Factoring companies can move quickly, oftentimes you can just give them a phone call and they will tell you whether or not they can help you. However, factoring companies value relationships. Its easy for a factoring company to provide PO funding to a client that has been factoring for several years, but its much more difficult for a factoring company to say yes to PO funding for a company who they are speaking with for the very first time. So while existing clients will find it very easy to get a loan on a days notice, it will be much more difficult for prospective clients. As a result, if you foresee big things in your companies future, it may be worthwhile to establish a relationship with a factoring company that provides purchase order financing long before you get that first large purchase order.
In general, it is cheaper to obtain purchase order financing from a factoring company. However, factoring companies do not specialize in purchase order financing, and since they are actually funding you they need to get paid back. The way that they get paid back is through factoring the resulting receivables. The combined cost of both purchase order financing and factoring would be fairly comparable to if you had procured financing through a purchase order financing company. Although through factoring other receivables, you may be able to reduce the amount you need to borrow with purchase order financing, which will effectively make it more affordable. In general, factoring alone is much more affordable than any form of purchase order financing, so if factoring can provide you with the funds you need you may able to avoid purchase order financing all together. Plus, factoring provides you with additional benefits that you don't get from only purchase order financing.
In most situations you won't have a choice in which type of business to obtain purchase order financing from. The decision will be dictated by the requirements your deal meets and your existing relationships. However, both types of funding will provide your business with the ability to pursue a large purchase order. Furthermore, both options are much easier to secure than a loan or line of credit from a bank. So long as you can fit the cost of purchase order financing into your margins, it is one of the best ways to take on large orders and ultimately grow your business. Even if you haven't received a large purchase order yet, if you plan on pursuing one, now would be a good time to familiarize yourself with which options are available and start forming relationships.
At DSA Factors we are a factoring company that also provides purchase order financing. We work with our clients to make sure that they get the funds they need when they need them, while at the same time trying to minimize the amount of interest that they will need to pay. You can give us a call at 773-248-9000, email us at firstname.lastname@example.org, or chat with us right here on our website. We are always happy to answer any questions that you may have about purchase order financing or anything else.
Accounts receivable factoring has been around for centuries, but in no way does that mean that it is an antiquated from of financing. Of course, a lot has changed since the days when invoices were etched in stone, and factoring companies have evolved as well. The reason why factoring has been around for so long and still remains a popular form of financing is because it has always been one of the best and most accessible options to growing businesses. Why should you consider accounts receivable factoring? Below are just 21 of the benefits of using accounts receivable factoring to grow your business.
The primary benefit of factoring is getting funded for your receivables the same day you invoice your customer, rather than having to wait 30 days or longer to get paid. Having healthy cash flow is crucial for any business, and it was what factoring is all about.
Accounts receivable factoring is a completely debt free form of financing. Rather than giving you a loan with receivables used as collateral, your factoring company is actually purchasing your receivables. You don’t need to worry about having to pay your factoring company back.
Speed and consistency is what factoring is all about. Typically factoring companies will fund you the very same day that you send invoices over to them. In many cases, with a simple email or call, they may even be willing to extend their deadlines for you if you need a little bit of extra time to get everything put together, or are waiting for a truck to arrive.
Unlike banks that can take months to make a credit decision, factoring companies move quickly. It is quite possible to get setup with a factoring company within 24 hours and receive your first funding within 48 hours. Factoring companies also make speedy credit decisions on your customers, oftentimes approving orders in 30 minutes or less. In many cases, you might even get an instant approval on your factoring company’s web portal.
There is no need to worry about whether or not you will be approved for factoring. Your factor is extending credit to your customers, not to you. As a result, credit decisions are based on your customers’ ability to pay, not your own.
Orders that may have been too large to take on in the past, are easily manageable with factoring. You don’t need to worry about having all of your money tied up in receivables, and you don’t need to worry about what would happen if your customer is unable to pay on time or at all.
Some factoring companies also offer purchase order financing. This means that they will give you a loan to pay your suppliers in the event that you receive a large purchase order. This is a great tool for any business that is getting into a major retailer for the first time, is simply expanding, or for businesses that are seasonal.
Your factor will handle all of the credit checking for you. That means you no longer need to ask new customers for credit references, or subscribe to expensive credit reporting agencies. You also don’t need to continually monitor your existing customers, as this is all handled by your factoring company.
By factoring your receivables, you are also outsourcing your collections to professional and courteous collectors. You no longer need to have employees dedicated to collecting, or take away time from important tasks to make collection calls. Instead, when you call customers, your focus can be on making sales.
Your factoring company works with many other clients in your industry who sell to the same accounts as you. If an account does not pay a factor, it not only holds up their ability to receive more merchandise from you, but also from several other of their vendors. It is also known that factoring companies report both prompt payments and delinquencies to credit agencies, so how they pay a factor has a very large impact on their credit.
If your factoring company offers non-recourse factoring, your receivables are fully insured against non-payment. You no longer need to worry about a customer who is unable to pay for merchandise. Furthermore, you don’t need to worry about paying annual premiums, deductibles, and reaching minimums, every invoice you factor is fully insured.
While factoring does not directly impact your business’s credit, the improved cash flow it offers you allows you to take care of bills faster, and this of course is directly reflected on your credit report.
There is no limit to how much you can factor, factoring is the only form of financing that grows as your business grows. Where bank look at what you did in the past, factoring companies look at what you are doing now, and what you can do in the future. The more sales you have, the more funding that is available to you. Factoring companies are also happy to work with seasonal businesses that experience most of the sales volume in a short two to three month period.
Some factoring companies are very flexible in how they finance your business. They may allow you to choose which accounts you wish to factor to help you minimize how much you need to pay in factoring fees.
Unlike a line of credit from a bank that comes with fees whether or not you draw on it, you only ever pay a factoring fee when you factor an invoice. If you wish to keep an account in house, or have a customer who prefers to pay with a credit card, then you are not charged any factoring fees on them.
With factoring you are simply being paid for your receivables, unlike a bank who may providing you with a loan for a certain purpose and requesting financial statements. As a result, with factoring the funds you receive are yours and they can be used in any way you wish.
Most factoring companies offer online portals that offer a variety of real-time reports. These reports can be used to assist in sales or accounting. Factoring companies are also willing to put together additional reports that you may need from time to time, usually at no additional charge.
Regardless of how much business you do, factoring will always fit your business. From companies that only do $50,000 a year to companies that do $5,000,000 a year or more, factoring will provide you with the financing you need. Likewise, no order is too small or too big, whether you are selling $100 to a mom and pop store, or $1,000,000 to a national retailer, you can always factor the resulting receivable.
While most financing options aren’t available to startups or younger, growing companies, factoring is available. Even if your company has been around for less than a year and hasn’t established any credit yet, you still can qualify for factoring.
Factoring is all about relationships. Your factoring company will always take the time to speak with you and work with you to help you grow your business. Some factoring companies are even family-owned small businesses themselves, so they understand many of the struggles that you need to deal with, and you will work directly with the principals.
Your factoring company’s success is directly related to your success. Since a factoring company only gets paid when you factor an invoice, your business’s success is at the heart of every decision a factoring company makes.
If accounts receivable factoring sounds like it may be the financing option your business is looking for, give DSA Factors a call today at 773-248-9000 or email us at email@example.com. We are a family owned business that has been providing accounts receivable factoring and purchase order financing for over 35 years. So what are you waiting for, give us a call today and start growing your business tomorrow!
When bringing a new product onto the market, it is very common for a business to initially sell directly to consumers as they are trying to get the product established. This may be done through their web site, or if they own a retail store, they may even sell it in their store. Some businesses may even invest in becoming third party sellers on Amazon Marketplace, Etsy, or other online marketplaces. However, if a company truly wants to expand their reach and start selling their product in larger quantities, the key to doing this is to make the change from strictly B2C (business-to-consumer) and start selling B2B (business-to-business). This can be a daunting task, and finding customers who are willing to sell your product is never easy. Should you succeed in finding customers, you now need to ramp up production of your product, and that of course requires funds that you may not have access to.
Selling your products directly to consumers is a fairly straight forward process. You put your product out there and if someone likes it they give you a credit card and you send them the product. Of course, it really isn’t that simple. You first need to find a way to advertise your product and make consumers aware that your product is not just out there, but is something that they need or want. You also need to have inventory on hand, and paying for this inventory can be very challenging for any business, young or old. However, if you are only selling to consumers, your inventory can be kept at a fairly low level, you maybe only need a few hundred items on hand, and once those start selling, you should be able to order additional inventory as needed. If you can afford to do this, and your product is selling, you may be able to make a nice profit. However, it is difficult to grow your business if your sole focus is direct to consumers. While there are certainly exceptions, it is doubtful you will be able to make a living simply selling your product direct to consumers.
If you are looking to take your business to the next level, you will need to start selling to retailers, whether they be online or brick-and-mortar. This is no easy task as you not only need to find retailers who can sell your product, but you need to convince them that they will sell your product as well. However, don’t let that deter you, every product you see on the shelf at a store started off in the same place you are now, so there is no reason that you can’t get your product onto those same shelves.
Unfortunately, while making a sale may seem like the hardest part of growing your business, and it probably is, it isn’t the only obstacle in your way towards success. Once you start selling to retailers, the amount of inventory you need to have is going to grow, and you are probably going to need financing to help you acquire that inventory. If you are selling to smaller retailers, most likely they are only ordering a few units, which shouldn’t cause too many issues so long as you’re only selling to a few shops. However, getting a large order from a major retailer may put you in a position that you have never been in before. They might be ordering more units than your total sales since starting your business, and you may find yourself struggling with how to pay for the additional inventory required. On top of that, they are going to want to receive payment terms, typically this means that they won’t pay you until 30 days after you shipped the order, although sometimes it could be 60, 90, or even 120 days. Telling them you don’t have the funds to acquire the inventory, or that you can’t afford to wait to get paid is not only going to result in them canceling your order, but will probably result in them never wanting to do business with you again. You don’t only lose that customer, but you also lose the ability of other retailers to discover your product in their competitor’s stores and start placing their own orders. This doesn’t mean that you shouldn’t be looking for large orders, it just means that you should be looking for financing.
Finding financing for a business that is expanding into new territory may seem intimidating. You don’t have a track record to qualify for a bank loan or line of credit. You may be able to find an investor who is willing to help you out, but doing that would mean giving away part of your business and needing to answer to someone else. Luckily, there is a way for a small, growing business to obtain financing and it is called accounts receivable factoring.
Accounts receivable factoring is basically selling your receivables, or invoices, to a factoring company when your customers request payment terms. Instead of waiting 30 days or more to get paid for your merchandise, your factoring company will fund you the same day you ship the merchandise to your customer. However, there is much more to factoring than just speeding up your cash flow. The last thing you want to do is sell your product to a store that isn’t going to pay for it, if the store you sell to goes bankrupt, goes out of business, or if they are simply deadbeats, you are stuck with a worthless invoice and are out the money for the product you shipped them. Luckily when you factor your invoices you solve this problem. Your factoring company is responsible for performing credit checks, and if they offer non-recourse factoring, they even insure your invoices against non-payment. They also handle all of the collection work for you, so you don’t need to worry about having to call your customers when an invoice becomes due and you want them to pay you, your factoring company has professional collectors that will do this job for you. Best of all, since your factoring company is purchasing your receivables, you aren’t taking on any debt. The funds you receive from your factoring company are yours, and you can spend them anyway you wish.
Of course, there is a cost to factoring, no form of financing is ever free, but factoring is actually very affordable. Typically, a factoring fee is very comparable to a credit card processing fee. So if you have already been taking credit cards from consumers that have been purchasing your product, you can factor your receivables to businesses and it will have a very similar cost. When compared to the cost of attending a trade show, or hiring sales reps, factoring is one of the most affordable services needed to grow your business.
By now you have probably realized that if you don’t get paid until an order ships, then you are responsible for coming up with the funds required to purchase the inventory needed for a large order. There is a simple solution for this as well. Many factoring companies offer something that is called purchase order financing. With purchase order financing, your factoring company will provide you with a short-term loan based on a purchase order you received so that you can pay your suppliers to produce the order. While purchase order financing does involve your business taking on debt, the great thing about it is that you won’t need to write a check in order to pay it off. Instead, when you factor the resulting invoice, your factoring company will apply a portion of the proceeds towards the loan they gave you, and will fund you the balance. So if you borrowed $6,000 against a purchase order worth $10,000, then when you factor the resulting invoice, your factoring company will apply $6,000 towards the loan they gave you and fund you the remaining $4,000, minus the cost of financing of course.
Qualifying for factoring is simple, so long as you have receivables you qualify. Factoring companies base their credit decisions on the strength of the customers you are selling to, as it is ultimately your customers who will paying them back. As a result, even startups can qualify for factoring, and there are no limits to how much funding you can receive. The application process is simple, and most factoring companies can have you setup within 24-48 hours after receiving your application and any other required documents.
If you want to learn more about how factoring can help your company grow, give DSA Factors a call today at 733-248-9000 and learn just how easy factoring can be. Even if you don’t have any large orders yet, now is still a great time to speak with us to learn more about factoring works and how it can help your business.
It was over a year ago that the coronavirus was first detected, and while the disease didn’t bring drastic change to America until March, that first wave is now long behind us and things have only gotten worse since the summer months. But beyond the disease which has infected millions and taken many lives, the pandemic has also been devastating to our economy. While the most visible effect of the pandemic has been bankruptcies and empty store fronts, the economic effects of the pandemic actually go much deeper than that. Prior to the bankruptcies and store closures we saw a tightening of credit insurance policies combined with an unwillingness for the industry to take on new clients. The pandemic has also led to the disappearance of supply chain financing, which had grown tremendously over the past decade, while at the same time payment terms got extended. In other words, while consumers may only see the disappearance of their favorite stores and restaurants, behind the scenes the vendors who provide stores with their merchandise have not only seen reduced business, but a lack of financing available to them.
Credit Insurance has long been a tool available to wholesalers. Typically, in a business-to-business transaction, the company purchasing a product will request payment terms, meaning they won’t pay for the merchandise they receive until 30 days or more after receiving it. Of course, whenever you allow someone to pay for an item after it has been received there is risk involved. For some financially strong customers that risk may be minimal, but for others that may be struggling that risk may be significant. If a company were to file for bankruptcy within those payment terms, not only would they not have to pay you, but they will probably be allowed to keep the merchandise. Should they pay you but then file for bankruptcy within 90 days, you may be required by the bankruptcy court to return those funds. This is why many wholesalers obtain credit insurance, to protect themselves in the event that one of their customers files for bankruptcy.
Credit insurance has been around for a long time, and really hasn’t changed much over the years. Credit insurance remained available and reliable throughout the recession in 2008 and even during the current “retail apocalypse” that has followed. However, due to the rapidly changing business environment that resulted from the COVID pandemic, credit insurance had to make some major changes for the first time in recent history. Near the end of March it began with the slashing of credit limits and a refusal to take on any new clients. The credit insurance companies started lowering credit limits across the board, not only on struggling businesses, if not flat out denying coverage on accounts that they had previously covered. At the same time, they also stopped taking on new clients, even abruptly ceasing communications with potential new clients that they had been working on building policies for.
It is doubtful that credit insurance companies would have lost much money had they continued business as usual. Any outstanding receivables at the time of the initial lockdowns would still need to be covered as the insurance companies can’t backdate changes in credit limits, and oftentimes even give clients a grace period before a credit limit or coverage change goes into effect. Furthermore, businesses stopped placing orders after the initial shutdown, so there really wasn’t any need to lower credit limits. As a result, credit insurance companies didn’t really protect themselves from the bankruptcies since new orders weren’t being placed and they still had to provide coverage on orders that shipped in March or earlier, assuming they were offering coverage on these companies in the first place. The end result of their policy changes was that they turned away new business, and possibly alienated existing customers.
While credit insurance is not something that is visible to consumers, it no doubt effects consumers. If wholesalers are unable to insure an account, it makes them much less likely to be willing to sell to them. This means that the retailers have difficulty stocking merchandise on their shelves and consumers have even less of a reason to shop at their stores. All of this, combined with other difficulties caused by the pandemic, makes it that much harder for a retailer to survive, and ultimately leads them down the path of bankruptcy. However, it isn’t just retailers who got hurt by the lack of credit insurance, wholesalers may have had to walk away from some of their largest customers, putting both their short-term and long-term survival in jeopardy as well.
It is important to understand however that credit insurance companies do not have direct access to a company’s payment trends or even order history when making credit decisions. Credit insurance companies rely on credit reporting in order to get their data. The credit agencies they collect their data from receive reports from actual debtors typically on a monthly basis. Therefore, not only do credit insurance companies not have real-time data to rely on, the data they receive is not their own, and in general only places outstanding receivables into 30-day aging buckets. As a result, a receivable paid one day beyond terms would appear the same as a receivable paid 30 days beyond terms, while a receivable paid 31 days beyond terms will look much worse than a receivable paid 30 days beyond terms. The only time they receive actual real-time data is when a client of theirs has to report a receivable that has become past due by a certain number of days, and later when they ultimately file a claim on a receivable that remains unpaid. The data credit insurance companies would have had access to at the start of April would have looked perfectly normal since businesses would have been closed for at most one week at that time, it wouldn’t be until new data became available at the start of May that they would have noticed a slowdown. Any claims that they would have received at the end of March or beginning of April would have been on invoices that dated back to November 2019 or earlier. So, the decisions made by credit insurance companies in late March and early April were not dictated by data, but simply by fear of the unknown.
If tightening credit insurance policies weren’t bad enough for wholesalers, the disappearance of supply chain financing has devasted many smaller wholesalers. Larger retailers always request credit terms from their customers, typically net 30 day terms, meaning that they have 30 days to pay for their merchandise. Over the past decade, it has become increasingly popular for larger retailers to agree to pay an invoice early, oftentimes after only a week or two, in exchange for a discount. Wholesalers may be willing to give these companies a discount, somewhere around 2%, for an early payment in order to improve their cash flow, creating a win-win situation for both the wholesaler and the retailer. However, this offer of early payment is not a requirement and is solely up to the retailer as to whether or not they wish to offer it.
Supply chain financing, and Fintech in general, emerged as a result of the 2008 recession. Venture capitalists saw that financing wasn’t readily accessible to small businesses and decided to use technology to make financing safe and easy. In the years that followed 2008, our economy improved greatly and large businesses were thriving. As a result, the industry grew at a time when our economy was growing, and had never experienced an economic downturn.
Of course, prior to 2020, retailers that offered early payments would have had very little reason to stop offering it, so offers of early payment were consistently available. 2020 of course changed all that when many of these retailers were forced to suddenly and unexpectedly close their stores, as well as the corporate offices where these payments come form, for an unknown period of time. As a result, most retailers stopped offering early payments at the outset of the pandemic, putting their vendors in a difficult situation where they didn’t have access to the funds that they relied on to keep their business running. To make matters worse, with corporate offices closed and without any revenues coming in from their stores, many of the retailers simply stopped making payments, even when the invoices became due. This all happened at a time when wholesalers saw new orders completely dry up and existing orders being canceled.
To make matters worse, many wholesalers who relied on supply chain financing, never bothered to consider getting credit insurance. They didn’t see the need for credit insurance since they were getting paid early. However, just like health insurance, you still need it even if you are young and healthy because you never know what the future may have in store for you. Companies who relied on supply chain financing and didn’t bother to insure their receivables, were suddenly exposed to the fact that these companies that owe them money have now closed all their stores and that bankruptcy was a very serious possibility.
While supply chain financing was still available as a tool available to retailers, retailers no longer wished to use it. Even now, nine months after the first wave of COVID-19 swept across the nation, most major retailers have started placing orders again, but still are not offering supply chain financing to their vendors. To make matters worse, many of them have also increased their payment terms from net 30 days to net 60 days or even net 90 days, forcing their vendors to wait even longer to get paid. Prior to the pandemic, extending payment terms was sign of financial distress and imminent bankruptcy, although this year we believe that it is simply a response to the unknown as stores may have to close again should things become worse. It is possible that supply chain financing may one day be offered again by retailers, but at this point, it is very clear that it is not a reliable way for wholesalers to finance their business. Another recession, or even worse, another pandemic, could easily result in the disappearance of supply chain financing again.
The disappearance of supply chain finance as an affordable way to finance a small business has led to a huge increase in demand for accounts receivable factoring. Factoring is a lot like supply chain finance, except instead of being initiated by the retailer, it is initiated by the wholesaler. It also does not require the approval of the retailer; it is solely at the discretion of the wholesaler as to whether they wished to work with a factoring company. Therefore, wholesalers don’t need to worry as much about when the next disaster will hit, the financing that their business needs is completely within their control.
Factoring also provides access to funds 7-10 days faster than supply chain finance. Where retailers typically need to receive merchandise and check it into their system prior to making an offer of early payment to their vendors, factoring companies are willing to fund their clients the same day they ship their merchandise to their customers. That means even better cash flow than you would have received with supply chain financing.
Furthermore, if non-recourse factoring is offered, then the wholesaler also receives credit insurance on their receivables along with the improved cash flow that they receive. However, unlike credit insurance companies, factoring companies have access to real-time data that shows orders placed and payment trends, along with the data that credit insurance companies receive from credit reporting agencies. As a result, factoring companies can oftentimes approve accounts that a credit insurance company may not feel comfortable with.
Accounts receivable factoring is also available on any and all accounts that a wholesaler may sell to. Where supply chain finance is typically only available from major retailers, and credit insurance comes with minimums and deductibles that pretty much rule out smaller receivables from being insured, factoring companies are willing to work with customers of all sizes. A wholesaler who does half their business with major retailers, and the other half with small mom-and-pop shops, would have access to immediate funding and credit insurance on their entire portfolio if they choose to work with a factoring company, whereas before only half their portfolio would have had financing and insurance available.
The cost of accounts receivable factoring is very comparable to the cost of supply chain financing, and in all likelihood is much less than the cost of supply chain finance and credit insurance combined. Like supply chain financing, factoring fees are based on a percent of an invoices value, however that rate is fixed so you know exactly what to expect every time you factor an invoice and can easily build it into your pricing. With supply chain financing the percentage can change based upon the retailers needs at the time they offering early payment. If a retailer begins to struggle, or if they simply need access to working capital to fund an expansion, they can ask for larger discounts in exchange for early payment.
Credit insurance on the other hand works like any other insurance product, you pay an annual premium based on how much volume you expect to do at the beginning of the year. Larger volumes get you better rates, but you don’t get reimbursed if your sales don’t reach your expectations. Likewise, if your sales exceed your expectations you may find yourself having to purchase additional coverage at a higher rate than had you purchased more coverage in the first place. Even when there isn’t a pandemic, guessing the correct amount of coverage to get can be tricky, while the pandemic pretty much guaranteed that any companies with credit insurance way overpaid for coverage. Since factoring is based on a fixed percent of an invoices value, you only pay for what you insure, nothing more, nothing less. You also don’t need to worry about deductibles or minimums with factoring, if your factoring company approves your customer, then you are fully insured.
Accounts Receivable Factoring is one of the oldest forms of financing and not only has survived many recessions, but has also been available throughout recessions and this current pandemic. Here at DSA Factors we have been providing factoring for over 30 years and have survived several recessions during that time period. There is no question that the COVID pandemic has been the most difficult event that we have had to deal with, but we never stopped providing financing to our clients, not even in April when things were at their worst. However, we aren’t only continuing to fund our clients, we are also accepting new clients and offering them the same great service that we provide to all of our clients. If your business has lost the financing options it had been relying on for the past few years as a result of the pandemic, please give DSA Factors a call today at 773-248-9000. We are ready and willing to provide you with the funds you need to keep your business going!
Supply Chain Finance has been gaining in popularity over the past few years. Instead of forcing vendors to wait 30 or 60 days to get paid for their receivables, retailers have discovered that they can get a several percent discount in exchange for paying their vendors early. It seemed like a win-win, vendors get the cash flow they need, and large retailers get a discount at a rate that far exceeds interest rates. Of course, all of this changed over the past few months as our nation, and the world, have been gripped by the COVID-19 pandemic.
Suddenly, retailers have been forced to shut their doors with no plan for when they may be able to reopen. While their customers have been laid off, furloughed, or taken pay cuts, and those who have managed to maintain their jobs are more concerned with purchasing essentials and saving money in case they too become an economic casualty of the COVID-19 pandemic. Not to mention, many consumers simply don’t feel safe leaving their homes for anything that isn’t essential. As a result, these retailers have found it best to hold onto their money for as long as they can, and most have either extended payment terms (with or without permission) or are simply paying invoices well beyond the due date. For small vendors that have relied on supply chain finance, they now find themselves in a very difficult position.
One of the major retailers who offers supply chain financing is TJX (TJ Maxx, Marshalls, Homegoods). When stay at home orders were first issued, TJX told all their vendors that they would be extending terms on all of their invoices from 30 to 90 days, although they reversed that decision a couple weeks later due to the backlash they received from the vendors. However, by that point the damage had already been done. Many vendors were unable to get the early payment they rely on, and due to the closure of their corporate headquarters and a need to catch up, many invoices were still paid well beyond terms. Companies that were used to getting paid within 5-10 days were now waiting 45 days to get paid, and this was at a time when sales had pretty much dried up. It also appears that for the immediate future, any new orders from TJX will have terms of 90 days, making it unlikely that they would be willing to offer early payment. Unfortunately, TJX was far from the only major retailer to extend terms or simply fall behind on their bills.
Of course, it also isn’t just an issue of cash flow anymore, the COVID-19 pandemic has proven to be just as deadly for businesses as it is for the people it infects. While all non-essential businesses had been forced to close their doors temporarily to flatten the curve, many of these businesses will be closing them permanently as a result of no revenue but continuing expenses. If the retail apocalypse wasn’t bad enough before the pandemic, the recent wave of bankruptcies has been incredible. Already we have seen J.C. Penney, Neiman Marcus, J. Crew, Stage Stores, and True Religion have all filed bankruptcy during the pandemic. Lord and Taylor has avoided bankruptcy, but has announced they will be holding going out of business sales as soon as they are allowed to reopen. L Brands (Victoria’s Secret, Bath and Body Works) will not be filing, but will be permanently closing 250 stores. While Pier 1 Imports and Art Van Furniture, both who filed bankruptcy prior to stay-at-home orders being issued, were forced to change their bankruptcy plans and completely liquidate. Of course, the retail sector is far from the only industry being hit with bankruptcies, hospitality, entertainment, and health clubs have also been filing for bankruptcy at an incredible rate. Sadly, these companies are only the beginning, with many more considering their options as well.
Even worse, the dangers of bankruptcy are actually compounded by supply chain finance. Many businesses don’t feel the need to carry credit insurance if their customers offer supply chain financing. The logic behind this is that there is no risk if a company is paying them early. However, the decision to pay early is entirely up to the customer, as is the amount of the discount that they will take. Prior to filing for bankruptcy in 2017, Toys’R’Us utilized the popular C2FO platform for supply chain financing. Towards the end they started demanding larger and larger discounts in return for early payments. Further complicating matters is US bankruptcy law in regards to receiving preferential payment. When a company files for bankruptcy, the bankruptcy court can demand that any preferential payments made within 90 days of the filing be returned to the court. When a vendor offers a discount in exchange for an early payment, there is no question that the vendor has received a preferential payment and will be forced to return the payment to the court. So vendors that offered double digit discounts that Toys’R’Us accepted, ultimately would have had to return the funds if they were received within 90 days of the filing. Had they waited until the invoice was due and gotten paid in full, they probably would have been able to keep their money.
With many businesses reopening at this time, there is still a question of how many of them will be able to survive. With consumers spending less money these days, and spending in unpredictable ways, combined with a fear of whether it is even safe to go out in public, revenues will continue to remain low for the foreseeable future. Yet these companies will need to rehire much of their workforce and continue to make rent, pay utilities, and interest payments on debt. For businesses such as restaurants and movie theaters, who will need to reopen at reduced capacities, there is a question as to whether or not they will be able to remain profitable. Unfortunately, most experts are predicting that even though businesses are starting to reopen now, many businesses that have survived so far might not make it through to the end of the year. Even with companies that emerge from the lockdowns with strong sales, there is still the question of whether or not they would be willing to pay invoices quicker, the current trend is that most companies are requesting longer payment terms. Of course, none of this takes into account the possibility of a second wave of infections and subsequent closures.
Relying on supply chain financing to improve your cash flow may have worked for the last few years, but it is doubtful that it will be as reliable moving forward. Furthermore, wholesalers need to be more careful than ever about who they are selling to. The only thing worse than getting paid slowly is not getting paid at all. Paying for credit insurance on top of supply chain financing can be extremely costly, especially for businesses that do less than $10 million a year. Not to mention, the credit insurance companies have been hesitant to take on new clients, and have slashed credit limits across the board for their existing clients.
There is a solution to this problem, and that is accounts receivable factoring. With accounts receivable factoring you sell your receivables to a factoring company, and can be funded the same day you ship the merchandise, making it a much quicker turnaround than supply chain finance. Furthermore, your factoring company is responsible for monitoring your customers and establishing appropriate credit limits. If the factoring company offers non-recourse factoring, then not only do you receive improved cash flow, but they also insure your receivables, eliminating the need for costly credit insurance. Just like supply chain finance, when you factor your receivables you are not taking on any new debt as your factoring company is purchasing your receivables from you. The best part, however, is that accounts receivable factoring is available for all of your accounts and costs no more than supply chain financing. Plus, since factoring rates are fixed, it takes away all the guess work associated with supply chain finance and can easily get built into your margins. Want to learn how easy it is to improve your cash flow with accounts receivable factoring? Give DSA Factors a call today at 773-248-9000 and we will be happy to speak with you.
Fintech is becoming increasingly popular each year. The success of Fintech is primarily driven by the ease and speed of getting access to funding. However, oftentimes as Fintech companies work tirelessly to improve their funding process to make it faster and more seamless, they are doing so at the expense of offering you quality customer service while at the same time invading your privacy. Part of the reason for this disconnect comes simply from the size of these businesses. Over half of all Fintech companies have more than 5000 clients, and a quarter of them have over 50,000 clients. There simply is no way to manage these large number of clients efficiently without making sacrifices. However, if they limit their client base, then it becomes way too expensive to support their massive IT and marketing budgets, not to mention keep their investors happy. For business owners, the solution is to find a financial partner who is small enough to offer you the personalized service you need, but large enough to offer fast, reliable service and have the funds necessary to keep your business running.
Certainly, it is the ability to get funds fast that has made Fintech so popular. The way that Fintech has been able to do this is by using AI to automate processes that traditional financial institutions rely on humans to do. By taking humans out of the equation, it allows computers to make instant decisions and get you the funding you need. This has and continues to be the main focus of most Fintech companies, with over 80% of Fintech companies actively looking for ways to automate more processes and remove humans from the equation. Unfortunately, this comes at a cost, as more people are getting replaced by machines, customer service winds up suffering, and their ability resolve problems becomes more and more limited. Privacy concerns also become an issue as the Fintech companies require access to more data in order to base their decisions on.
Fintech companies also benefit due to the fact that getting a loan or line of credit from a bank has always been a challenge for many small businesses. Banks make credit decisions by looking at the business’s credit as well as the personal credit of its owners. Oftentimes for a young and growing business, establishing good credit can be a very big problem. As a company begins to grow, so does their expenses, and when a company suffers from poor cash flow, funds aren’t always available to pay bills in a timely fashion. For the owners of these businesses, frequently they will have invested much of their own money into the business, so their personal credit also takes a hit. The result is that banks are typically unwilling to fund them. Fintech companies get around this problem in several ways. First, they look at assets that banks may not have easy access to. By integrating with QuickBooks and other financial software, Fintech companies have real time access to all of their client’s receivables as well as a history of how the receivables have been paid in the past. More importantly they participate in predatory lending techniques such as excessively high interest rates and daily debits from the business’s checking accounts. By taking funds directly out of a bank account on a daily basis, it guarantees that they will get paid before anyone else, not to mention since they have access to the account, they know exactly how much money has been going in and out of the account and what the current balance is. The high interest rates also allow them to accept a higher rate of default since they make a very large amount of money on clients who don’t go into default.
The ability to easily communicate with your financial partner is perhaps the most crucial. Whether you have a simple question you are looking for an answer to, or have run into a problem that you need to come up with a solution to, you need to have a way to communicate. These days there are three main forms of communication. The two most popular forms are email and phone; however, online chatting is becoming increasingly popular and is expected to have tremendous growth in the future. The problem of course is how you integrate these three forms of communication. The last thing you want is for your client to utilize two of these forms, and have to re-explain themselves each time because there is a disconnect between the people assigned to answering each communication method. Only a little more than 10% of Fintech companies actually have a way of managing these three channels in an integrated fashion, and even so, it is unlikely that their clients would be able to deal with the same person if they change methods. To make matters worse, less than a third of Fintech companies actually have a way of providing the people speaking with their clients full access to their client’s account, especially when they’ve outsourced their communications overseas. Therefore, quality customer service is typically something that Fintech companies sacrifice in order to cut costs and take on more clients.
Typically, when we hear about privacy concerns these days it involves major breaches, however, while breaches are certainly still a concern, in the world of Fintech there are also very different privacy concerns. In order for Fintech companies to work so efficiently at funding thousands of companies, they have learned how to take humans out of the equation, and make all credit decisions using AI. In order to this, these institutions require access to data which usually comes in the form of direct access to your bank accounts and accounting software. Fintech companies are constantly keeping track of any transactions you make and are basing their credit decisions on what they see. Many Fintech companies also make automatic withdrawals from your bank account, the very same bank account that they require you to give them access to, in order to pay them back. If you don’t feel comfortable allowing your financial partner to have complete control over your financials and the funds in your bank account, Fintech is probably not right for your business.
Just as Fintech is considered an alternative form of financing, there are also alternatives to Fintech that combine its speed and availability with high quality customer service and respects your privacy. Accounts receivable factoring has long been an alternative form of financing that is fast and easy. Factoring is easy to qualify for, if your company has receivables then it can qualify for factoring. With accounts receivable factoring you are not receiving a loan, but rather selling your receivables to your factoring company, as a result, credit decisions are based on your customer’s good credit and not your own. As for speed, most factoring companies have introduced automated credit approval processes, although they also still rely on humans to review requests as well. However, so long as you submit your requests during normal business hours, factoring companies are typically able to respond to you with a decision that same day, oftentimes within half an hour to an hour. As for funding, the process may not be as automated as it is with Fintech companies, but typically your factoring company will allow you to email them invoices that you wish to get funded on, and they will be processed for payment that same day. It may not be as easy as clicking a button on a Fintech company’s phone app or in your accounting software, but by making these very small sacrifices in convenience, factoring companies make up for it with customer service and privacy.
Customer service is something that can vary between factoring companies. With large factoring companies, you typically get assigned an account manager who you will deal with all the time, as a result they should be familiar with your account, although they may need to get permission from upper management to make major decisions. With smaller factoring companies however, you oftentimes can speak with a principal each and every time you call, email, or chat with them. So, you not only get to speak with someone who is very familiar with your account, but they also have the ability to make major decisions and get you access to additional funding if needed.
In terms of privacy, some factoring companies may request financial statements from time to time, but this is not always the case. However, what is true of all factoring companies is that they will never ask for access to your bank accounts or your accounting software. The reason why factoring companies don’t require access to this information is not just because they use human decision makers, but because they are not giving you a loan. Since you are selling your receivables to your factoring company, it is ultimately your customers who are responsible for paying your factoring company back, not you.
Of course, the biggest difference between Fintech and factoring is that factoring companies don’t use predatory lending techniques. The fees charged by factoring companies are much lower than those charged by Fintech companies. While it is true that if you calculated a factoring fee as an APR it would appear to be much higher than a bank loan, this isn’t really the case. Factoring is much more than just improved cash flow, with factoring there are also two other major benefits. First, you are outsourcing your accounts receivable. That means that your factoring company will be handling all of the credit checking and collecting for you. Not only will you be able to save money by not having to subscribe to expensive credit checking agencies, but you also don’t need to hire additional employees to handle your collections, or if you handle collections yourself, you’ll be able to free up some more time to focus on marketing, sales, or other aspects of your business. The other benefit is that if your factoring company offers non-recourse factoring, that means that credit insurance is included with the factoring, you no longer need to worry about customers who are unable to pay their bills. After accounting for these additional benefits, the actual cost of factoring as an APR is actually very comparable to what a bank might offer you.
At DSA Factors we take pride in the customer service we are able to provide to our clients while also respecting their privacy. As a small, family-owned business we understand the needs of your business and can offer the same fast and reliable funding you get from the larger companies, but with a personal touch and flexibility that only a family-owned business can provide you. If you want to get started with factoring, give us a call today at 773-248-9000, and one of our principals, either Ben, Max, or Howard, will be happy to speak with you.
* Data for this article comes from the LiveVox Fintech Contact Center Survey Report for 2019.
There are many different ways to fund your business out there, but choosing the correct funding method for your business can sometimes be difficult. What makes it tricky is that you can only work with a single funding source. Since you don't know what the future holds for your business, being tied down to funding method that meets the needs of your business today, doesn't mean that it will meet your needs in 6 months or a year, especially if your business is growing. However, there are two funding methods that can be combined together and scale at the same rate as your growing business, they are accounts receivable factoring and purchase order financing.
Traditionally, getting a line of credit from a bank has been the "go to" method for funding a small business. Of course, it has always been a slow process, and qualifying for a line of credit has never been easy small business owners. However, there has always been one very significant problem with a bank line of credit, that is the bank looks only at what you have done, and not at what your business will be able to do in the future. As a result, a line of credit almost always will meet your current needs, but as your business starts to grow, a line of credit can actually restrict how much you can grow. To make matters worse, even if other funding options become available to you, in order to work with them you would have to pay off your and close your line of credit with the bank.
Finding a funding method that can actually grow with your business is crucial for anyone who has large aspirations for their business. A good solution to this problem is factoring. Accounts receivable factoring is a very unique funding method in that it is not a loan, it does not take your credit into account, and the amount of funds available scales with your growing business. The way factoring works is quite simple, if you business invoices other businesses and offers them net payment terms, such as 30 days to pay, then you can sell those invoices to your factoring company and get paid on them 30 days or ealier or more. Because your factoring is purchasing your receivables, you are not taking on any debt and it is your customers who are responsible for paying back your factoring company. This means that credit decisions are not based on your credit, but rather on your customers' good credit. It also means that as your business and receivables grow, the amount of funding you receive from your factoring company also grows with it.
Of course, while you can use the funds you receive from factoring to purchase more product and take on larger orders, it is possible that if you received an extremely large order, say from Walmart or Target, the funds you receive through factoring may not be enough to pay your suppliers for this very large order. In situations like this, you will probably need purchase order financing. Now just like a bank loan or line of credit, if you are factoring your receivables then you won't be eligible for other sources of funding. However, if you work with a factoring company that also offers purchase order financing, then you will be able to get funded for your receivables 30 days earlier, and receive a loan so that you can pay your suppliers when you receive a very large order. As a result, when choosing a factoring company, it is very important to consider all the services they offer because you never know what you might need in the future.
If you are wonderng how factoring and PO financing can work together, it is really quite simple. You provide your factoring company with a PO and tell them how much money you need. They then provide you with the funds neccesary to pay your suppliers. Then once the order is produced and received, you ship it to your customer and invoice them as usual. At that time you provide a copy of the invoice to your factoring company just as you normally would when you factor an invoice. Your factoring company will purchase the invoice, apply a portion of it towards the loan they gave you, and fund you the remaining balance.
At DSA Factors we are proud to offer our clients both accounts receivable factoring and purchase order financing. While for the majority of our clients factoring is more than sufficient in providing them with the funds they need to run their business, we have been able to help many of our clients with purchase order financing as well. Purchase order financing has been most beneficial to our clients when they receive a large order from a big box store, or when they are trying to get a large order into their factory prior to Chinese New Year. If you have big plans for the future of your business, give DSA Factors a call today to learn about how accounts receivable factoring and purchase order financing can give your small business the funding it needs both now and in the future.
Running a small business isn't easy when times are good, but if you find yourself in a cash flow crunch you may find yourself having to make difficult decisions and possibly even turning away business and losing some customers. While it would be great to get a line of credit, most small businesses have trouble qualifying for a line of a credit. Even if they may qualify for one, the banks move so slow that by the time they get a line it is oftentimes too small or too late. However, if your small business has receivables, factoring them and getting funded 30 days earlier (or more) may be just what your company needs.
Factoring is a very different process than applying for a line of credit. For starters, your factoring company is giving credit to your customers and making decissions based on their good credit, so even if you may not qualify for a line of credit, you will qualify for factoring. So rather than you trying to get approved for $25,000, a factoring company simply has to approve 25 of your customers for $1000 each, a much simpler task.
Factoring also moves very quickly, after all, waiting months to get funded doesn't exactly help your cash flow. As a result, factoring companies make credit decisions in a matter of minutes, and will fund you the same day you invoice your customers.
Another benefit of factoring is that there are no minimums and no maximums. Micro factoring works for companies that are just getting started and may only have several invoices for a few hundred dollars each. But as your business grows, the amount you can factor grows along with it. Unlike other forms of financing that have strict credit limits regardless, the amount you can factor scales directly with the amount of business you are doing. So whether you are doing $50,000 a year or $5,000,000 a year, factoring is a solution that works for your business.
Of course the best part of factoring is that when you factor your receivables you are not taking on any debt. With lines of credit and other types of loans, you need to pay back the lender over a fixed period of time, and there may be minimum payments that need to be made each month regardless fo whether or not you have the working capital available to pay them. With factoring there is nothing to pay back, you are simply selling your receivables to your factoring company, and it is your customer's responsibility to pay once the receivables become due.
Want to learn more about how factoring can help improve your small business's cash flow? Give DSA Factors a call today at 773-248-9000, and you could have healthier cash flow tomorrow!
Online lending, often referred to as Fintech, is becoming increasingly popular and is a major disruptor in the world of finance. The reason for this is simple, these online lenders are filling a void for small and medium sized enterprises (SME's) who have always had a hard time qualifying for SBA or traditional bank loans. Even for SME's that do qualify for a loan from the bank, Fintech companies are able to approve loans in as a little as 24 hours whereas banks can take months to make a decision and provide funding. Of course, online lending has its drawbacks, and there are other financing solutions out there that can help SME's improve the cash flow quickly. Let's dive into the world of Fintech to understand how it works and what it entails.
Traditionally bank underwriters would require vast amounts of information in order to approve an SME for a loan. They would analyze sales records, business assets, accounting statements, and pretty much anything else they could get their hands on in order to make a decision. Oftentimes the decision process is slowed down as they request more and more information. At the end of the day, the bank underwriter is only looking at what a business has done in the past, and not looking at what they can do in the future. As a result, even if they do approve an SME for a loan, the amount will only be based on historical numbers and may not be enough to support future growth. Furthermore, since it is only based on past data, startup businesses are pretty much eliminated from receiving funding from a bank.
Online lenders have done away with underwriters reviewing accounts, instead they're underwriters have come up with complex computer algorithms that can measure if an SME qualifies for a loan, and how much they will qualify for. They do this by requesting access to a company's online banking platform and the EDI systems of their largest customers. By providing the Fintech company with login information to these various portals, the algorithms are able to work their magic and come up with an instant decision based on the data collected from these sources. Even startups can qualify as the algorithms would have rules built in for dealing with smaller amounts of data. The algorithms are of course designed to predict future potential growth, giving an SME access to the funds that they would need to grow.
Like all good things in life, there is a catch to online lending. Most of these companies are funded by venture capitalists or crowd sourcing, as a result, the investors are looking for very high returns on their investment. Fintech companies are also taking on more risk as they are allowing computer algorithms to make instant financing decisions, as opposed to a bank that would use a human underwriter to review an application in great detail. The combination of these factors results in much higher interest rates than you would get from alternative financing options. At the low end, Fintech companies may offer APR's around 30% for companies with strong financials, but for startups or struggling businesses, those APR's can be well over 100%.
Furthermore, online lenders require you to authorize them to automatically withdraw funds from your bank account, a practice often associated with predatory lending. Based on the lender this can mean monthly withdrawals, weekly withdrawals, or in some cases even daily withdrawals. Furthermore, since you have provided them with access to your online banking platform, they have the ability to wipe out your account should you in anyway breach their contract.
Another common practice of online lenders is to have steep penalties for early repayment of a loan. Where a bank would allow you to repay a loan early to avoid paying interest, online lenders are expecting you to be paying their exorbitant interest rates for the entire term of your loan. Those that don't have penalties for early repayment tend to charge you all of the interest up front when you take out the loan, so even if you were to pay off the loan early, it won't save you from having to pay interest.
The other big problem with online lending is that it is entirely online. It is very difficult for you to pick up a phone and speak with someone at these large Fintech companies. Even if they do offer customer service, these companies are run by algorithms and it would be impossible for a customer service representative to offer you any actual help.
By allowing computers to do the jobs that had traditionally been done by underwriters, combined with having those very same computers also withdraw funds directly from your checking account, online lenders have eliminated a lot of the expense involved with financing. They have also greatly increased the APR's for financing and have investors with very deep pockets. The combination of all these factors have allowed them to spend more money on marketing their products than traditional financing institutions have been able to do in the past. The result is that while many small business owners aren't familiar with banking alternatives, they are being bombarded with advertising from online lenders and are jumping at the opportunity to receive funding without first checking to see if they have any other options available.
There are alternatives to online lending that don't require you to work with a bank. Two of those alternatives are accounts receivable factoring and purchase order financing. While not every business will qualify for these services, businesses that sell to or provide a service for other businesses (B2B) do qualify. With accounts receivable factoring, businesses are able to turn their receivables into working capital without taking on any debt. Purchase order financing is a way of getting a short-term loan based on a purchase order so that you can pay your suppliers in order to fulfill your purchase orders.
Accounts receivable factoring is a financial tool that allows you to sell your receivables to a factoring company at a discount. As a result, you are not taking on any debt because your factoring company is purchasing your receivables. Furthermore, you aren't just getting funded sooner on your receivables, but you are also outsourcing all of your collection work to your factoring company and, in the case of non-recourse factoring, getting insurance on your receivables. You also aren't taking on debt so there is no lengthy approval process. Instead your factoring company is checking out the credit worthiness of your customers, eliminating the need for you to subscribe to expensive credit agencies, and typically credit decisions can be made within half an hour of submitting a customer for credit approval. The discount for factoring your receivables can vary based on the terms of your receivables, but is very similar to a credit card processing fee.
There are many factoring companies out there, all of who offer slightly different programs and rates. Another big difference between factoring companies is with their ownership. Some factoring companies are family-owned, small businesses just like yours, others are owned and run by major national banks, credit bureaus, gas station chains, or may be subsidiaries of overseas factoring companies. If having a personal relationship with your factoring company is important to you, and it should be, then it is important that you look at who the ownership of the factoring company is.
While there are online lenders that offer "Fintech Factoring", in reality all they are doing is giving you a loan based on your outstanding receivables being used as collateral. They also do not provide you with credit checking or collections services, and it is with recourse, meaning that your receivables are not insured. Plus, they still charge you the same exorbitant APR's as other online lenders.
Purchase order financing is a way of securing the funds necessary to pay your suppliers when you receive a larger than normal purchase order. Purchase order financing can either be used as a stand-alone product or can be combined with factoring to help fund your business. Either way, since purchase order financing is a short-term loan, the fees involved are higher than factoring, but still much lower than fees charged by online lenders.
As a stand-alone product, purchase order financing has a rigid set of rules that can not be broken if you wish to receive funding. Common rules are that it is not available for a work-in-progress, you must have an overseas supplier, and the product must be shipped directly from your supplier in the foreign country to your customer in the US, that is it can't pass through your hands or the hands of any other third party. Typically, the way it works is that your supplier will be issued a letter of credit that they can then take to their bank and draw upon. Because it requires a bank to issue a letter of credit, it tends to be a lengthier process and could require several weeks to secure.
However, if you combine purchase order financing with accounts receivable factoring, it is a very different story since you have built a relationship with your factoring company through the factoring of your receivables. Because your factoring company will ultimately be repaid when you factor the resulting invoice, there is no need to obtain a letter of credit from a bank. Purchase order financing rules become much more relaxed and funding is often available the same day you ask for it. Purchase order financing is more expensive than accounts receivable factoring, so if you can fund a purchase order through the factoring of other receivables then that is a better way to do it. However, for very large orders, if factoring can not provide you with enough funding, then purchase order financing can be a very useful tool in order to take on large orders and grow your business.
Only you know what is right for your business, but just like any other important decision, it is important that you research your financing options before signing up with a company. While it may seem easy to click on an ad on a web page and get instant approval to a loan or line of credit, there is usually a reason why it is so easy and why they have enough money to bombard you with advertisements all the time. When it comes to financing your business, make sure you research all the options out there. After all, you want a financing company that will be working for you, otherwise you will wind up working for your financing company.
DSA Factors is a small, family-owned and family-run business. We have been providing accounts receivable factoring and purchase order financing for over 30 years to wide range of industries. We offer very competitive rates and the personalized service you would expect from a family-owned business. Give us a call at 773-248-9000 and one of our principals will be more than happy to speak with you about how we can help you grow your business.
With so many factoring companies out there to choose from, picking the best factoring company for your business can seem a daunting task. However, knowing what sets factoring companies apart can make the process much easier. Here are some of the questions you need to ask when choosing the right factoring company for your business.
Perhaps the most important question to ask is what your factoring fee will be. In general fees are given as a percent of an invoices value. Factoring rates can vary based on the terms you offer your customers. Typically, factoring companies will quote rates for net 30 day invoices, so if you offer net 60 or net 90 it is important to let the factoring company know that. Of course, you don't just want to go with the company offering the lowest rate without analyzing what they are offering you. There are different types of rates, additional fees, and different services that each factoring company offers. Obviously, you want to get the best deal, but in the same way that you wouldn't just purchase the cheapest car on the lot at a car dealership, you also don't want to just sign up with the factoring company who offers you the lowest rate. For more details on factoring rates, check out our blog article How to Find the Lowest Rate for Accounts Receivable Factoring. At DSA Factors our factoring fees are very similar to a credit card processing fee.
There are two different types of rates that factoring companies can quote you, fixed rates or adjustable rates. Adjustable rates are great for marketing as they sound incredibly low, while fixed rates are about 2% higher on average. However, don't be deceived by an incredibly low adjustable rate, there is hidden interest charges that you aren't being told about.
The easiest way to understand the difference between these rates is to compare them to taking a limo or a taxi to the airport. A fixed rate is like taking a limo, you are quoted a higher rate but that rate will not change, even if you get stuck in traffic (or your customer doesn't pay on time). In general, with fixed rates, you also receive better service, just like you would expect from a limo. The only difference between fixed rate factoring and a limo is that limos tend to be more expensive than cabs, but fixed rate factoring tends to be cheaper than adjustable rate factoring.
Adjustable rates are similar to taking a cab. The rate that is quoted to you is basically the same as the flag fall, it is simply the minimum amount you have to pay to factor an invoice. Then, the meter will start running, either from the day your factoring company funds you, or the date of the invoice. The meter stops once your factoring company gets paid by your customer and the payment clears their bank, typically an additional ten days from when they receive payment. So while the initial rate may seem very low, the actual rate is much higher, especially if you get stuck in traffic (or your customer pays late). Just like a dishonest cab driver, there are even some factoring companies that will allow a skipped invoice to go 30-60 days beyond terms before contacting your customer since you will be paying the interest on it.
To better understand the similarities and differences between these different rate structures, please read our article Fixed Rate vs Adjustable Rate Accounts Receivable Factoring. At DSA Factors we always offer fixed rate factoring so you always know exactly how much factoring will cost you and you will get the lowest rate.
Recourse vs non-recourse factoring is perhaps one of the most important details you need to look at when choosing a factoring company. With non-recourse factoring, your factoring company is providing you with credit insurance on your receivables. This means that if one of your customers is unable to pay, it is your factoring company who is out the funds. If you are factoring with recourse and a customer is unable to pay, then your factoring company can request that you return the funds that they advanced to you. Typically, non-recourse factoring is only available to wholesalers and not to service providers, however not all factoring companies offer non-recourse factoring. You can learn more about non-recourse factoring by reading What is Non-Recourse Factoring? At DSA Factors we offer non-recourse factoring to our wholesale clients.
Reserve is funds that your factoring company holds back until they receive payment from your customer. Typically, factoring companies will hold back between 10%-20% of the invoices value in reserve. Oftentimes this is advertised as an advance rate of 80%-90%. If 10% is held in reserve, then the advance rate is 90%. The reason for reserve is to cover your factoring company in case a customer takes deductions. Even with non-recourse factoring, while your factoring company is offering you credit insurance, you are still responsible for customer satisfaction. Choosing a factoring company with a low reserve rate, or high advance rate, is important if you are relying on factoring to improve your company's cash flow. You can learn more about reserve and advanced rates in our article Factoring Your Receivables at a High Advance Rate. At DSA Factors we want to help your cash flow as best we can so we are proud to offer a 90% advance rate.
In order to factor an invoice, your factoring company must first approve your customer. Factoring is not a loan, your factoring company is purchasing your receivables, so your factoring company is actually extending credit to your customers. As a result, before you can factor an invoice, your factoring company needs to first look up your customer to determine whether or not they are credit worthy for the amount of the order. Partnering with a factoring company who offers high approval rates is important because if your factoring company turns down an order, then you won't be able to sell to your customer. While approval rates can vary from industry to industry, in general here at DSA we have a 95% approval rate. Although most accounts that get turned down are because they are past due and later get approved once payment is made.
Most factoring companies will charge you additional fees in addition to the normal factoring fee. While they should be upfront with you about these fees, they may not tell you about them unless you ask. Most factoring companies will charge a transaction fee when they fund you, and this fee can vary based on the payment method (check, ACH, or wire). However, your factoring company may also allow you to hold onto invoices for several days so that you aren't paying them transaction fees every day. Some factoring companies charge fees for credit approvals or setting up new customer accounts. Most factoring companies also charge an application fee, and it is important to know if this is a one time fee at the start of your relationship or if it is charged each time you renew your contract. Monthly or annual fees are also not uncommon. Some factoring companies may even require you to pay for other products they offer even if you don't use them. Even if a factoring company offers you a very low rate, if they are charging too many fees then the actual factoring rate may be much higher. It is important that you work with a factoring company that does not charge you lots of fees. At DSA Factors we do charge transaction fees for payments made via ACH or wire, but there is no fee for payment made by check. We also have a one time application fee that is required only at the start of our relationship.
Most factoring companies can fund you in as little as 24 hours, although some may take longer. If you are relying on factoring to improve your cash flow, then you need to partner with a factoring company that offers a quick turnaround time. At DSA Factors, if we receive your invoices by noon Central time we can fund you the same day for them, invoices that come in after that get funded the following business day. For new clients, we can get you set up and start funding you in as little as 24 hours.
Some factoring companies require all of your business to be factored while other factoring companies allow you to choose which accounts you want to factor. If you have good accounts that consistently pay you early for your invoices, or prefer to pay with credit card, then you may not want to factor them. When a factoring company allows you to choose which invoices get factored, this is known as Spot Factoring. Even if you plan on factoring all your accounts, it may be a good idea to partner with a factoring company offering spot factoring since your needs may change in the future. At DSA Factors we offer spot factoring to all of our clients, allowing you to choose which accounts you wish to factor.
Many factoring companies have minimum volume requirements, meaning that you are required to factor a certain amount of invoices in a particular period of time. For example, they may require you to factor $500,000 per year or $50,000 per month. If you do not reach these volumes, then they will charge you an additional fee based on the difference between the minimum volume and your actual volume. Oftentimes these minimum volume requirements are prohibitive to startups, smaller companies, and seasonal industries. It is important that you ask about minimum volume requirements as they typically are not advertised. At DSA Factors we never have any minimum volume requirements, and we are always happy to help out startups and small businesses.
Many factoring companies will lock you into a 1-year or multi-year contract. During that time, you will not be able to switch factoring companies, stop factoring, or receive a loan from a bank without being required to pay additional fees to break the contract. If your volume decreases during the term of the contract and your factoring company has minimum volume requirements, then you may be liable for paying these fees as well. Many of these contracts automatically renew if you do not notify the factoring company within a specified period of time, and many factoring companies charge renewal fees. It is important that you find a factoring company that doesn't have a term to their contract so that your business has the flexibility that it needs to adapt to changes. At DSA Factors, our contract has no term to it, you can stop factoring after 3 months, or factor for 20 years or more without ever having to sign a new contract.
Some factoring companies offer purchase order financing in addition to accounts receivable factoring. Purchase order financing provides you with a short term loan so that you can pay your suppliers in order to fulfill a large purchase order. While factoring provides you with improved cash flow, it is limited by how much you have in open receivables. If that is not enough to cover a large purchase order, or it would prevent you from selling to other customers while that order is being produced, then you may wish to consider using purchase order financing as well. PO financing is more expensive than factoring, and it is debt, but if you can't fulfill a large invoice and grow your business with factoring alone, then it can become a very valuable tool. PO financing companies will be unable to work with you while you are factoring, so if you want to do both you need to work with a factoring company who also offers PO financing. At DSA Factors we offer PO financing to our clients and will work with them to minimize the expense of PO financing.
Most factoring companies are owned by banks or international corporations. However, there are still a handful of smaller, family-owned factoring companies. The difference of course is whether you will be dealing with an account manager or principal of the business. As you can probably imagine, a small, family-owned factoring company will provide you with much better customer service, and a principal will be able to do a lot more for you and work with you in ways that an account manager would not be able to. If you are a startup, small business, or growing business, it is probably very important that you work with a small, family-owned factoring company as they will be able to provide you with the flexibility and personal attention you need to grow your business. As a small, family-owned business, whenever you call DSA Factors you will always be able to speak with one of our principals.
These days almost all factoring companies offer you an online portal. It is important that you understand what exactly is offered through the portal. The most common offering is allowing you to request credit approvals, and some companies may even offer automatic online approvals. Reporting is also usually offered online, such as real time aging statements, or the ability to pull remittance on past payments. Your factoring company may even offer your customers the ability to make payments online. Even if you still may prefer to speak with your factoring company over the phone, it is important to know what types of conveniences they offer through their web portal. At DSA Factors we offer all of these features and more, best of all, if there is something you would like to see on our portal, you can tell Ben and he will try his best to make it available to you.
Perhaps one of the most important things to ask a factoring company is if they work with your industry. If they don't then perhaps they may be able to refer you to a company that does. While most factoring companies work with a wide variety of industries, there are some specialized industries such as construction, medical, and government work that require specialized factoring companies. At DSA Factors we specialize furniture, bedding, giftware, housewares, textiles, apparel, and food, but also work with service providers and many other industries.
Having a bank loan or line of credit will definitely make it difficult to work with a factoring company, but it is still possible. Typically, banks will place a lien on all of your receivables, making it so a factoring company is unable to purchase them. However, some factoring companies are willing to work with banks by creating an intercreditor agreement allowing them to factor either select invoices or all of your invoices. If you have a bank loan or line of credit you should inform any factoring company that you speak with about it to see if they are willing and able to work with your bank. Just keep in mind, just because a factoring company is willing to work with a bank, does not mean that a bank is willing to work with a factoring company. At DSA Factors, we're always happy to work with your bank on an intercreditor agreement. Some of the banks that we have successfully worked with in the past include Chase Bank, M & T Bank, and National Bank of Canada.
One of the greatest challenges for any startup business is securing the financing necessary for day to day operations as well growth. Typically banks are unwilling to finance startup businesses, oftentimes the only way a bank will help with financing is if the founder of the company is able to offer enough if their own personal assets as collateral, and even then the amount of financing offered is very limited. Venture capital is another form of financing that many startup businesses try to acquire, but just like a bank loan it is very time consuming and difficult to secure, and if you can secure venture capital, it comes with many restrictions. However, many young entrepreneurs are unaware that there is another form of financing that is quick, easy, and readily available to startup businesses, that is invoice factoring.
While getting a bank loan or SBA loan is a great way of financing a business, it typically is not an option available to startup businesses. Banks like to look at your track record of what you have done and if they are willing to give you a loan, the amount is based on your company's history. If your company is truly a startup, then you have no history and therefore nothing to base a loan on. If your company has been around for a few years and is now on the verge of growing, it is possible that a bank might consider giving you a loan, but the amount would be based on how much business you had done in the past, not how much business you can potentially do in the future. Of course, the application process for one of these loans is extremely time consuming, and then the bank will take even longer to make a decision, by the time you might actually receive funding you may have already missed your opportunity to grow your business. Really the only way of securing bank financing for a startup would be if the founders of the company can qualify for a home equity loan, and are willing to put up their home as collateral.
Venture capital is oftentimes an appealing option for startups, but again it is something that typically is not readily available for true startups. Anyone who watches the show Shark Tank knows that the sharks always want to see a track record of growing sales before they are willing to invest money in order to take your business to the next level. While you may be able to convince family members to invest in your new business, venture capitalist are taking a very big risk on someone who they don't know to use their money wisely.
If you are able to convince venture capitalists to invest in your business, you still need to be very careful, after all, there is a reason why the call the TV show Shark Tank. Due to the risky nature of venture capital, these "sharks" are going to expect a very high return on investment and you may very well be paying annual interest rates in excess of 50%. They also won't provide you with all of the promised funding until you reach certain benchmarks which may be set at a very high level. Additionally, venture capitalists will most likely tell you how you need to run your business, and should you disagree and try to run your business the way you prefer, the venture capitalists mat oust you from your own company or put your company into liquidation. So accepting venture capital means that you are basically handing over your business to the "sharks".
Rather than putting up your home as collateral or handing over control of your business, a better solution may be turning your receivables into cash. If your business is billing other businesses, whether you are a wholesaler or service provider, most likely your customers are going to be requesting payment terms such as net 30, net 60, net 90, or longer. For many startups, having your capital tied up in receivables is the reason why you need financing in the first place. There are several solutions to this problem.
One popular option is to ask your customers to pay you with a credit card. Not only do you get paid right away with a credit card, but you don't need to worry about not getting paid should a customer go bankrupt or out of business. Of course you will need to pay credit card processing fees which are around 3% for Visa and MasterCard and closer to 4% for Discover and AmEx.
While credit cards may prove popular with small mom and pop businesses who like receiving points or miles on their credit cards, it does have its drawbacks. When you offer net payment terms, it is generally understood that if an invoice is paid a few days late it isn't a very big deal, therefore, most companies tend to take 45 days to pay for a net 30 day invoice. However, with a credit card, when the bill is due it has to get paid or you will get assessed late fees and interest. Your customers of course know this, and if they are relying on your product to sell in their stores in order to pay for it, then they may be hesitant to give you a large order on a credit card or to reorder product as quickly. For your larger customers, including online retailers, national retailers, and regional chains, they will be unwilling to give you a credit card and you will risk losing their business if you stop offering net payment terms. In fact many of these customers will ask for extended payment terms such as net 60, net 90, or even longer.
Another option is to offer your customers early payment discounts. This is typically cheaper than a credit card processing fee, but the drawback is that you don't get paid as quickly. There are several ways that your customers can receive early payment discounts.
One way is to offer your customers 2% 15 net 30 day terms, which means that if they pay within 15 days they can take a 2% discount, otherwise they need to pay the full amount in 30 days. Of course this is a discount that you are offering to your customers, however, in order for them to take advantage of it they would need to have adequate cash flow in order to pay you early. Should they choose to take the discount, they still have 15 days to pay, many companies may hold onto the check for several more days before mailing it, another week for the post office to deliver it, and then several more days for it to clear the bank. So you will still be waiting 25-30 days before your receive payment at a 2% discount, and again only if they choose to take advantage of your offer.
Another option is that many businesses, especially the larger ones, work with supply chain financing such as C2FO. This is very similar to 2% 15 net 30, only this is an offer from your customer to pay you early at a discount. Of course, you are relying on them to offer this to you and typically it takes them a week to enter the invoice into their system and determine whether or not they want to offer you early payment. If they choose to offer you early payment, you then need to offer them a discount which they may or may not accept. If they don't accept it you will then need to offer them a larger discount the following business day in hopes of getting paid early. While you probably will get paid faster than you would with 2% 15 net 30 day terms, most likely you'll be offering them the same 2% discount and of course you are still relying on them to even offer early payment.
However, with both of these options there is risk associated with it. If the company you are selling to goes bankrupt within 90 days of when they pay you, bankruptcy law will require you to return the funds you received to the bankruptcy court unless you can prove that you received these funds in the normal course of business. Given that you offered them a discount to pay you early, you would have a very difficult time proving that you didn't receive preferential treatment from them and you will most likely needs to return the funds. This was an issue with Toys'R'Us who used C2FO prior to their bankruptcy. Their vendors were offering very large discounts, in excess of 25% to get paid early, and those who got funded were required to return those funds to the bankruptcy court.
Many startup businesses have never heard of invoice factoring, but oftentimes it is the best and most affordable way to finance their business. With invoice factoring you are still offering your customers net payment terms, however, your factor will fund you for your receivables the same day you bill your customers. As a result you get funded just as quickly as you would if you took a credit card, but you are able to offer your customers the net payment terms they are requesting. As a result, both you and your customer benefit as you get improved cash flow, and they have more time to pay. Best of all, a factoring fee is pretty much the same as a credit card processing fee so if you can afford to take a credit card, you can afford to factor a net 30 day invoice.
Factoring also comes with another advantage that you don't get with an early payment discount. Your factoring will handle all of your credit checking, collection work, and insure your receivables. And unlike banks or venture capitalists who could take months to make a credit decision, factoring companies work quickly, typically making credit decisions within 30 minutes or even faster. In other words, your factoring company makes offering payment terms just as safe and easy as taking a credit card. Plus you no longer need to subscribe to expensive credit agencies or spend valuable time making collection calls.
Qualifying for factoring is also quick and easy. In most situations you can get your initial funding within 24 hours. Because the factoring company is purchasing your receivables, you are not taking on any debt, your factoring company is extending credit to your customers based on their credit, not yours. As a result, it is very easy for startup businesses to qualify for factoring.
As you can see, there is financing available for startup businesses that is realistic and affordable. If your startup business can benefit from improved cash flow then perhaps you should try invoice factoring. At DSA Factors we have worked with many startups over the years and helped them to grow into larger businesses. We have no minimum volume requirements so no matter how small you are now, we will be able to help you out both now and in the future as your business grows. Give us a call at 773-248-9000 to learn just how easy it is to factor with DSA and get your startup business the financing it needs today!
With 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. 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.
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.
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 the Economist's Finance Disrupted conference in New York. At the conference he stated, "Fintechs tend to march to their own rules. It'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. Hardly a day goes by where there isn't a recording of some scandal or another"
At the same conference, Scott 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."
Cash flow is typically the main concern for any company that is looking for accounts receivable factoring. However, there is a lot more that goes into accounts receivable factoring than just cash flow, and it is these other services that are also important to consider when selecting the correct factoring company to work with. While common services include credit approvals, collections, and credit insurance, there are other services that factoring companies can offer as well.
Every factoring company should provide you with credit approvals; after all, one of the main benefits of factoring is that funding is based on your customers' good credit rather than your own credit. By providing you with credit approvals, your factoring company is making sure that your customers are credit worthy and will pay their invoices when they become due. Not only does this take the responsibility of credit checking off your back, it also saves you money as you don't need to subscribe to expensive credit agencies such as Dun and Bradstreet.
Of course, it is one thing to provide credit checking of your accounts; it is another thing to provide you with credit approvals. At DSA Factors we are proud to offer our clients an over 98% approval rate. Unlike banks and many other factoring companies who look for reasons to turn down your accounts, we look for reasons to approve your accounts. Furthermore, we will work with your customers to build up their credit, so as long as they make timely payments, we will be willing to raise their credit limit over time.
It would be nice if everyone would just send you a check on the day that an invoice is due, but in reality we all know that this isn't the way things work. Reminding your customers that payment is due is just a normal part of doing business. Whether you are sending out letters or making phone calls, collecting your receivables is a very time consuming process and can be frustrating at times. Since your factoring company is purchasing your receivables, they should also handle all of your collection work for you. This includes, sending out account statements, e-mailing copies of invoices, and making phone calls.
The most obvious benefit of having a factoring company handle your collections for you is that it may be able to save you some payroll as you won't need to hire someone to manage your accounts receivable. However, another benefit is that factoring companies actually have more leverage in collecting prompt payments than you would have in collecting on your own. If a customer doesn't need any new merchandise from you they may reluctant to pay you in a timely manner. However, factoring companies have many clients and not paying a factoring company in a timely manner means that they won't be able to order new merchandise from a handful of vendors.
While it may seem scary to let another company deal with your customers, it is important to keep in mind that factoring companies are not collection agencies and will always treat your customers with respect. A factoring company is purchasing current receivables, not past due receivables, so there is no need for them to be rough with your customers. Furthermore, your factoring company's success is tied directly to your company's success, getting reorders is what allows both you and your factoring company to grow. In fact, if an account becomes seriously past due, your factoring company will probably hand them over to a collection agency just like you would.
If your factoring company offers non-recourse factoring, then that means that they provide you with credit insurance on your accounts. This means that if a customer is unable to pay for merchandise due to financial problems, that you still get to keep the funds that your factoring company provided you with. Of course with any insurance it is important to look at what is covered. Some factoring companies will only cover you in situations where a customer files for bankruptcy or goes out of business, other factoring companies will cover you for deadbeats as well. At DSA Factors, no matter what your customer's situation is, your invoices are insured.
While it is possible to get credit insurance from insurance companies, generally they will require you to deal in very large volumes and to be dealing with very credit-worthy accounts. As a result, if you have small invoices, or sell to independent retailers and not major corporations, it will be very difficult to get credit insurance through an insurance company. With non-recourse factoring, you can rest assured that all of your accounts and all of your invoices will be covered, regardless of how small they may be.
Many factoring companies provide their customers with real-time reporting on their accounts. At DSA Factors, we will send you an aging of your accounts once a week; however, you also have access to real-time aging from our web page 24/7. Furthermore, we give you access to remittance advice from all payments we ever sent you directly on the web page. Other reports give you the ability to track open approvals and retrieve sales reports so you can see how much volume you've done with each of your accounts over a specified period of time. Plus, if there is something you would like to see that isn't available on our web page, just give us a call and we will do our best to provide it for you, and maybe even add it to our web page.
While you do receive improved cash flow with accounts receivable factoring, there are times when that improved cash flow may not be enough. This is often times the case when you get a large purchase order from a major retailer. If you manufacture overseas, often times your factory will require a 30% deposit to start production and the other 70% prior to shipment. This results in you paying for the merchandise 30-60 days prior to when you are able to invoice your customer and factor the invoice. In situations like this, purchase order financing can provide you with a short term loan so that you have the additional funding that you need. At DSA Factors we can provide you with incremental purchase order financing so that you receive the funds you need when you need them and are able to minimize the amount of interest that you need to pay.
Of course the accounts receivable factoring isn't free, and you are going to have to pay a factoring fee. It is important to keep in mind that when comparing rates, you need to compare all of the costs, and not just the factoring fee. Many factoring companies lock you into long term contracts and require that you factor all of your receivables with them. Another common cost to look out for is the minimum volume requirement where a factoring company will require you to reach a specified sales volume and if you don't they will still charge you fees based on those volumes. At DSA Factors there is no need to worry about any of this. Of course we will charge you a factoring fee, but we don't have any long term commitments, we don't require you to factor all of your receivables, and we don't have any minimum volume requirements.
Another thing to look at is whether you are getting a fixed-rate factoring fee or if you will be charged interest for as long as the money is out. With a fixed-rate fee the fee is higher, but you don't pay interest even if your customer pays you late. Factoring companies that charge you interest typically offer incredibly low fees, but from the day they fund you until the day they get paid by your customers they will charge you interest. Typically when you do the math you will find that both rates are comparable, although typically companies that charge interest don't tend to advertise the interest charges, but rather focus on the lower factoring fee. A company that charges interest also has less motivation to get paid on time, and may wait longer to contact a customer that becomes past due than a factoring company that offers a fixed-rate. At DSA Factors we offer fixed-rate factoring to our clients. We find that it not only saves you money, but that is more honest and much easier to understand.
Just like with any other company that you deal with, it is one thing to provide you with service, but another thing to provide you with fast and friendly service. While there are many factoring companies out there, many of the larger ones are owned by banks or other financial institutions. You may even find factoring companies who are subsidiaries of overseas companies. Furthermore, the fintech factoring companies not only have to answer to their investors, but most have been in business for less than a decade. While they may provide you with most, or all, of the services above, it is important to think about the quality of those services. DSA Factors is a family owned and operated business based in Chicago, Illinois that has been factoring for over 30 years. Whenever you call you will always be able to speak with one of our principals. As a result, we can provide you with a much higher level of service than the other larger factoring companies out there. Best of all, not only do we offer you with exceptional service, but we also offer very competitive rates that often times are lower than what the bigger guys have to offer.
You may have noticed Amazon Lending in the news recently. According to Bloomberg, Amazon has given out more than three billion dollars in loans since the inception of the Amazon Lending program in 2011, with one billion of those dollars being lent in the last twelve months. They have reportedly given loans to 20,000 businesses throughout the US, UK, and Japan in amounts ranging from $1000 to $750,000. Their loans supposedly carry a very modest APR between 6% and 14%, which would make them cheaper than most other Fintech lenders out there. But just like with PayPal Working Capital, there is a catch. While the APR may be low, Amazon makes up for this by taking a large sales commission. As a result, Amazon Lending may work for very small businesses, but if you're ready to take the next step in growing your business, accounts receivable factoring may be the better option.
You can not request a loan from Amazon Lending, rather Amazon makes loan offers to sellers on Amazon Marketplace, and those sellers can either accept or ignore the offer. It is unknown what criteria is used to determine when a loan offer is made, how much the loan offer is for, what the term of the loan will be, or what the APR on the loan will be. However, Amazon bases the loan on the seller's sales history on Amazon Marketplace, so you can probably assume that if you don't have large and steady sales figures, you probably won't be offered a loan. Furthermore, if you sell directly to Amazon, then you do not qualify for these loans.
While shoppers who use Amazon will see all the products available from both Amazon and Amazon Marketplace every time they search for something they want, the platforms are very different from a wholesale point of view. If you sell direct to Amazon, it is like selling to any other retailer. They give you a purchase order, you ship the merchandise and invoice them, and when the invoice is due Amazon pays you. However with Amazon Marketplace, it is kind of like selling your product on eBay. Amazon will list your product on their site, and will take a commission for each sale you make. If you would like your product to qualify for Amazon Prime, then you need to ship your product to Amazon warehouses, pay storage fees, and when the product sells, you are charged a shipping fee as well. Basically you are giving Amazon merchandise on consignment, and you may be paying them additional fees as well.
Commissions are based on what type of product you are selling. Commissions can be as low as 6% if you are selling computers, and as high as 45% if you are selling an accessory for an Amazon device, for example a Kindle cover. In general, commissions are typically around 15%. In addition to these commissions, Amazon may charge you either a monthly fee or a transaction fee on each sale. If you let Amazon warehouse your product so it qualifies for Prime, you will be paying storage fees and shipping fees as well. If you ship yourself, then you are responsible for paying for shipping. Additionally, Amazon will also charge you a closing fee for each item sold.
Only you can decide whether or not a loan is correct for you. If you sell your merchandise on Amazon Marketplace and wish to continue doing so for the term of the loan they offer you, then you are already paying their commissions and the loan may carry an attractive APR. The loan gets repaid automatically as you sell more merchandise through the Amazon Marketplace, so as long as sales volume remains steady you won't need to worry about paying off the loan. However, if you would like to start selling directly to Amazon or any other retailers, then this loan probably isn't right for you.
Accounts receivable factoring is another form of alternative lending that works with small businesses. Unlike Amazon Lending, accounts receivable factoring works with companies who sell directly to Amazon or other retailers, both online and brick and mortar. With accounts receivable factoring you get funded for your receivables the same day you invoice your customers. Plus, since your factoring company is purchasing your receivables, you aren't taking on any new debt.
Amazon Marketplace may be a great way to introduce your product to the market, and Amazon Lending might allow you to purchase more product to increase your sales volume. However, if you really want to grow your business and want to take the next step, you will have to start selling direct to Amazon and other retailers. If you are ready to take that next step, then give DSA Factors a call today at 773-248-9000 and find out how we can help you fund your growing business.
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. However, like any business that has survived since antiquity, accounts receivable factoring has constantly evolved with changing times and in many ways pioneered the path for the new Fintech industry. While you would be hard pressed to find an a true factoring company that only exists in the online realm, you would be just as hard pressed to find a traditional factoring company that doesn't offer a large variety of online tools.
In the same way that online banking and ATM machines have made it so many Millennials never had to write a check or step inside a bank branch location, accounts receivable factoring can now provide your business with the financing that you need without needing to walk away from your computer. In fact, here at DSA Factors we've been offering online tools to our clients for over a decade now. So in many ways, we were a Fintech company before Fintech even existed. But unlike Fintech, we haven't stripped down our factoring program to only offer the services and benefits that a web page can provide. Plus we are still happy to work with clients who prefer doing things the old fashioned way, via phone, mail, and fax.
For years now, offering online approvals has been a standard service that accounts receivable factoring companies have offered. What this means is that when you get a purchase order, you just login to your factoring company's portal and request an approval. Often times the computer is able to make an actual credit decision on the spot and offer you an instant online approval. Of course, as in any business, there is a limit to what can be completely automated, so in the case where the computer can't approve an order, it gets sent to your factoring company's office for review. When this happens at DSA Factors, we do our best to get back to you with a credit decision within 30 minutes, and will e-mail the credit decision to you.
Most factoring companies will provide their clients with aging statements each week so that they know where their accounts stand. At DSA Factors we take this one step farther. At any time our clients are able to login to our portal and view a real-time aging statement.
Just like how banks and credit card companies allow you to view statements online, at DSA Factors we give our clients to view transmittal sheets from our online portal. And unlike banks or credit cards that may limit you to only one or two years of statements, here at DSA Factors you can go back as far as you want to that very first payment we sent you when you first started factoring.
In addition to aging statements and transmittal sheets, at DSA Factors we offer our clients a variety on online reporting options. This includes being able to pull account statements for any customer. Viewing all open or used approvals. Pulling sales reports that show you how much volume each of your customers gave you over a specified period of time. Plus, if there is a report that you would like to see on the portal, all you need to do is give us a call and we will do our best to create it for you. As a family owned business, we pride ourselves on the quality service we provide our clients with, and that extends to the online services we provide as well.
At DSA Factors we don't just extend online benefits to our clients, but also to their customers. At any time your customers may login into our portal with a login and password we provide at the bottom of every account statement we send them so that they can view a real-time statement and make payments online. After all, don't your customers deserve access to the same online conveniences as you.
If the online services that we offer at DSA Factors doesn't seem like enough, keep in mind that we offer one huge benefit that no Fintech company is able to offer. At any time you are able to pick up a phone, give us a call, and one of our principals will be able to talk to you and help you come up with a solution that works for you. That isn't something that you will get from a large Fintech company, that is something that you can only get from a family owned accounts receivable factoring company. And the value of being able to speak with someone who can actually help you and cares about your business, is much greater than the inconvenience of being limited to only the functions that a web page is able to handle.
If you want to improve your cash flow, outsource you accounts receivable, get credit insurance, and have the convenience of being able to work online, but still want the personalized service that you deserve, give us a call today at 773-248-9000. Or if you want to go "Fintech", feel free to send us an e-mail at firstname.lastname@example.org or chat with us right now on this web page.
There are many different financing options available to businesses that could use improved cash flow. Two of the more popular options are purchase order financing and accounts receivable factoring. Often times 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. While these two methods are related, have similar benefits, and often times can even work together, they still are very different forms of financing.
While both purchase order financing and accounts receivable factoring are great ways of improving your cash flow, the main difference is when you receive the improved cash flow. With PO financing, you receive funding to pay your suppliers with once they provide you with a purchase order. With factoring you get funded once you invoice your customers.
Since the money is out longer, and isn't backed up by a receivable yet, PO financing is typically more expensive than factoring. However, for very large purchase orders, traditional accounts receivable factoring may not be able to provide you with enough cash flow to pay your suppliers so that you can fulfill the purchase order. In these situations purchase order financing may be necessary. As a general rule, accounts receivable factoring is a better way to maintain healthy cash flow for your business, while purchase order financing should be used for extremely large purchase orders.
Another big difference between purchase order financing and accounts receivable factoring is whether or not you are taking on new debt. In the case of factoring you are not taking on any new debt, instead you are selling your receivables at a discount in order to get improved cash flow. With PO financing, you are taking on new debt. PO financing provides you with a loan based on a purchase order. This loan can get paid off if you factor the resulting receivable, or once your customer pays you for the resulting receivable. However, it is still a loan that uses the purchase order, and resulting receivable, as collateral. As a result, you are taking on new debt with purchase order financing.
Since accounts receivable factoring and purchase order financing are both alternative forms of lending, they don't come with the strict credit limits that a traditional loan from a bank would assign you based on your company's credit. Accounts receivable factoring is probably the only form of financing that does not come with any credit limit. With factoring there is no limit to how much your factoring company can advance you. Since factoring is an ongoing relationship, as your receivables grow so does the advance you receive. Factoring is based on your customers' ability to pay, not your own. With purchase order financing, it is typically looked at on a case by case basis and the amount of the advance is limited to a certain percent of the purchase order's value. So similar to factoring, the larger the PO, the larger the loan. However, you will not receive one hundred percent of the purchase order value.
Whether or not you receive credit insurance is another difference between purchase order financing and accounts receivable factoring. If your factoring company offers non-recourse factoring, then that means that you receive credit insurance when you factor an invoice. With purchase order financing, since there is no receivable yet, you are not receiving credit insurance. That said, if your customer you are looking for PO financing on is not credit worthy, then their purchase order may not qualify for PO financing. On the other hand, once a purchase order is fulfilled and invoiced, by factoring the invoice you will receive credit insurance on it.
When you factor an invoice, you are doing much more than just receiving an advance and getting credit insurance, you are also outsourcing your accounts receivable. Your factoring company will perform all of the credit checking as well as collection work. This can result in significant cost savings as you will not need to subscribe to expensive credit agencies and also may allow you to avoid hiring extra employees to manage your accounts receivable. With purchase order financing, most likely the company providing you the funding will still run credit checks on your customer, they do not manage your accounts receivable for you. You are still responsible for sending out account statements and making collection calls.
There is no clear cut answer to this question, it depends on your needs. For most small to medium sized businesses accounts receivable factoring is not only more cost effective but also provides you with additional service such as credit insurance and accounts receivable outsourcing. However, while factoring allows you to maintain healthy cash flow, it may not provide you with enough cash flow if you need to pay your suppliers to fulfill a larger purchase order. In these situations purchase order financing may be necessary.
At DSA Factors we actually recommend using accounts receivable factoring to maintain healthy cash flow and reduce costs. The cash flow you receive from factoring may provide you with enough funds to avoid needing purchase order financing. However, you may still use purchase order financing from time to time as needed. As a result we offer our factoring clients the ability to obtain PO financing when needed.
While there are companies that only provide purchase order financing, they often times may take a week to a month or more to provide you with funding. Typically they only work with foreign suppliers and finished products that are being shipped directly to your customers from overseas. Their interest rates tend to be variable and often times higher than what a factoring company might offer you on a similar loan.
By factoring your invoices and having your factoring company provide you with purchase order financing as necessary, you will most likely receive a better rate and a quicker response when you need purchase order financing. At DSA Factors we make PO financing decisions in a matter of minutes, and can fund you the same day you call us about a PO. We also don't require you to work with foreign suppliers, we don't require you to be purchasing finished products, and you can ship to your customers yourself. Because you are shipping to your customers yourself, if the order isn't for a full container, you will be able to fill up the container with additional merchandise for smaller PO's or just for inventory. Since we will also be factoring the resulting invoice for you, we can also offer you a lower interest rate on the loan you receive and reduce the time that the loan is out for. Plus you get all the benefits that come with factoring, credit insurance and accounts receivable outsourcing.
Another benefit to working with an accounts receivable factoring company is that by factoring invoices on a regular basis, you are developing a healthy working relationship with a financial partner. In the future, as your company's needs change, your factoring company may be able to offer you additional services to facilitate growth. By securing purchase order financing through a PO financing company, it is typically a one-time deal, and you don't get the opportunity to develop a working relationship with them.
To learn more about how accounts receivable factoring and purchase order financing can be used together to help grow your business, give DSA Factors a call at 773-248-9000. We are a family owned and operated business that works with clients nationwide. Whenever you call DSA, you will always be able to speak with a principal, whether it is Ben, Max, or Howard Tolsky. With over 30 years experience offering factoring and PO financing to our clients, we have money to make your company grow!
Often times for a new startup business, it can be difficult to obtain financing. SBA loans are usually out of the question as banks will want to see a track record and will require collateral that a startup business most likely wouldn't have. Venture capital is an option, but is usually reserved for tech companies that have a huge potential for growth, plus often times it requires you to give up ownership of your business. However, accounts receivable factoring is a great way for a startup to finance their business without having to give up any ownership or taking on new debt.
Accounts receivable factoring is a type of financing where you sell your receivables to a factoring company for a discount. For startups the main benefit is that you get funded the same day you invoice your customers rather than having to wait 30 days or longer for them to pay you for goods or services that you have already provided them. As a result you have healthy cash flow so that you can take on more orders as well as larger orders without having to worry about how you will pay your suppliers. Since you are selling your receivables to your factoring company, the funds they provide you with are yours to keep, there is no need to repay your factoring company as your customers will be paying them once their invoices become due. As a result accounts receivable factoring is one of the few financing options available that doesn't require you to take on any new debt.
While improved cash flow may be the main reason a startup business would use accounts receivable factoring, it isn't the only one. Since your factoring company is relying on your customers to pay their invoices in order to get repaid, your factoring company will also handle all of the credit checking for you. For a startup business the last thing you want to do is spend several thousand dollars subscribing to a credit agency so that you can determine whether or not an order you receive is from a credit worthy company. Your factoring company will also handle all of your collection work so there is no need for you to spend time making collection calls and no need to purchase accounts receivable management software. Finally, with non-recourse factoring, your receivables are insured against non-payment for financial reasons. So if one of your customers goes bankrupt or out-of-business you still get to keep the funds that your factoring company gave you.
Unlike a traditional bank loan, accounts receivable factoring is not a loan, your factoring is instead extending a line of credit to your customers. As a result, your factoring company isn't too concerned with your company's credit or your personal credit, but rather with your customer's good credit. So as long as you are selling to reputable businesses you qualify for accounts receivable factoring.
With accounts receivable factoring there is no limit to how much funding you can receive. The amount you are funded is tied directly to how much you have in receivables. So as your receivables grow so does the amount of funding you receive. While your factoring company will assign credit limits to your customers, since you are not receiving a line of credit there is no limit to how much you can get funded.
Obviously there are fees associated with accounts receivable factoring and these fees can vary based on which factoring company you choose to factor with. At DSA Factors we offer a flat rate factoring fee, meaning that we do not charge you interest if your customers do not pay their invoices on time. The factoring fee we charge is very similar to a payment processing fee that you would pay to take a credit card. So if you can afford to take a credit card, you can afford to offer your customers net 30 payment terms with accounts receivable factoring. While every factoring company charges a factoring fee on each invoice they purchase, these rates do vary and you may be subject to other fees as well. At DSA Factors we do not have any annual fees, there are no fees for setting up new accounts, we have no minimum volume requirements, and we have no long term commitment. Please read our article on how to find the lowest rate for accounts receivable factoring to learn more about what types of fees you can expect to pay for factoring.
Sometimes waiting until you invoice to get funded isn't enough, especially if you need to pay your factory for a container before they will release it. In situations like this your factoring company may offer you purchase order financing. Purchase order financing is a short term loan that allows you to pay for a container in order to fulfill a large order. Even though you may not qualify for a business loan, since you have developed a relationship with your factoring company, and you will be factoring an invoice as a result of the purchase order, your factoring company may be willing to give you a short term loan to finance the purchase order.
Factoring is a fast and easy process where credit decisions are made in minutes, not months. Getting started is easy, give DSA Factors a call today at 773-248-9000. With just one call you can be well on your way to getting the financing your startup business needs to succeed. We can be funding you for your invoices in as little as 24 hours.
Everyone knows that accounts receivable factoring has been around for a while, in fact, if it wasn't for factoring, in fourteen hundred and ninety two, Columbus wouldn't have been able to sail the ocean blue. However, in recent years, in response to rapidly developing technology and an unwillingness by banks to lend money, a large number of fintech companies have emerged offering entrepreneurs a variety of ways to raise money for their businesses. These fintech companies offer everything from crowdfunding to factoring. However, it is important that you compare the services that these new fintech companies provide as well as the fees they charge to more established funding sources.
Crowdfunding is indeed an excellent alternative to venture capital. Companies like Kickstarter and Indiegogo allow start-ups to raise money for their business through pre-sales, rather than receiving loans or giving up a percentage of ownership to venture capitalists. So not only does crowdfunding allow you to maintain ownership of your business without taking on new debt, but it also provides young companies with advertising and the chance to build up a large and enthusiastic customer base. Of course crowdfunding isn't free, you will have to pay a commission on any funding you receive in addition to payment processing fees, but then again venture capital isn't free either. The other big difference between crowdfunding and venture capital is the scale. Typically crowdfunding works on a much smaller scale, giving new start-ups the ability to raise thousands, tens of thousands, and occasionally hundreds of thousands dollars. Venture capital on the other hand isn't always all that interested in such small investments, but could be a good place to start if you are looking for a million dollar deal.
While crowdfunding is a great way of getting your product seen and sold directly to consumers, it does not typically help you with funding large orders from retailers. For this, an excellent alternative to venture capital is purchase order financing, which is a service provided by many traditional accounts receivable factoring companies. With purchase order financing you can obtain a short term loan based on a purchase order, and then you pay back that loan by ultimately selling the invoice associated with that order to your factoring company.
Factoring has always been an excellent alternative to getting a bank loan. However, fintech factoring companies haven't really innovated the factoring industry, but rather offer short-term, high-interest small business loans that improve your cash flow, but don't provide the other services that traditional factoring companies provide you with. Like traditional factoring, the fintech factoring companies are not too concerned with your business's or your personal credit, meaning that companies that do not qualify for a traditional bank loan will qualify for a loan with them. However, coming from their IT backgrounds, the principals of these firms don't have any real experience in the factoring industry, nor do they understand all of the benefits that traditional factoring offers small businesses.
In an interview with ABF Journal, George Bessenyei, director of 48 Factoring, stated "we are not coming from the financial space, we are coming from a technology space. I see us as a technology company that provides finance." In another interview with ABF Journal, Eyal Lifshitz, CEO of BlueVine said "I was looking for a way to disrupt the lending industry. I started learning about factoring. I wanted to modernize it and make it a streamlined process where the borrowers can click a button and get money." While it is true that these new fintech companies have streamlined the process of getting funded so it can be done entirely online, they also stripped-down factoring to its bare bones. Key aspects of factoring such as not taking on any new debt, outsourcing your credit checking and collections, insuring your receivables, and an unlimited potential for funding have been eliminated by the fintech factoring companies.
While fintech factoring may offer a faster, more streamlined approach to getting funded, and its rates mirror traditional accounts receivable factoring rates, they actually will cost you quite a bit more both timewise and financially than traditional factoring. Because fintech companies don't handle your credit checking, you are still responsible for assessing the credit worthiness of your customers and will need to subscribe to expensive credit agencies in order to do so. You are also responsible for handling all the collection work, which as your company grows could eat up much of your time or require you to hire additional employees. Finally, without credit insurance, when a customer is unable to pay an invoice, you are out the money. While you could be very conservative in who you offer payment terms to, doing so will mean that you will be turning down a lot of business that a traditional factoring would most likely be willing to improve. Alternatively, for large orders, you can purchase credit insurance for an additional charge from insurance companies.
It is true that accounts receivable factoring may be old, but that doesn't mean that traditional factoring companies don't innovate. The fact is, traditional factoring companies have been using innovative software and providing online tools to their clients for many years now. Nearly every traditional accounts receivable factoring company allows their customers to submit accounts for credit approval online, and oftentimes can provide their clients with instant approvals directly on the web page. Invoices can also be sent via e-mail to ensure speedy processing. Plus, your factoring company has the ability to pay you via ACH or wire so that funds are electronically deposited into your bank account as opposed to having to wait for a check to arrive in the mail and then take it to a bank. While the process might not be as streamlined as fintech factoring, accounts receivable factoring companies always pride themselves on speedy turnaround and funding you within 24 hours, if not the very same day that you submit your invoices to them.
Another common misconception that fintech factoring companies have about traditional factoring is that accounts receivable factoring companies are all owned by banks and only care about large accounts doing millions a year in sales. While it is true that many factoring companies are owned by banks and prefer not to deal with smaller businesses, this is not true of all factoring companies.
DSA Factors has always been family owned and operated, and we provide factoring to all businesses regardless of how much volume they do. At DSA Factors we have always been innovating ever since we started factoring in 1986 and programmed our very own factoring software using Basic on DOS 3.3 computers. While we have long ago moved on from our original software, we still continue to develop all of our own software and are continuously improving it in order to give our clients more options in how we finance their businesses. Today we offer online instant approvals to our clients along with a number of online reports including real-time aging statements as well as give them the ability to view previously paid transmittal sheets for as long as they have been factoring with us. Additionally we provide your customers with a login where they can view an account statement and make payments online. We even welcome ideas from our clients on how to improve our online portal so that they can get the most out of our factoring services. So if you are looking for financing and want a factoring company that combines technology with knowledge, experience, and service, look no further than DSA Factors. Give us a call today at 773-248-9000 and one of our principals will be more than happy to speak with you.
Micro factoring is just like normal accounts receivable factoring, only it is on a smaller scale. If you are self employed, it can be very hard to find financing in order to grow your business. Even worse, as your business begins to grow, you are bound to experience a number of growing pains. While the most obvious growing expense may be rent as you outgrow your small office, basement, or garage, other expenses may include book keeping software, subscribing to expensive credit agencies, and you may even need to hire some employees to help you keep the business running. While micro factoring can't help you cut your rent expenses, it can help you with cutting all those other expenses, while making paying the rent a little bit easier as well.
Factoring is simply selling your accounts receivable, or invoices, to a factoring company. So rather than needing to wait 30 days to get paid for a product or service you have already provided your customer with, when you factor your receivables you get funded the same day you invoice. The improved cash flow you receive can be used however you want since the funds you receive from factoring are not a loan.
Besides the improved cash flow, factoring offers several other very important benefits. Your factoring company will handle all of your credit checking for you, eliminating the need for you to subscribe to expensive credit reporting agencies. You factoring company also handles all of your collection work, meaning that you don't need to spend all of your free time making phone calls to customers who haven't paid their bills yet. Plus, since your factoring company has a large client base, they most likely have several other vendors who sell to your customers meaning that they have more leverage in receiving prompt payment for your invoices. Finally, with non-recourse factoring, you also receive insurance on your receivables. That means that if one of your customers is unable to pay due to financial problems, you still get to keep the funds your factoring company gave you.
Micro factoring is great for new start ups and single employee businesses. With micro factoring you are able to receive the cash flow you need to grow your business without having to borrow the money or spend your own personal savings. It is also great for businesses that are growing as the improved cash flow can be used to pay your suppliers, rent, attend trade shows, or anything else.
For small businesses it can be very difficult to work with most factoring companies as they may require long term commitments and have minimum volume requirements. If your factoring company has a minimum volume requirement of half a million dollars, and you only factor a quarter of million dollars or less in any given year, then your factoring company will still charge you fees based on half a million dollars. With micro factoring you do not need to worry about meeting minimum volume requirements each year. Even if you only have $20,000 in annual sales, you only pay factoring fees on the invoices you factor. At DSA Factors we are proud to offer our factoring services to companies of all sizes and never have any minimum volume requirements. Furthermore, at DSA Factors we have no long term commitment, so you can stop factoring at any time and there is never any penalty for doing so.
While factoring provides you with funds for merchandise that you have already shipped to your customers, sometimes it isn't enough to help you taken on larger orders. Rather than turn down large orders from large retailers, with purchase order financing you can get a loan based on a purchase order so that you can produce the merchandise required for a large order. With purchase order financing you will receive a portion of the future invoice's value up front so that you can produce the merchandise, and then when you actually ship the merchandise to your customer and invoice them, you will receive the balance of the invoice's value. Even if you don't have any large orders yet, it is important to factor your existing customers so that you have already established a relationship with your factoring company for when you do get that first large order.
At DSA Factors we realize that we aren't the only factoring company out there, but we offer exceptional service at very competitive rates. As on of the few family owned and operated factoring companies out there, you can always speak with one of our principals anytime you call, you will never just be handed over to an account manager. We have been factoring for over 30 years and understand the industry and what it takes to help our clients grow their businesses. We can handle any size client, we have clients who do as little as $30,000 in sales each year to clients who do millions in sales each year. Plus, we have no long term commitment so you can always stop factoring at any time if you decide that factoring isn't right for your business. So give DSA Factors a call today at 773-248-9000 and learn just how easy it is to receive the funds you need to grow your business.
There are two different types of rates that most factoring companies quote potential clients these days, fixed rate (or flat rate) and adjustable rate. These terms should sound familiar to anyone with a mortgage, and surprisingly they aren't all that different in the world of factoring. In the world of mortgages, a fixed rate remains the same for the entire 30 year life of the mortgage, while with adjustable rate mortgages you get a teaser rate for the first 3, 5, or 7 years and then the rate goes up on you. In the factoring world, a fixed rate means that the rate you are quoted is the rate you pay for the life of the invoice, you don't pay any interest, even if your customers pay their invoices late. With adjustable rate factoring, you are offered a low teaser rate, but you wind up paying interest for as long as it takes your customers to pay back your factoring company. Just like with mortgages, getting a fixed rate costs more than an adjustable rate, but in the long run it will save you money. At DSA Factors we have had a number of companies ask us about adjustable rate factoring over the last few years, but upon doing the math, all of them have chosen to go with fixed rate factoring, which we have been offering to our clients for over 30 years.
Adjustable rate factoring offers you a very low base fee for factoring invoices, often times it can be less than even 1%, but like most things in life, if it's too good to be true it probably is. Once your factoring company funds you for the invoice the clock starts ticking and you start getting charged interest from that time until payment is received for the invoice by your factoring company. They will also add another 5-10 days worth of interest as they wait for the check to clear the bank.
Adjustable rate factoring can be beneficial if your customers pay like clock work and pay early. It also can be beneficial if you don't need immediate cash flow. If you can hold onto your invoices for a few weeks before submitting them to your factoring company to get paid, you can potentially save quite a bit of money as your factoring company won't have the invoices for very long before they get paid. Of course in both these situations you are missing out on one of the primary benefits of factoring, improved cash flow.
Besides the fact that you can face some pretty steep interest charges on your slow paying customers. Your factoring company has little motivation to collect payments for invoices in a timely fashion. If a good customer misses an invoice, which we all know happens from time to time, your factoring company may not bother to notify them until the invoice becomes 30 or even 60 days past due since they can charge you more interest during this time.
Fixed rate factoring is very simple, you are given a rate based on the payment terms of the invoice, and that is the fee you pay regardless of how long it takes your customers to pay for your invoice. While it is true that it will cost more to factor a net 60 day invoice than a net 30 day invoice, you will not be charged any additional fees if it takes a customer 60 days to pay a net 30 day invoice. At DSA Factors we have always offered fixed rate factoring, and while it may be harder to sell the higher rate to prospective clients, we find that it is a much more honest and cheaper option. As a result we have clients who have been factoring with us for over 20 years.
Besides the fact that you aren't being charged interest for slow paying customers, with fixed rate factoring it makes your accounting much simpler as you always know what factoring will cost you and you can easily build the cost into your prices. Plus, since your factoring company does not benefit from late payments, they have more reason to collect in a timely fashion. As a result, they are less likely to turn down reorders due to an account being past due.
If your customers pay early you still pay the same factoring fee. However, if you have customers who consistently pay early, for example if they have 2% 15 net 30 terms, DSA Factors would be willing to work with you to put together an early pay discount program for these customers.
A good way of thinking about adjustable rate factoring is that it is a lot like taking a cab, you have a small flag fall but the meter keeps running until your factoring company gets paid. With fixed rate factoring, it is a lot like taking a limo, you know the price going in, and the service is usually better as well. But don't worry, whichever route you choose, you don't need to give your factoring company a tip!
At DSA Factors we have run reports for our clients showing them what their fee would be with adjustable rate factoring, and while it typically is very similar, flat rate factoring has always proven to be the cheaper option. If you would like to learn more about adjustable vs flat rate factoring please give DSA Factors a call at 773-248-9000 and we would be happy to talk to you about it. We would even be happy to run an analysis on your payment data to see which option would work best for you.
For most small business owners, obtaining a line of credit from a bank has never been easy. In recent years a number of technology companies have discovered this problem and it has led to the emergence of fintech, a form of online lending. However, what many small business owners don't realize is that there is another alternative to the banks, which is factoring. Factoring companies however offer a whole lot more than the fintech companies, but also have much more experience and knowledge, better customer service, and typically cost less.
Fintech companies provide their customers, who don't qualify for a small business loan from a bank, with short-term, high-interest loans using their receivables as collateral. Because they are using receivables as collateral, companies such as BlueVine claim that they provide accounts receivable factoring, but really they are just providing their customers with a loan. Other companies like Fundbox claim they provide invoice financing, which they differentiate from factoring. While it is true that they do not provide factoring, what they don't realize is that invoice financing and accounts receivable financing mean the same as factoring. This demonstrates a very big difference between fintech and factoring. These fintech companies are really young IT start-ups with little or no experience in the industries that they serve; in fact, they may not even know basic industry terms. Factoring on the other hand has been around for hundreds of years, even Christopher Columbus used factoring. While most factoring companies haven't been around quite that long, they all have quite a bit of experience and a background in the industries that they serve. For example, DSA Factors started off as the consumer finance arm of a retail furniture store under the same ownership. Eventually they decided to start offering factoring services to furniture and bedding wholesalers who they bought from. As the factoring business grew they started expanding out to other industries such as giftware, housewares, apparel, and trucking. Now, having factored for over 30 years, they are still helping small and medium sized businesses grow.
While the goal of both fintech and factoring is to help you improve your cash flow, perhaps the biggest difference between fintech and factoring is how they accomplish this. A fintech company provides you with a loan, meaning you are taking on debt. Furthermore, the loan has a very short term and if you offer extended terms, such as net 90 days, to your customers, it is quite possible that the loan will become due before you receive payment on the invoice that was used as collateral. With factoring, the factoring company is purchasing your accounts receivable, or invoices. The funds you receive from a factoring company are yours to keep and spend however you like. Even if one of your customers pays late, you don't need to worry about paying back the funds you received.
Of course services provided are another really big difference between fintech and factoring. Fintech companies seem to pride themselves on how they will never contact your customers; they seem to think that you will appreciate this. However, all that this means is that if your customers don't pay them, they will come after you. With fintech you still need to stay on top of your accounts receivable and send out statements and make collection calls. For a small business this means that the owner typically needs to spend a lot of time just trying to get paid by their customers. For medium sized businesses you will probably need to hire another employee just to manage your accounts receivable, meaning additional payroll. With factoring you are outsourcing your accounts receivable. Factoring companies have already invested heavily in the software necessary to manage A/R, and are able to do so because they manage A/R for many clients. They have professional and courteous collectors who are able to make the phone calls for you. Plus, because your customers may purchase from several other vendors who factor their receivables, a factoring company has a lot more leverage in collecting from a customer who may not be willing to pay. The fintech companies try to scare you by saying that factoring companies can ruin your relationship with your customers, but this couldn't be further from the truth. Factoring companies are not collection agencies, they understand the importance of the relationship you have with your customers, after all, they have a similar relationship with you. As a result, your factoring company provides your customers with gentle reminders that payment is due, and always treats your customers with the respect they deserve.
Another big difference between fintech and factoring is the insurance they provide. With Fintech you receive no insurance on the invoices you put up as collateral, if the invoices don't get paid, you still have to pay back the fintech company. However, many factoring companies, such as DSA Factors, provide non-recourse factoring, meaning that you are insured in the situation where one of your customers is unable to pay due to financial problems. Furthermore, since your factoring company is insuring your receivables, they also handle all of your credit checking for you, meaning that you don't need to subscribe to expensive services such as Dun & Bradstreet. While it is possible to purchase credit insurance separately, it of course comes with additional fees, and typically only covers large orders for very creditworthy companies such as Amazon or Walmart. If your customers are mom and pop stores, or your invoices are smaller than five or six figures, credit insurance is not something that is readily available to you.
Of course, for many small companies simply getting funded for your invoices isn't enough. For a company that has just received their first six figure purchase order, it may be very difficult to put that order together. To make matters worse, if you are unable to accept such a large order, it is unlikely that the company placing the order will come back to you in the future. If you manufacture in China you typically need to put 30% down to start production and then a month later when production is complete, pay the remaining 70% to get the merchandise put onto the boat. It will be another month before the container arrives in the US and you are able to ship and invoice your customers, and a fintech company will not provide you with a loan until you do so. For service companies you may need to hire additional labor and will need to meet payroll long before you complete the job and invoice your customer. If use fintech for your financing they won't lend you the capital in advance, and you won't be allowed to take out a loan with a bank. However, many factoring companies, such as DSA Factors, will provide their clients with purchase order financing, which is a short term loan based on the PO so that you can fulfill a large order.
Finally there is one more major difference between fintech and factoring companies, and that is customer service. Fintech companies are all about technology; they integrate with business software such as QuickBooks, and believe that customer service is about giving their customers fancy online tools. Of course this means that you too need to use QuickBooks or whatever other software they may integrate with. Factoring companies on the other hand realize that a big part of doing business is developing a relationship with the people they work with. Perhaps factoring companies don't offer all the fancy technology and software integrations as the fintech companies do, but they aren't dinosaurs. Nearly every factoring company has an online portal where their clients can login, request approvals, and view a variety of reports. While there are some large bank-owned factoring companies, there are also plenty of family-owned factoring companies such as DSA Factors. At DSA Factors you can always call and speak with a principal, no need to deal with account managers or low-level employees who can only answer simple questions. As a result, factoring companies are able to work with you creatively and aren't restricted to just the 1's and 0's of the digital fintech world.
When it comes to financing your small business it is important that you look at the big picture. While fintech may be new and exciting, you get a whole lot more with factoring. Plus, with factoring you most likely will save money as well!
If you would like to give factoring a try, call DSA Factors at 773-248-9000 and either Ben, Max, or Howard will be available and able to help you. There is no obligation or long-term commitment, and you can start receiving funds in as little as 24 hours. Start growing your business today with a time-tested and proven method that works, accounts receivable factoring.
There has been a lot of talk in the news about fintech (financial technology) lately. Certainly there is a lot to be said about alternative approaches to financing over more traditional methods offered by the banks. However, accounts receivable factoring has always been an alternative financing method over what the banks offer, and has a long track record of success. In fact, many of the fintech companies even offer factoring programs, but they tend to be bare bones versions of factoring that only offer some of the benefits gained by factoring, and oftentimes even charge higher rates than traditional factoring companies.
The factoring industry has been around for a long time. It was well established in Europe when the original colonists brought it over to America. In fact, the king and queen of Spain offered a form of factoring to Christopher Columbus when he wanted to set sail for the "New World". While this may seem antiquated in our modern technology driven world, the fact is that most factoring companies do take advantage of modern technologies, offering most of the benefits of fintech, but with much more experience, a proven track record of helping to grow small to medium sized businesses, and much lower rates.
To see the difference, the chart below compares traditional factoring with DSA Factors to similar programs with PayPal Working Capital, Bluevine, and Fundbox, three of the more popular fintech companies offering similar programs to invoice factoring.
|DSA Factors||PayPal Working Capital||BlueVine||Fundbox|
|Take on New Debt||No, the funds DSA provides you with are yours to keep.||Yes, PayPal is offering you a loan, so you are taking on new debt.||Maybe, if your customers don't pay BlueVine, they will require you to pay them back after 90 days.||Yes, Fundbox is offering you a loan, so you are taking on new debt.|
|Credit Limit||No, with DSA Factors we will fund you for all of your receivables.||Yes, the lesser of 18% of your annual sales on PayPal or $97,000.||Yes, $20,000 to $500,000 based on your company's credit.||Yes, $25,000.|
|Based on Your Credit||No, since DSA is giving your customers a line of credit, credit decisions are made based on your customer's good credit.||No, the loan amount is based on your annual sales volume with PayPal.||Yes, BlueVine will assign you a credit limit based on your credit worthiness.||Yes, Fundbox determines your credit limit based on your credit worthiness.|
|Charges You Interest||No, DSA offers a flat rate factoring fee.||Yes, the interest is charged to you up front when you get a loan, regardless of how long it takes to pay the loan off.||No, BlueVine also offers a flat rate program, but at 10-15% their rates are at least triple or quadruple the rate that DSA offers.||Yes, based on the size of the loan, Fundbox may charge you anywhere from 5-12% over the course of a 84 day loan.|
|Term Limit||No, DSA Factors has no problem working with extended terms.||Yes, PayPal requires you to pay back 10% of the loan every 90 days, with the full amount due in 540 days.||Yes, if payment has not been received after 90 days, you are required to pay back BlueVine.||Yes, you must pay off the loan in 12 weekly installments.|
|Collections Outsourcing||Yes, DSA Factors handles all of your collection work.||No, your customers must make payments through PayPal, but PayPal does not help with collections.||No, your customers are required to make payments to a BlueVine drop box or bank account, however BlueVine does not help you collect.||No, Fundbox does not handle collections for you, it is strictly a loan that you need to pay back.|
|Insure Your Receivables||Yes, with DSA's non-recourse factoring your invoices are insured against non-payment.||No, PayPal only does payment processing for you.||No, if an invoice has not been paid after 90 days of being funded for it, you are required to pay back BlueVine.||No, Fundbox is strictly a loan that must be paid back in 12 weekly installments.|
|Choose Which Invoices You Factor||Yes, DSA Factors does not require you to factor all of your receivables.||No, a percentage of all payments made through PayPal will be applied towards your loan.||Yes, you can choose which invoices you want to get funded on.||Yes, however there is a $100 minimum in order to get funded for an invoice.|
|Minimum Volume Requirement||No, at DSA Factors you are not required to factor a certain amount, and there are no annual fees.||Yes, PayPal requires you to pay back 10% of the loan every 90 days if you aren't doing enough volume.||No, BlueVine does not require you to fund a minimum amount each year.||No, Fundbox does not require you to draw a minimum amount each year, however, they will not fund you if an invoice is worth less than $100.|
|Long Term Commitment||No, with DSA Factors you can stop factoring at any time, but since many of our clients have been with us for over 20 years, we don't think that you will want to stop.||No, once your loan with PayPal is paid off you can start looking for alternative sources of financing.||No, BlueVine allows you to stop drawing on your line of credit at any time, but you will need to pay them back for any invoices that they have not received payment on.||No, once you have paid off your loan with Fundbox, you are free to pursue other financing options.|
|Charge Payment Processing Fees||No, DSA will never charge you for processing a payment.||Yes, you are required to accept payments through PayPal and pay their payment processing fees.||No, although BlueVine will funnel all payments into their account without your customers knowing that BlueVine is receiving the payment.||N/A, Fundbox does not process payments.|
|Available Technology||DSA offers its clients an online portal where they can get automatic approvals, view agers, remittance reports, and other reports in real time. Your customers may also go online to make payments.||With PayPal you get a loan online and customers make payments online.||BlueVine requires the use of Quickbooks or similar software to get funded.||Fundbox requires the use of Quickbooks or similar software to get funded.|
|Good Old Fashioned Service||As a family owned and operated business, you can call DSA at any time and speak with a principal who can come up with creative solutions to help grow your business.||PayPal doesn't even list a phone number on their web site.||BlueVine may have a phone number, but it is doubtful that you will be able to speak to anyone who can actually help you.||Fundbox may have a phone number, but it is doubtful that you will be able to speak to anyone who can actually help you.|
|DSA Factors||PayPal Working Capital||BlueVine||Fundbox|
As you can see, traditional accounts receivable factoring with DSA Factors offers all of the benefits that the fintech companies offer, along with many more. You still get an online portal where you can efficiently do business and your customers can make online payments, but you also can pick up a phone and speak with one of our principals at any time. As a result, we can come up with creative solutions for your business that might not fit into a fintech company's software, such as purchase order financing. So if you are looking for ways to finance your business, go with a time-tested method that works, accounts receivable factoring. Give DSA Factors a call today at 773-248-9000 and we can be funding you in as little as 24 hours.
Many companies out there aren't familiar with all of the benefits that accounts receivable factoring has to offer. While cash flow might be the main reason why companies use accounts receivable factoring, it is not the only one. Companies that don't use accounts receivable factoring often times are missing out on the bigger picture, and as a result, may not be able to grow their business as quickly as they would like or as quickly as competitors who do factor their invoices. Below are some of the benefits of accounts receivable factoring.
The main reason why companies choose to factor their accounts receivable is for the improved cash flow that factoring offers. Rather than wait around 30 days or more to get paid for merchandise you have shipped or a service you have performed, with factoring you can get paid the same day that you invoice your customers. This improved cash flow can help you to make payroll, pay off your suppliers, or cover any other expenses you have in growing your business.
While it is true, many customers are happy to give you a credit card when they place an order, when you offer your customers payment terms they are more likely to place larger orders with you. The reason for this is quite simple, cash flow is very important to them. Your customers are just like you, they've got payroll expenses, rent, and utility bills, plus they need to pay their vendors. Even if sales are slow, they still need to meet payroll, pay rent, and pay the utility bills, if they don't they will face some pretty serious consequences. If their vendors require them to pay with a credit card, then they also need to pay that credit card bill on time and in full every month or they can be facing late fees and high interest rates. As a result a company that is giving you a credit card is going to be conservative with how much they are ordering, if they can't sell it all between the time the order is placed and the time the credit card statement is due they will have some pretty serious problems. However, if you offer them payment terms they know that if they pay a few days late that there won't be any consequences. As a result they will be more willing to place larger orders knowing that if it takes them a week or two extra to pay the bill that they won't be facing any interest charges or late fees.
Then there are the big box stores and online retailers. If you want to sell Walmart, Costco, Amazon, or any of the other big boys, there is no way that they will give you a credit card, in fact they may even request longer terms such as net 60 or net 90. If you want to get these large accounts it is absolutely crucial that you offer terms.
With non-recourse factoring you no longer have to worry about bad debt because your factoring company insures your receivables. If one of your customers is unable to pay for the merchandise you shipped them due to financial hardship, including bankruptcy or out of business, your factoring company assumes full responsibility for the bad debt and you still get to keep the money that they gave you for the invoices. And unlike insurance companies who will only insure receivables for large corporations with great financial strength, such as Walmart, factoring companies are willing to take a lot more risk and will not just insure sure bets, but will also insure mom and pop stores, online retailers, and a variety of other businesses. So by factoring your receivables you not only improve your cash flow, but you also get insurance on the accounts that you need insurance on.
With factoring you are also outsourcing your accounts receivable department which has several benefits. For one, you won't need to have any staff dedicated to accounts receivable, which can lower payroll or allow you to refocus their efforts on another aspect of running your business. You also won't need to subscribe to expensive credit agencies in order to stay on top of which customers are credit worthy, instead your factoring company will do this for you.
Your factoring company will also handle all of your collection work for you. Furthermore, your factoring company also has more leverage in collecting on seriously delinquent accounts than you would. Since your factoring company has a large number of clients, it is possible that they may have five, ten, or even more clients who sell also sell to your customer. If your customer doesn't pay you then you will stop shipping them, however, they will still be receiving merchandise from other vendors who they pay in a more timely fashion. If your customer doesn't pay your factoring company, then they will be cut off from a large number of their vendors.
When you factor your accounts receivable you aren't assuming any new debt. Factoring is not a loan, the money you receive from your factoring company is in exchange for your invoices. Basically all you are doing is selling your invoices to your factoring company, and therefore the funds they provide you with are yours to keep. As a result you can spend these funds in any way you choose, these is no need to justify where the money is being spent like you would with a loan from a bank, the money is yours to spend however you wish.
While purchase order financing is not the same as accounts receivable factoring, it is a service that some factoring companies offer to their clients. Unlike accounts receivable factoring, purchase order financing is a loan. The loan is based on a purchase order that you have, and the funds you receive are to be used to fulfill that purchase order. Once fulfilled and the merchandise is shipped to your customer, you would factor the invoice and your factoring company will apply a portion of the invoice toward the loan they gave you and give you an advance based on the remainder.
Factoring is quick and easy. Unlike securing a loan from a bank, factoring companies are able to make decisions in minutes rather than months. At DSA Factors we offer a simple flat rate fee factoring program and can be funding you in as little as 24 hours. We are a family owned and operated business that has been providing accounts receivable factoring for over 30 years. Call today at 773-248-9000 and find out just how easy factoring can be.
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. While a low factoring rate is very important, it is also important to make sure that when you get two different rates that you are comparing apples to apples. It isn't only looking at services such as advance rates, approval rates, or recourse vs non-recourse, but also looking at fees and interest charges. So while you could call five, ten, fifteen, or even twenty factoring companies to find out their rates, it might not be so clear-cut as to which company is the cheapest and provides the best service. This article will show you how to find the best factoring company for your business.
There are two different types of rates that a factoring company may charge you. The most popular type of factoring these days is adjustable rate factoring. With adjustable rate factoring the factoring company will offer what seems like an impossibly low rate, they may advertise anything from .5% to 1% as a base rate for factoring your invoices. However, they will then charge you interest from the day they advance you the money until payment is received and then they will add an additional 10 days for payment to clear the bank. The way that this interest is computed can vary, but it is most common for factoring companies to use blocks. A block may be a period of 10, 15, or 30 days. For each block that passes, the factoring company will charge you an additional fee. For example, if a factoring company offers a .5% base rate and uses 15 day blocks and charges 1% for each block, this how you would be charged for factoring an invoice. Lets say the invoice is purchased on July 1st, then you will be charged the base rate of .5% for factoring on that day, in addition you will also be charged 1% for the first 15 day block. On July 15th if payment has not been received yet and cleared the bank, then another 1% will be charged for the 2nd 15 day block. Lets say payment is received August 10th, you will be charged another 1% on July 30th, and on August 14th, since the factoring company is still waiting for the funds to clear the bank, you will be charged a final 1%. As a result, your overall costs for factoring the invoice will be 4.5%.
With a flat rate factoring program your factoring fee is much easier to compute. If you are offered a rate of 4% then that is exactly how much money you will pay for factoring the invoice, regardless of how long it takes your customer to pay your factoring company. While the base rate may appear much higher with flat rate factoring, the actual rate you pay to factor an invoice is typically lower, especially if your customers don't pay their invoices early.
While the overall rate may be the main reason why you choose to go with an adjustable rate or flat rate for your accounts receivable factoring, it is also important to consider the service that goes along with these two different rate structures. With an adjustable rate, the longer it takes your factoring company to get paid, the more money they make. As a result, an adjustable rate factoring company has little motivation to collect from your accounts until they start to become seriously past due. With a flat rate factoring program, your factoring company is very motivated to collect from your accounts when the invoices become due. This motivation to collect doesn't just affect how much you pay for factoring, but can also affect if future orders from your customers get approved. If a customer is past due on your invoices, then they won't get approved until they catch up. As a result a factoring company with an adjustable rate may not be able to get you approvals in a timely fashion causing your customers to become upset.
Perhaps the most important reason why companies want to factor their invoices is because of the advance that provides them with the improved cash flow they need. When choosing a factoring company, the most important question should be if they provide an advance and how long it takes. Most factoring companies should be able to provide you with an advance on your receivables within 24 hours, or even the same day. A factoring company who is offering you rates to good to be true may not be providing you with an advance. After that you need to look at the rate of advance. All factoring companies hold back money in reserve, but some companies hold back more than others. However, rather than advertise how much they hold back, factoring companies prefer to advertise how much they advance. So if a factoring company holds back 10%, then they have an advance rate of 90%. Advance rates can vary anywhere from 75%-90%, so it is important to make sure that you are getting a high advance rate.
Another benefit of factoring is the insurance that it provides on your receivables. A company that offers non-recourse factoring will insure your receivables against non-payment for financial reasons, meaning for example, that you will not be on the hook if a customer of yours goes bankrupt. However, if your factoring company only offers recourse factoring then they are not providing you with any insurance, and you will be have to pay them back if one of your customers files for bankruptcy.
Because a factoring company may be insuring your receivables, they are also assuming some risk. How much risk they are willing to take can vary. As a result it is important that you choose a factoring company with a high approval rate. It is also important to learn about how your factoring company assigns credit limits. It is important that your factoring company assigns your customers a credit limit based strictly on your business with them. Some factoring companies assign a single credit limit to a business that applies across all of their clients, as a result, if another client has orders that reach that credit limit, your orders will get turned down until that other client's invoices are paid off.
Of course the last thing you want is to get a bill from your factoring company asking you to pay a bunch of hidden fees. Many factoring companies may charge you fees for day-to-day operations such as running a credit report. Other companies may charge you annual fees or fees for not meeting minimum volume requirements. While some companies may lock you into a long-term contract and will charge you fees if you choose to stop factoring or want to change factoring companies. Another thing to consider is whether you are required to factor all of your accounts. Some factoring companies will require you to factor all of your accounts, including ones that pay on credit card, meaning that you will be forced to pay factoring fees even on accounts that you don't factor. It is important that you look at these fees as they of course affect the overall rate that you are paying to factor your receivables.
Finally, the last thing you need to look at it is the service and benefits that your factoring company can provide you with. When it comes to service, many larger factoring companies will treat you simply as a number and assign you to an account manager who may not be able to make difficult decisions. Often times these larger factoring companies are owned by banks or are headquartered overseas, meaning that it may take them a long time to make simple credit decisions. With smaller factoring companies, and especially family owned companies, you will always be able to speak with one the companies principals, and quick turn-around times on credit decisions or anything else are another advantage that they offer. Of course, sometimes you need a little bit more than just factoring, so it is important to look at some of the other benefits factoring companies may offer.
Sometimes when you get a large order from a major retailer you may need a little extra help fulfilling the order. As an importer you may need to pay the overseas factory to start production, and certainly they will want payment in full before a container is released. As a manufacturer you may need funds to purchase additional materials so that you can start production. Whatever the case may be, some factoring companies offer purchase order financing, which is basically a short term loan based on the purchase order so that you have no problem getting the order fulfilled. Even if you don't need purchase order financing right now, it is important to choose a factoring company that offers it to their clients as you never know if you one day may need it.
Some factoring companies may even offer their clients small business loans in addition to factoring services. If you might need a loan from time to time, whether you need to pay to attend a trade show, or you are developing a new product line, it is nice to know that your factoring company may be able to help you out. Since you will have established a working relationship with your factoring company, they will be much more likely to offer you a loan than a bank, and will also make a decision much quicker.
As you can see, there is a lot that goes into choosing the right factoring company for your business. At DSA Factors we offer low, competitive, flat rate factoring fees with the personalized service that you would come to expect from any family owned and operated business. Our clients receive non-recourse factoring with a 90% advance rate. Furthermore, we have an approval rate of over 95% and most companies get approved instantly when submitted on our web page. We have no hidden fees, no minimum volume requirements, and no long term commitments. We also offer purchase order financing to our clients and have offered small business loans to clients who we have developed a working relationship with. DSA Factors is well known throughout the factoring industry as one of the best companies to work with, earlier this year we were named by Factoring Club as the Best Micro Factoring Company for 2016. If you are looking for a factoring company to help grow your business, give DSA Factors a call at 773-248-9000, and find out just how easy factoring can be.
Invoice Factoring is a way of improving your cash flow without taking on any new debt. When you factor an invoice, what you are doing is selling that invoice to a factoring company. As a result, factoring is not a loan and you can get paid immediately for the products or services that you invoiced for, rather than having to wait until the invoice becomes due.
While invoice factoring isn't the only way to speed up your cash flow, it offers many benefits that you won't get from other methods. Below are a couple of common methods used to improve cash flow and how they compare to invoice factoring:
With a bank loan, or SBA loan, you are taking on new debt, the money you receive is not yours and has to be paid back. However, when you factor an invoice the money you receive is yours to keep. Banks, also assign you a strict credit limit, you can only borrow up to that credit limit. However, with invoice factoring the sky is the limit, the more invoices you have, the more money you can receive. Furthermore, securing a bank loan is a cumbersome process and often times you may wait months only to find out that you haven't been approved because your credit isn't good enough. With invoice factoring decisions are made quickly, often times within minutes, and decisions are based on your customers' credit, not your own.
While taking on an investor is a good way of getting a quick cash infusion without taking on any new debt, it also means that you are giving up a portion of your company. From a financial point of view you no longer own a significant portion of your business. However, even more problematic is that you are giving up control of your company to someone else. If you and your investor don't meet eye to eye on various matters you may be running into trouble. With invoice factoring this is not an issue, you still receive the cash that you need without having to give up any portion of your company or having anyone else tell you how to run your business. Furthermore, invoice factoring is a continual process, it can provide you with unlimited positive cash flow for many years to come. With an investor it is a one time deal for a fixed amount of money, unless of course you want to give up even more of your business.
The positive cash flow you receive from invoice factoring can be used in any way you want. With invoice factoring you don't need to answer to a bank or to an investor in your company, you are still in the driver's seat. The cash flow you receive can be used to meet payroll, get a container released, attend a trade show, start a new marketing campaign, upgrade equipment and facilities, or for anything else that you can think of.
In addition to the improved cash flow, invoice factoring also provides you with other benefits that you will not receive from other sources. With invoice factoring you are also outsourcing your entire accounts receivable department. You no longer need to worry about keeping tabs on your customers, your factoring company will handle all of your credit checking for you. Further more you no longer need to keep on top of your customers since your factoring company will handle all of the collection work for you. If that isn't enough, with non-recourse factoring you are also insured against non-payment of your invoices, your factoring company will assume the risk for you.
Give DSA Factors a call at 773-248-9000 and one of our principals will be happy to speak with you. DSA Factors has been providing non-recourse invoice factoring for over 30 years to a wide range of industries, including but not limited to furniture, bedding, giftware, housewares, textiles, clothing, trucking, food, marketing, and staffing. As a family owned and operated business you not only receive low competitive rates, but also personalized service that the larger, bank-owned factoring companies can not provide. Call us today, and we can be providing you with improved cash flow tomorrow.
Recently DSA Factors has been named the Best Micro Factoring Company by Factoring Club for 2016. While this comes as no surprise to us that we would receive such an honor, its always nice to get the recognition that we deserve. Thank you Factoring Club.
According to Factoring Club, DSA Factors is the best factoring company to use if you have annual sales of $200,000 or less. It is true, at DSA Factors we have no minimum volume requirements. Most factoring companies require you to factor $500,000 or $1,000,000 every year, and even if you don't reach these volumes will still charge you fees based on these volumes. DSA Factors understands that not everyone is huge, and we would never charge you fees for invoices that you don't have.
At the same time, DSA Factors also handles larger volumes as well. If you do several million dollars a year in sales, DSA is still here to help you out. No matter what your volume is, when you factor with DSA you will always get a low flat rate fee for all of your receivables, outstanding service, and same day funding. So if you are in need of some improved cash flow, give DSA Factors a call today and we can be funding you tomorrow!
It may seem counter intuitive that a service that costs you money will actually make you more money, but it is true. As the old saying goes "it takes money to make money", and this is true when it comes to accounts receivable factoring as well. There are actually a handful of ways that factoring can help your bottom line, and some may not be so obvious.
The first thing you need to look at is the cost of factoring. If you currently take credit cards for payment, factoring fees are very similar to the fees that the credit card companies charge you, and possibly even less than Discover and AmEx. As a result, you will already have the factoring fee built into your pricing. However, it is important to make sure that your factoring company is charging you a flat rate fee, otherwise if your customers pay late you may wind up paying two or three times a credit card fee in interest. DSA Factors offers low flat rate fees, so you know exactly how much it will cost to factor an invoice.
Often times your customers may have the same cash flow crunch that you have. They may not be able to pay for an order until the merchandise in the store sells. That is why it is important for them to be given 30 days to pay for the merchandise that they buy. However, while the credit card companies allow you to pay each month, if you don't pay the credit card bill by the due date on come the late fees and interest charges. So when a customer pays by credit card, they need to be absolutely sure that they will have the money to pay for it when that bill arrives in the mail. As a result, they may be hesitant to place a large order out of fear they won't be able to pay for it on time. When you offer terms to your customers, this isn't an issue. It is generally accepted that if you pay for an invoice with terms a little bit late, you won't be hit with late fees or interest charges. As a result you can sell more merchandise to your existing customers, as well as pick up major retailers, such as Walmart, TJX, Costco, or Amazon, who will only buy merchandise on terms.
If you currently offer terms to your customers and aren't factoring your invoices, you can also benefit from the increased cash flow factoring will provide you with. You can use that improved cash flow to pay your suppliers faster, which in return will allow you to increase the volume of business that you do. After all, if you can get a container onto a ship thirty days earlier, you will be able to fulfill more orders faster, which will also lead to quicker reorders.
Furthermore, you can save money is on salary. By outsourcing your A/R department to a factoring company. You don't need to have employees making collection calls and sending out account statements, your factoring company will handle this for you. As a result, your employees can focus on things like making sales, marketing, or product development which will translate directly into higher sales volume.
Finally, you will save money on the cost of doing business. Since your factoring company will do all of the credit checking for you, you no longer need to subscribe to expensive credit agencies. If your factoring company offers non-recourse factoring, as DSA Factors does, then you will also eliminate bad debt as your factoring company assumes responsibility for customers who do not pay their bills.
As you can see, accounts receivable factoring can be a great way for your business to increase its revenues while eliminating expenses. If your business can benefit from increased cash flow, then factoring may be the best way to make money and grow your business.
When you are looking for a factor, one of the most important things to consider is how much you get advanced. Many factoring companies will advertise 70% or even 80% advance on your receivables. At DSA Factors we offer you 90%-100% advance on your receivables.
Of course, if you are new factoring, you might ask why not advance at 100%? It's simple, all factoring companies take reserve, this protects them against credits your accounts may take for damaged merchandise or any other problems they may have. It is very common for factoring companies to take 20% or more in reserves. In fact, there are some factoring companies that won't even pay you until they get paid from your accounts.
At DSA Factors we know that it is important for you to get all of your money as soon as possible. For that reason we only take 10% in reserves when you first start factoring with us. So lets say your first batch of invoices is worth $5000, we advance you $4500 and hold onto $500. We then receive payments of $3000 and you submit your next batch of invoices for $5000. At this point your overall balance is $7000, so we will need to keep $700 in reserve. That means that we will advance you $4800 and only hold back $200, that's a 96% advance on your invoices! If you continue with a similar pattern, soon we will be advancing you 100% on your invoices. See the table below for a clearer picture of how this works:
As you can see, it doesn't take very long to build up your reserves to a level where you can get advanced 100% on your receivables. Furthermore, those reserves belong to you, so should business ever slow down you could request we send your reserves back to you, and then build them back up once business starts to pick up again.
It is important when selecting a factoring company you pay close attention to how much money they will advance you. After all, one of the benefits of factoring is improving your cash flow, and if your factoring company is holding back more than they should be, then they aren't doing their jobs.
If your factoring company is advancing you at anything less than 90-100%, give DSA Factors a call today at 773-248-9000. It's time start getting paid for your receivables!
Invoice Finance and Factoring is an ever more prevalent part of US business practices for small and medium (SME) businesses, as they have found it increasingly difficult to access funds - for effective cash flow management and expansion - from traditional lenders, such as the large and medium sized banks, since 2008.
With the economy getting back on its feet from the deep blows of the recession, many businesses are also starting to see growth return and many businesses are seeking to capitalize on this and gear up for growth in 2015 and beyond.
As many small to medium sized businesses find, there is often a gap in the cash flow position from accounts receivable to accounts payable, especially at times when you need it most, such as periods of high growth. The best position to be in is to have a facility in place so that when you need a cash flow injection then you know you have the ability to access working capital without the need to firstly find a suitable finance partner, then go through their checks and process to enable a facility to become active.
As the economy further revives going into 2015 many businesses will be looking to capitalize on opportunities for organic growth and the possibilities of achieving sales growth amongst their existing and new customers.
So if you are looking to secure the growth of your business with a strong cash flow position and a reliable invoice factoring partner then speak to us about what your best options are as we can certainly help your company grow.
If you plan on selling invoices it is important to know whether the funding proposal is for "recourse" or "non-recourse" factoring. Here is an overview of both methods.
Just like it sounds, there is no recourse for unpaid receivables against the client. The client selling invoices is not financially obligated to the factoring company in the event an approved and funded invoice is not paid by the customer.
To protect their investment, the factoring company will check the credit strength of account debtors. They will also want to handle the payment collection and accounts receivable management.
This does not remove the client from all possibility of needing to repay the invoice. The client is still responsible for resolving any disputes regarding the product or service itself. For example, if the client delivers a product and that product is found faulty causing the customer to not pay, the client is still responsible to make good on the invoice.
Although non-recourse may be the more attractive method to the client, the factoring company will look closely at the credit worthiness of the paying customer or debtor and charge fees accordingly.
With recourse factoring the company selling the invoices is guaranteeing the invoice will be paid in full.
If the customer or debtor does not pay the invoice, the selling company must make up the payment. This is usually accomplished by either lowering future funding by replacing the "bad" invoice with another "good" one. Any delinquent invoices are generally charged back to the business client after 120 days, depending on the terms of the agreement.
In addition to who "makes good" on any "bad" invoices, the client may receive better pricing if they are open to a recourse situation. Since the factoring company isn't taking all the risk, they can offer more attractive advance rates and lower fees.
Your final choice will be for the method that best fits your situation. There is no right or wrong, but if comparing factoring options side-by-side and you have the option of non-recourse for the same or similar terms - then non-recourse will likely be your preferred choice!
At DSA Factors we are proud to offer non-recourse factoring to our wholesale clients. For the service industry DSA Factors offers recourse factoring only. If you are looking to factor your invoices, whether it is for the insurance non-recourse factoring provides or the improved cash flow you get with either type of factoring, give DSA Factors a call today at 773-248-9000 and you can be getting funded for your receivables in as little as 24 hours.
As the economy continues to recover, American businesses have a unique opportunity to grow their businesses as a way of preparing for the future. One of the simplest ways of doing that is through accounts receivable factoring.
Accounts receivable factoring services, often called "invoice factoring services" are a useful method of small business financing that enables business owners to budget and plan better by creating consistent cash flow. The small business sells its invoices to the factoring company at a small discount. The factoring company, in return, pays the small business, usually within a couple of days. This means that instead of waiting 30 to 90 days for customers' payments, the small business has its funds almost immediately.
Additionally, accounts receivable factoring enables small businesses to save money on their in-house accounts receivable work. Factoring companies provide not only funds, but also help collect on invoices and manage accounts receivable. The factoring company handles mailing out statements, which reduces printing, mailing, and personnel costs. As well, the factoring company provides access to advanced credit-screening tools to help small businesses decide how much credit to extend and to whom. This minimizes credit risk, again saving companies money.
The time and money small businesses save by using invoice factoring services are resources that can be put into growth opportunities. New equipment, staff training, marketing campaigns and other growth-oriented costs are easier to plan for and pay for when a company knows what its monthly budget will be, as it does with invoice factoring. The economy is improving. Will your small business be ready to meet the demand?
Besides factoring specific invoices (accounts receivable), there might be a need for some advance funding. This is sometimes called Purchase Order Financing. For example your company might be working very hard to land a large order from a customer. Let's say your hard work pays off and you finally procure the order. But now you have a problem. You need to produce this large order and you need to purchase the goods to fulfill the order. Your suppliers may not be willing to extend terms to your company for the purchase of the merchandise that you need to acquire in order to fulfill the order. That's when DSA Factors can come to the rescue.
Upon presentation of the purchase order, DSA Factors can lend your company enough money to cover either the full cost of the entire order or at least the portion of the cost of the merchandise that the supplier is demanding payment for. Then once the merchandise is received and invoiced to the customer, DSA Factors will fund the value of the invoice to your customer and deduct the 'advance' that was already paid, and remit the balance of the funds to your company.
Finding alternative sources of cash is part of building a successful business. Cash is often the best way to pay for operations without incurring heavy debt loads. Many times, businesses make sales to consumers on account. These accounts allow consumers to pay off their debts over a set period of time. Rather than wait for consumers to pay balances in full, companies can factor the receivables to another company. Factoring receivables allows a business to receive money upfront - albeit at a discount - for accounts in good standing.
Factoring receivables allows companies to improve their cash flow. While selling goods or services on account can improve sales, it has the possibility of delaying cash flows. Companies must rely on their vendors and suppliers to sell economic resources on account. Purchasing resources on account is often why business owners sell consumer goods on account. However, companies with too many sales on account can limit their cash flow. Factoring receivables can provide a quick jumpstart to the cash flow process and allow companies to pay business expenses on time and not incur penalties.
To keep your business great and growing may mean preventing cash flow problems that can interfere with your business operations.
You can with the help of DSA Factors, the friendliest, most reliable factoring company in the United States.
You can get fast and painless cash by allowing DSA Factors to speed up payments of your accounts receivable.
The financial strength of your customers, not your personal FICO and/or business credit score, qualifies you for factoring your accounts receivable with DSA Factors.
Instead of waiting as much as 90 days or more to get your money (whether you are awaiting your customers to pay, or awaiting a loan from a bank); DSA Factors can get you your cash in as little as 24 hours with no hassles.
No other factoring company can provide the value you get from DSA Factors.
Are you looking for a business loan? Many business owners who need financing start their financing search by looking for a business loan or a business line of credit. Although business loans and lines of credit are well known products, they are very hard to get. And in reality, few business owners actually manage to get them.
In certain instances, invoice factoring may be a better and easier to obtain alternative. There are three conditions that can determine whether factoring is a better alternative than a business loan:
Are your clients' slow payments hurting you? Do they take up to 60 days to pay?
Are you turning away bigger sales because you lack working capital?
With the right financing, does your business have significant growth potential?
If you answered yes to these questions, then chances are that factoring your invoices will be better for you than more traditional business financing products. Invoice factoring provides you with financing based on your invoices, eliminating slow payment cycles and providing you with money to pay rent, meet payroll and expand your business.
Since factoring is tied to your sales potential, it does not have the arbitrary use limits that business loans have. The more your business grows, the more financing you qualify for. Period. This makes it an ideal product for businesses that have significant growth potential.
Factoring (or receivable factoring as it is also known) is easy to use. Once you have invoiced your customers you send a copy of the invoice to the factoring company. The factoring company, in turn, advances you up to 96% of your invoice and waits to be paid by your client. The factoring fee is much less than you may pay your sales representative.
In effect, by financing your invoices you eliminate the slow payment problem. You accelerate your cash flow, enabling you to pay your obligations, take new opportunities and grow your company.
If you own a business that is growing and you need financing, be sure to consider invoice factoring. Call DSA Factors today to see how factoring can help your business.
Factoring is basically invoice discounting for the purpose of speeding up cash flow. It has become a legitimate way for growing businesses to obtain loan funding without the need to provide security over physical assets of the business or personal assets such as the home.
Financial institutions are recognizing the importance of offering small to mediums size enterprises an alternative means of funding that does not include security over fixed assets. However, even though they recognize this need, it still may not be something they can handle. Factoring has become a major source of funding for businesses, since banks have been restructuring their service offerings to companies with limited access to funds based on accounts receivable.
Factoring provides a fast prepayment for your invoices billed to your customers. It allows you, at a cost, to flexibly increase your working capital and improve cash flow by effectively selling your newly billed invoices to a factoring company.
Factoring is offered to companies selling to other businesses on credit terms. It is not normally available to retailers or to cash traders.
You need to receive credit approvals for your customers in advance of the funding. Once you have shipped the merchandise, you bill the customer with a notification instructing them to pay the invoice directly to the factor. The Factoring company does all the collection work and alleviates your need to make phone calls or send out past due notices. This will allow your company to spend your efforts on growing your business instead of making collection calls.
Properly financing the growth of a business can be challenging. It is inevitable for both new smaller companies and more established larger companies to come to a point where more working capital is required because of previous growth or to assist in new growth. When business financing such as loans and credit are inadequate, when sales on credit or net terms have caused a cash flow shortage, or when new growth requires more available cash on-hand to facilitate it, additional financing is necessary to a company's survival. The solution for this financing dilemma is through Accounts Receivable Factoring with DSA Factors.
Accounts Receivable Factoring is a financing method used by many businesses. In-effect it is a means of short-term borrowing using outstanding invoices or receivables as collateral. This allows companies of all sizes to obtain the working capital they otherwise might not have been able to receive.
The credit line for the receivables is decided based on the financial strength of the end-customer who will owe the money on the products or services purchased, not by the seller of the receivables.
Account receivables factoring is not a loan, so there are no payments and no debt is incurred.
Any business which generates sales through open credit terms to credit-worthy accounts is eligible for this type of financing.
Each company that buys from you and would like credit terms (you must offer terms to be competitive) is submitted to DSA Factors to determine if they are eligible for financing.
Utilizing Account Receivable Factoring with DSA Factors delivers more predictable cash flow to businesses, and since factoring receivables is directly tied to sales, as sales increase and the company grows, the receivables factoring line can quite easily grow right along with it.
Individuals looking to start a business may look to venture capital financing as a way to fund their dream. Private investors may advance funds to companies that are growing rapidly and potentially can show a profit. Of course, investors are looking for a return on their investment, whether short term or long term. This can be quite difficult for a new business to handle. It is very difficult, especially in today's economic times for companies to receive these types of infusions. For these companies, it will be necessary to find alternative funding. One really great alternative is invoice factoring.
Invoice factoring can provide quick cash flow. It allows companies to get paid on newly shipped orders to their customers even when they allow their customers 30 day terms or longer in order to be competitive. DSA Factors can provide funding for these invoices within 24 hours. This is much simpler than attempting to secure venture capital financing. Using a factoring company eliminates the worries of having to pay back borrowed funds or pay dividends to an investor or maybe even giving up ownership to outside investors. Factoring is not a loan. Factoring involves being advanced money for recently shipped goods so that the funds are available to help fulfill future orders and be current on your bills, such as payroll, utilities, inventory, and supplies. Also a bonus to factoring your receivables with DSA Factors is that they do all the collection work from your customers. Companies also do not have the burden of going out and securing business in order to pay back venture capitalist lenders. They are using the business they have already secured and leveraging it for much needed monies.
As a business grows so does the amount of money that they can secure through factoring. Cash advancements grow with sales volume. The more invoices they have outstanding, the more money they can receive.
Invoice factoring can also be used by new or start-up companies. The difference between invoice factoring and venture capital financing is that companies will not have to pay money back when they use the former option. This means less stress, worry and no debt. Companies also have more control over their business because they don't have anyone directly and monetarily invested in their company, feeling like they have the right to tell them what to do.
Venture capital financing can be a great option for companies that need a lot of money to begin a company but have no customers. However, for those companies that are newer and have already secured customers, a clear choice is invoice factoring. It allows them to get a quick infusion of cash without taking on debt from investors.
For more information please contact DSA Factors today at 773-248-9000 or email@example.com.
Many business owners may not understand what Non-Recourse Factoring vs. Recourse Factoring really is.
Non-Recourse Factoring applies to the inability of the client's customer to pay for credit reasons. For example, if a company does not pay for products or services due to financial problems, bankruptcy, out of business, these would be the factoring company's responsibility. If there are any disputes that the customer is claiming with regards to the quality of the merchandise, or shortages, etc., these issues would potentially have recourse. The factoring company at that point can ask to be reimbursed for that transaction or portion of the transaction that will not be paid. Some factoring companies have full recourse factoring all the time. DSA Factors has non-recourse factoring for companies that sell a product. When a service is involved, then recourse factoring is the norm.
Factoring is a cash flow tool, as well as "insurance" on accounts that get into financial trouble, but it is not really suppose to be a method of getting rid of bad debt. The customers still belong to the company looking to factor so you can't expect the factor to just buy a receivable and not have any recourse to the advanced funds over a disputed situation.
Non-Recourse Factoring is not simply a company selling an invoice to them and just walking away. The responsibilities of providing a good product or service still apply. Do not miss the opportunity of signing up with a better factoring company, like DSA Factors because you thought you were signing up with a factoring company that claims all invoices are bought without recourse. There are many factors out there that advertise only non-recourse factoring, but believe me, you will find many paragraphs in their very lengthy contract that gives the Factor the right to charge invoices back to the company. DSA Factors has a very simple two page factoring agreement with no hidden fees.
DSA Factors will fight very hard to get paid, even with companies that claim damages, before we give up trying to collect. The Factoring Industry continues to see growth because this tremendous cash flow tool is getting the recognition it deserves for the simplicity and solutions it provides.
There's something very important to understand when you are in business. It is wonderful to grow your business with increased sales, but the most important thing is to get paid on your invoices! No matter how much you sell, if you don't collect the money, you will not be able to survive.
Business owner are so involved in selling products and services that they forget to take the time to manage their cash flow and get paid for those sales. You also need to have a plan on what it takes to collect your money. The simplest and most efficient method in improving your cash flow and handling collections is to factor your accounts receivable.
Factoring your receivables allows you to sell your receivables and get cash now instead of waiting 30 or 60 days. Of course there's a fee for using a factoring service, but you will be able to offset that fee by potential savings you can incur when negotiating discounts from your suppliers. If you have the cash available, you may be able to attain a discount for paying your vendors quickly. Your net cost of factoring can be reduced to nothing.
Regardless, a huge benefit to using a factoring company, especially DSA Factors, is that you do not have to subscribe to expensive credit rating bureaus to check out the credit worthiness of your current and potential customers. Another benefit is that you don't have to call your customers for payments. You can concentrate on calling on the customers to increase your sales, and the factoring company can do all the dirty work in collecting payments for past invoices. If the customer goes bad, and doesn't pay, the factoring company normally holds that responsibility. So besides getting the up front cash flow you need, you will also be able to have assurance that you won't get stuck with unpaid invoices.
Remember, your cash flow is not the same as your profits. You can have a profitable business, but a negative cash flow due to retaining accounts receivable. Factoring can give you the positive cash flow you need to make your business even more profitable.
Call Howard at DSA Factors at 773-248-9000 if you would like to learn more about how factoring can help your company. Or you can shoot an email to firstname.lastname@example.org.
Companies facing a cash flow squeeze have the option of selling their invoices, or accounts receivable, to factoring companies as a quick and reliable way of receiving the funds necessary to run their business. The way a factor works is they check the credit-worthiness of your customers and assuming they have good credit will purchase your accounts receivable for that customer at a small discount. As a result you will receive immediate cash instead of waiting for 30 or 60 days to collect.
At DSA Factors we can offer to pay you up to 96% for your invoices, and you can receive that money the very same day with a wire transfer or the next day via an ACH.
Many businesses use factors when they are first starting out because they may not have established a long enough credit history to get a loan from a bank, while a factoring company is more concerned with the credit-worthiness of their customers. However many older, well established companies also use factoring because of the many advantages it offers. Not only is it much easier to work with a factoring company than get a loan from a bank, but the factoring company also provides valuable services such as doing all of your collections and even insuring your receivables. Additionally a factoring company is more willing to work with you than a bank as their success is directly tied to your own success. At DSA Factors you will always be able to talk with one of our principals as well as be able to access a variety of information about your accounts 24/7 from our online tools.
Factoring can work for pretty much any industry, and some industries are almost entirely reliant on factors to meet their cash flow needs. At DSA Factors we specialize in factoring for the furniture, trucking, and staffing industries. However we have a wide range of clients that sell everything from office supplies to clothing as well, and we are able to work with any industry to meet their financing needs. We can also work with any size account, whether you are selling tens of thousands of dollars worth of merchandise to a Target or Sam's Club, or just a few hundred dollars worth to mom and pop stores.
Accounts receivable financing, or factoring, is an excellent alternative to traditional bank loans and is becoming a more and more popular way of raising funding to help your business grow. Factoring is something that can be used by pretty much any industry, from manufacturing to trucking to staffing and many more.
Factoring is a fast and simple way of raising money without having to go through any hassles. When you apply for a bank loan it is a long drawn out process that requires many forms, personal guarantees, lien assets, and they will ask you what you plan to do with the money from the loan. Then, should the bank decide to give you a loan, they also give you an inflexible payment schedule as well as a potentially high interest rate.
However, with factoring invoices, you submit your credit-worthy invoices and can receive immediate payment for them the very same day you submitted them. Furthermore this money is yours and does not need to be paid back so long as there are no problems with the merchandise or service provided. You can spend the money any way you want, whether its for payroll, raw materials, paying off creditors, advertising, expanding your business, or anything else. You also don't need to put up any collateral, you are selling your invoices to the factoring company so there is no need for a lien on any of your other assets.
But getting instant cash for your receivables doesn't just improve your cash flow and provide you with needed money, it also eliminates the need for credit checks and collections. Before you sell your product to a potential customer you submit it to the factoring company for approval. It is the responsibility of the factoring company to run credit checks and make sure that the customer is credit worthy. At DSA Factors we work our hardest to approve accounts submitted to us, while other factoring companies may look for reasons to turn down accounts, we look for reasons to approve them.
The factoring company will also do all the collection work for you as well. When you factor your accounts receivables you are selling your invoices to the factoring company, it is now their responsibility to collect from the customers. At DSA we know that your customers are very important to you so we make sure to always treat them with respect so that you can establish long and profitable relationships with all your customers.
Factoring your accounts receivable can be a very effective way of raising capital quickly and hassle free for both large and small companies. If you have accounts receivable then factoring can work for you. Feel free to call DSA Factors at 773-248-9000 to learn more about how factoring can work for your business.