With Purchase Order Financing you can get the funding you need in order to pay your suppliers when you are fulfilling a large purchase order. Without PO Financing it can be very difficult for younger or even well established companies to accept purchase orders from nationwide retailers. At DSA Factors we offer purchase order financing in addition to accounts receivable factoring, however the two services are very different. You can learn more about how purchase order financing works and how it differs from factoring here on the Factoring 101 Blog.
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!
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 email@example.com, 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.
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.
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.
The trade war has been all over the news for months now, and the uncertainty these tariffs are creating a wreaking havoc on small businesses all around the country. Trying to keep up with the constantly changing tariff rates is nearly impossible, but even more impossible is creating a business plan around the tariffs because all it takes is a single tweet and the tariffs change once again. Sometimes tariffs change so fast that you might have an order in production or already on a boat that you are going to now have to pay more for when it arrives at the port. But of course, there is one thing that is perfectly clear about who is going to pay for the tariffs. It won't be China paying for the tariffs but the entire levy is falling directly on American small businesses.
There is no doubt that times are tough for American small business owners. When that ship arrives at the port, you are the one who has to pay the tariffs, and you are the one who has to decide if they come out of your margins or if they need to be passed along to your customers and ultimately American consumers. Your options to choose from are bad and worse, and most likely there is no one clear cut choice but rather you will need to make compromises everywhere. In the end you will have smaller margins, a higher priced product, and will be doing less volume. To make matters worse, if the tariffs get lowered or removed on product you already have in inventory, all of a sudden you have to discount all of your merchandise and that may completely wipe out your margins.
Perhaps you can find a new factory in Vietnam to avoid the tariffs, and maybe you will even save some money by moving in the long run. It's a great idea, but don't think that you are the only one who has it, everyone else is also looking at Vietnam, as well as Indonesia, Thailand, Malaysia, and India. What does this mean for you? Well if you are used to getting 30 day lead times from your factory in China, your in for a big shock when you learn that Vietnam's lead times were 60 days at the start of the year, and have now increased to over 120 days. Combine that with the fact that you need to find a new factory that is able to produce product to your quality standards and, even more difficult, is willing to take on new business. Those of course are just the initial hurdles you need to overcome in finding a new factory, nevermind that many of your raw materials may still be coming from China and subject to tariffs. Of course the worst part is that you have probably spent years developing a good working relationship with your factory, and if you leave now, you will be back to square one.
There is no doubt that these are tough times for small businesses, and you are probably being faced with difficult decisions everyday. Regardless of which route you decide to take, there is no debate that you will be the one paying for these tariffs, and you will have to do so with lower volumes and thinner margins. So the question is how will you be able to pay for them. At DSA Factors we are proud to offer our clients purchase order financing, so that you have the funds necesary to pay both your suppliers and the tariffs.
With purchase order financing we will provide you with the funds you need when you need them. That means you choose how much money you need and when you need it. You can borrow some money for the deposit to start production, more money to pay for the completed product before it ships, and even more when it arrives at the port and you need to pay the tariffs. Or maybe you have the funds necesary to pay the factory for the product, you just need a little cash for the tariffs. Whatever your situation, our goal is to make sure that you have all the necessary funds you need to keep your business running, but charge you the lowest fees possible so that you can maintain healthy margins.
Want to learn more about how purchase order financing can help get your business through tough times, give us a call today at 773-248-9000.
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.
Growth can be difficult for any business, but getting your first large purchase order can be especially stressful. Keeping your current customers happy as you try to fulfill a large purchase order can create a nightmare for your cash flow. Getting a bank loan could take months, and there is no guarantee that you will be approved. There must be a better solution.
Introducing purchase order financing and invoice factoring. With purchase order financing you can get a short term loan to pay off your suppliers. Invoice factoring helps free up working capital that is tied up in receivables that may not be paid for 30 days or more. Unlike a bank, factoring companies move quickly, funding you within 24 hours, and making quick credit decisions based on your customer's good credit.
So what are you waiting for, improve your cash flow with purchase order financing and invoice factoring. Give DSA Factors a call today at 773-248-9000.
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.
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.
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.
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.