 |
Why Factor?If
you have used a credit card then you have used factoring. Factoring
is most often used for growth. Only very large corporations once used
receivables financing and just the largest banks and financial institutions in
the world provided the service. Until recently, only companies generating at
least a million dollars of sales each month could qualify for this service.
Because this service has not been available, until recently, to small and medium
sized companies, businesses should see this a positive ability to secure
receivables financing, not as a problem with cash flow.
Companies
like Shell Oil, Georgia-Pacific, and IBM, to name just a few well-known
companies, factor many millions of dollars each year. Certainly, we don’t view
these companies as having “problems.” Factoring is most often used to expand
and take on larger projects; not just for cash flow or payroll. It is a sign of
growth. Many
companies already deal with Factors but do not know it. Often, invoices
directing payment to a P.O. Box is actually to a Factor. It may be surprising to
learn that many businesses have already been exposed to Receivables Financing. Not all factors are created equal!Most factoring companies specialize in certain industries or will not work in certain industries. Determining which factor to approach can be time consuming. FBI has a factoring company for almost any business. Apply Now and let us help you determine the factor that will benefit you and your industry. How
Factoring works As
invoices are paid to the business by a Factor, 15% to 35% of the
total amount the invoice is held in a “reserve”. This reserve is paid to the
business after deducting the factoring fee as soon as their client pays the
invoice and the funds from the invoice payment clear the bank. The
usual fees are 3 to 5 points for each 30-day period with smaller
increments in successive months. The fee schedule reflects the industry
conditions, the size of the advance and the credit-worthiness of the customer to
whom the invoice was issued. Lower fees are available for higher volume
commitments, shorter time periods and smaller advances. Although
some say that it looks like a 5% fee is 60% it is not (12 months x 5% or
60% a year.) For example: Borrow $100,000 from a
bank at 7%, interest is $7,000 for a year plus any bank fees. The loan for
$100,000 is still outstanding and due to lender. Factor $100,000 a
month with 5% fee. One-year fees are $60,000. However,
total amount of funds loaned is $1,200,000 (12 months X $100,000) and the fee is
still only 5% and there is no outstanding debt. If a loan for $1,200,000
at 7% were taken out, interest would have been $84,000 with the $1,200,000
principle still outstanding. (7%
simple interest & 5% fee are used for example only. All fees and
rates subject to current market conditions.) With
each transaction, whether an advance or a collection, you receive an account
statement detailing all invoices, checks received, fees, aging and the funds to
be disbursed. These statements are faxed to the business at the end of the
business day so they are always aware of any account activity. The
word “Factoring” is not used anywhere that the business’ customers would
see it. It is referred to as a “Credit Line” and a letter of introduction
and explanation can be on the business’ letterhead. If desired, the service
can be discussed with the customers before starting the service. A
credit line can be used much like a chequebook by managing the cash flow on a
weekly basis. Funds can be drawn as needed and as often as needed. If the
maximum advance is 75% of the invoice but only 35% is needed, then the
fees will be prorated exactly half of what they would have been had the full
advance been taken. If
cash is readily available to a business, they can take advantage of purchase
discounts offered by their vendors and suppliers. Many clients extract extra
discounts by offering to pay C.O.D. Also, sometimes a business can make a slight
increase in prices and also take advantage of purchase discounts. If they do
that, it can then sometimes offset any factoring fees paid and provide virtually
free use of the money. There
is no minimum monthly volume and no Term Contracts. The service can be stopped
any time the service is no longer needed or if they are not pleased with the
service. Burden of service is on the factor. The relationship is non-binding. If a customer objects, funding can be
stopped at any time. All of the business’ receivables or all of the
receivables from one client do not have to be funded. Receivables Financing is most often used for growth and communications
with the business’ customers mention only rapid growth or expansion as the
reason for using the service. Summary Any
negative perceptions should not prevent a business from using this valuable cash
flow tool. In reality, Receivable Financing is an established and powerful
financial tool that has been a part of the banking industry for hundreds of
years. To
start taking advantage of this valuable business tool, Apply
To FBI NOW! Within a
week, you could be taking advantage of YOUR valuable cash asset. Factoring page |