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Atricle Dump - Factoring Financing: How to Grow Your Business Without Debt or Loans
The retention of highly skilled knowledge workers is one of the major challenges today for all organizatons. Knowledge workers are those whose work primarily requires the use of “mental power rather than muscle power."For example, they are the developers and caretakers of the computer networks that keep your business running. They are also the producers of the dazzling graphics presentations that help your sales force land new customers. And they are even the account reps who look into data bases to decide whether to grant a bank loan request or explain investment options to potential customers.Knowledge workers are therefore extremely valuable because they keep the factories churning, the customers satisfied, the new products coming out the door---they are the backbone of your company. So how do you keep these highly skilled and valuable workers from jumping ship---from going to a competitor? Here are four wa
This line of working capital strengthened the company’s financial position and bank account, enabling Jane to pay for new employees to service new contracts. Jane also decided to use the extra capital to pay her vendors early, obtaining quick payment discounts and helping to reduce the cost of factoring.
BSP Inc. customers pay their invoices within 30 days of receipt. The discount (factoring fee) for these invoices is 6%. Every time an invoice is paid, the factor rebates BSP Inc. the remaining 30% that was not advanced less the factoring fee. This means that once the transaction is completed, the factor rebates 24% (30% - 6%) to BSP Inc.
Thanks to the factoring line of working capital, Jane was also to secure an additional $120,000 worth of business, bringing her annual revenues to $420,000. The following table shows BSP Inc.’s financial position a year after using factoring.
Business Services and Products (with factoring)
Existing Sales:...................................$300,000
New Sales:.......................................$120,000 (factored)
Total Sales:......................................$420,000
Variable Costs (60% of Sales):.............$252,000
Fixed Costs (Rent, phone
This time of year we hear a lot from our customers about their focus on renewing accounts. This focus takes different forms based on where the client is vis-?-vis their annual revenue goals (for simplicity, let’s assume that all, not most, fiscal years line up with the calendar).For those who are fortunate, and are exceeding their goals, this focus is on how to maximize relationships, and use renewals to take things to the next levels. In fact some VP’s we speak with are closely looking at their clients and actively “firing” their least productive accounts. This could be based on margins, high demand on resources and maintenance and other reasons, all with a view of creating capacity to help their sales reps focus on those prospects and clients that will deliver mutual benefit to the company and the reps’ success.For others the reality is very different, renewal of key accounts is a double whammy. Some, like one
Accounts receivable financing, also known as invoice factoring, is a powerful financial tool that has fueled the growth and success of a number of companies. Factoring enables companies to capitalize on their unpaid receivables by selling them to a factoring company for immediate payment. With factoring, companies immediately get paid for their invoiced work from the factoring finance company, while the factoring company waits to be paid by the customers. Factoring strengthens a business’ cash position by shortening the time to get invoices paid to 48 hours and providing the needed funds to meet current expenses and target new opportunities.
Invoice Factoring Benefits
As opposed to loans and lines of credit that require that the client have tangible assets and strong financials, factoring relies more heavily on the financial strength of the clients’ customer. This is a critical feature, since many new and small businesses do not meet the financial criteria of traditional lending institutions. However, many small businesses have a roster of financially strong customers that can be leveraged. Factoring empowers businesses to capitalize on their customer list, and provides them with a tool to transform outstanding receivables into immediate cash, without generating debt. Since Factoring is not a loan, it is an ideal financial product for the following:
o New and emerging businesses including small and home businesses, consultants and solo-preneurs.
o Businesses with financially strong customers
o Businesses that are preparing to grow significantly
o Business with intangible assets (e.g. consultants)
o Businesses that do not want to take a loan
An additional benefit of factoring is that the factor usually assumes part of the clients’ credit risk for the customer. This means that if the customer becomes financially insolvent due to bankruptcy and does not pay the invoice, the factor will assume the loss. This is a critical service for small companies who may not be able to afford the bankruptcy of a customer.
Costs
The costs of a factoring transaction – also known as the discount - vary based on a number of variables such as the financial strength of the customer and the amount being factored. Generally, the discount is a percentage of the invoice’s face value that increases with time until the invoice gets paid. Small businesses, those that have between $20,000 and $300,000 in yearly revenues, can expect to pay a discount rate of about 2% for every ten (10) days that the invoice remains unpaid. Businesses with factorable revenues in excess of $300,000 can expect lower discount rates.
Factoring at Work: Business Services and Products, Inc. Case Study
Business Services and Products, Inc. (BSP, Inc.) is a small fictional company, which provides business consulting and equipment to local companies. It has $300,000 of annual revenues and during the past year BSP Inc. has enjoyed significant sales growth. Although most business owners would be very happy to manage such a company, Jane Sullivan, BSP Inc’s president, is very worried about her company’s financial position.
Most of BSP Inc.’s customers are large companies with a good reputation for always paying their invoices. However they always take between 30 to 45 days to pay them. BSP Inc., however, needs to pay their employees every two weeks and their vendors every four weeks. This discrepancy between the time that customers pay their bills and the time BSP Inc. needs to pay their employees and vendors has created cash flow problems in the past.
Furthermore, these cash flow problems have already caused Jane to delay payroll twice this year and have placed her trade (vendor) credit in jeopardy multiple times. This has also caused her to pass on a number of significant business opportunities because she was unsure of the company’s financial ability to hire and pay for additional staffers. Unfortunately, BSP Inc. did not have a large enough financial cushion in the bank to afford paying employees while waiting for 45 days new clients to pay their invoices.
The following table provides an overview of BSP, Inc’s current financial position.
Business Services and Products, Inc (without financing)
Yearly sales:................................$300,000
Lost new sales opportunities:..........Unknown
Total Sales:.................................$300,000
Variable Costs(60% of Sales):.........$180,000
Fixed Costs(Rent, phones, etc):........$20,000
Total Costs:.................................$200,000
Profit (Sales – Costs):....................$100,000
Although the company’s prospects appear great, Jane may have to stall her company’s growth until she builds a large enough cash cushion at the bank to finance her company’s growth.
After careful consideration, Jane decided that a factoring line of working capital could help strengthen her company’s financial position. Furthermore, factoring her invoices would enable BSP Inc. to take on new customers and continue growing, knowing that she could capitalize on her slow paying customers. BSP Inc.’s financing agreement will provide the company with an advance of 70% of her invoiced services. This means that the company can get 70% of the face value of the factored invoices within 24 to 48 hours of submitting them to the factor. The remaining 30% of the funds, less the factoring fees, will be quickly rebated as soon as the customer pays their invoice.
This line of working capital strengthened the company’s financial position and bank account, enabling Jane to pay for new employees to service new contracts. Jane also decided to use the extra capital to pay her vendors early, obtaining quick payment discounts and helping to reduce the cost of factoring.
BSP Inc. customers pay their invoices within 30 days of receipt. The discount (factoring fee) for these invoices is 6%. Every time an invoice is paid, the factor rebates BSP Inc. the remaining 30% that was not advanced less the factoring fee. This means that once the transaction is completed, the factor rebates 24% (30% - 6%) to BSP Inc.
Thanks to the factoring line of working capital, Jane was also to secure an additional $120,000 worth of business, bringing her annual revenues to $420,000. The following table shows BSP Inc.’s financial position a year after using factoring.
Business Services and Products (with factoring)
Existing Sales:...................................$300,000
New Sales:.......................................$120,000 (factored)
Total Sales:......................................$420,000
Variable Costs (60% of Sales):.............$252,000
Fixed Costs (Rent, phones
While more people are finding employment, more employed workers are discontent and experiencing frustration. In most cases it can be boiled down to four factors: feeling undervalued, unappreciated and powerless, and world events.You can possess a tremendous amount of creativity and skill, but if you aren’t given opportunities to utilize and express these qualities to their fullest, frustration can quickly set in. For most employees, there is a huge differential between what they can bring to the table and the responsibilities they have been given.It’s rare that you hear of someone working a forty-hour week. These days, fifty and sixty-hour weeks have become commonplace. What hasn’t changed is your compensation. Working a sixty-hour week yet getting paid for forty can feel out of balance. It’s certainly not conducive to feeling appreciated.If you are a manager, this may sound familiar: You are given
o New and emerging businesses including small and home businesses, consultants and solo-preneurs.
o Businesses with financially strong customers
o Businesses that are preparing to grow significantly
o Business with intangible assets (e.g. consultants)
o Businesses that do not want to take a loan
An additional benefit of factoring is that the factor usually assumes part of the clients’ credit risk for the customer. This means that if the customer becomes financially insolvent due to bankruptcy and does not pay the invoice, the factor will assume the loss. This is a critical service for small companies who may not be able to afford the bankruptcy of a customer.
Costs
The costs of a factoring transaction – also known as the discount - vary based on a number of variables such as the financial strength of the customer and the amount being factored. Generally, the discount is a percentage of the invoice’s face value that increases with time until the invoice gets paid. Small businesses, those that have between $20,000 and $300,000 in yearly revenues, can expect to pay a discount rate of about 2% for every ten (10) days that the invoice remains unpaid. Businesses with factorable revenues in excess of $300,000 can expect lower discount rates.
Factoring at Work: Business Services and Products, Inc. Case Study
Business Services and Products, Inc. (BSP, Inc.) is a small fictional company, which provides business consulting and equipment to local companies. It has $300,000 of annual revenues and during the past year BSP Inc. has enjoyed significant sales growth. Although most business owners would be very happy to manage such a company, Jane Sullivan, BSP Inc’s president, is very worried about her company’s financial position.
Most of BSP Inc.’s customers are large companies with a good reputation for always paying their invoices. However they always take between 30 to 45 days to pay them. BSP Inc., however, needs to pay their employees every two weeks and their vendors every four weeks. This discrepancy between the time that customers pay their bills and the time BSP Inc. needs to pay their employees and vendors has created cash flow problems in the past.
Furthermore, these cash flow problems have already caused Jane to delay payroll twice this year and have placed her trade (vendor) credit in jeopardy multiple times. This has also caused her to pass on a number of significant business opportunities because she was unsure of the company’s financial ability to hire and pay for additional staffers. Unfortunately, BSP Inc. did not have a large enough financial cushion in the bank to afford paying employees while waiting for 45 days new clients to pay their invoices.
The following table provides an overview of BSP, Inc’s current financial position.
Business Services and Products, Inc (without financing)
Yearly sales:................................$300,000
Lost new sales opportunities:..........Unknown
Total Sales:.................................$300,000
Variable Costs(60% of Sales):.........$180,000
Fixed Costs(Rent, phones, etc):........$20,000
Total Costs:.................................$200,000
Profit (Sales – Costs):....................$100,000
Although the company’s prospects appear great, Jane may have to stall her company’s growth until she builds a large enough cash cushion at the bank to finance her company’s growth.
After careful consideration, Jane decided that a factoring line of working capital could help strengthen her company’s financial position. Furthermore, factoring her invoices would enable BSP Inc. to take on new customers and continue growing, knowing that she could capitalize on her slow paying customers. BSP Inc.’s financing agreement will provide the company with an advance of 70% of her invoiced services. This means that the company can get 70% of the face value of the factored invoices within 24 to 48 hours of submitting them to the factor. The remaining 30% of the funds, less the factoring fees, will be quickly rebated as soon as the customer pays their invoice.
This line of working capital strengthened the company’s financial position and bank account, enabling Jane to pay for new employees to service new contracts. Jane also decided to use the extra capital to pay her vendors early, obtaining quick payment discounts and helping to reduce the cost of factoring.
BSP Inc. customers pay their invoices within 30 days of receipt. The discount (factoring fee) for these invoices is 6%. Every time an invoice is paid, the factor rebates BSP Inc. the remaining 30% that was not advanced less the factoring fee. This means that once the transaction is completed, the factor rebates 24% (30% - 6%) to BSP Inc.
Thanks to the factoring line of working capital, Jane was also to secure an additional $120,000 worth of business, bringing her annual revenues to $420,000. The following table shows BSP Inc.’s financial position a year after using factoring.
Business Services and Products (with factoring)
Existing Sales:...................................$300,000
New Sales:.......................................$120,000 (factored)
Total Sales:......................................$420,000
Variable Costs (60% of Sales):.............$252,000
Fixed Costs (Rent, phone
Traditionally, salespeople look for something in the office that begs a question. For example, "Is that your sailfish on the wall?"How many times do you think that prospect has been asked that question? How often do you think the prospect hears a salesperson ask about the family portrait on the desk, last night's baseball game, etc.? The prospect anticipates these questions. Verbal skill is actually a very small part of the rapport quotient. Non-verbal communication goes a long way toward establishing rapport with your prospect.This may seem to suggest the need to learn to read body language. But it's not as simple as interpreting (guessing) what your prospect's body language is saying. The fact is, people feel comfortable with people who are like themselves! So, as a professional salesperson, you can use a technique called mirroring to match your prospect's body language so that your prospect relaxes and feels c
Business Services and Products, Inc. (BSP, Inc.) is a small fictional company, which provides business consulting and equipment to local companies. It has $300,000 of annual revenues and during the past year BSP Inc. has enjoyed significant sales growth. Although most business owners would be very happy to manage such a company, Jane Sullivan, BSP Inc’s president, is very worried about her company’s financial position.
Most of BSP Inc.’s customers are large companies with a good reputation for always paying their invoices. However they always take between 30 to 45 days to pay them. BSP Inc., however, needs to pay their employees every two weeks and their vendors every four weeks. This discrepancy between the time that customers pay their bills and the time BSP Inc. needs to pay their employees and vendors has created cash flow problems in the past.
Furthermore, these cash flow problems have already caused Jane to delay payroll twice this year and have placed her trade (vendor) credit in jeopardy multiple times. This has also caused her to pass on a number of significant business opportunities because she was unsure of the company’s financial ability to hire and pay for additional staffers. Unfortunately, BSP Inc. did not have a large enough financial cushion in the bank to afford paying employees while waiting for 45 days new clients to pay their invoices.
The following table provides an overview of BSP, Inc’s current financial position.
Business Services and Products, Inc (without financing)
Yearly sales:................................$300,000
Lost new sales opportunities:..........Unknown
Total Sales:.................................$300,000
Variable Costs(60% of Sales):.........$180,000
Fixed Costs(Rent, phones, etc):........$20,000
Total Costs:.................................$200,000
Profit (Sales – Costs):....................$100,000
Although the company’s prospects appear great, Jane may have to stall her company’s growth until she builds a large enough cash cushion at the bank to finance her company’s growth.
After careful consideration, Jane decided that a factoring line of working capital could help strengthen her company’s financial position. Furthermore, factoring her invoices would enable BSP Inc. to take on new customers and continue growing, knowing that she could capitalize on her slow paying customers. BSP Inc.’s financing agreement will provide the company with an advance of 70% of her invoiced services. This means that the company can get 70% of the face value of the factored invoices within 24 to 48 hours of submitting them to the factor. The remaining 30% of the funds, less the factoring fees, will be quickly rebated as soon as the customer pays their invoice.
This line of working capital strengthened the company’s financial position and bank account, enabling Jane to pay for new employees to service new contracts. Jane also decided to use the extra capital to pay her vendors early, obtaining quick payment discounts and helping to reduce the cost of factoring.
BSP Inc. customers pay their invoices within 30 days of receipt. The discount (factoring fee) for these invoices is 6%. Every time an invoice is paid, the factor rebates BSP Inc. the remaining 30% that was not advanced less the factoring fee. This means that once the transaction is completed, the factor rebates 24% (30% - 6%) to BSP Inc.
Thanks to the factoring line of working capital, Jane was also to secure an additional $120,000 worth of business, bringing her annual revenues to $420,000. The following table shows BSP Inc.’s financial position a year after using factoring.
Business Services and Products (with factoring)
Existing Sales:...................................$300,000
New Sales:.......................................$120,000 (factored)
Total Sales:......................................$420,000
Variable Costs (60% of Sales):.............$252,000
Fixed Costs (Rent, phone
Point of Sale marketing is the economic process by which goods and services are exchanged between the producer and the consumer and their values determined in terms of money prices. Much of marketing is concerned with the problem of profitably disposing of what is produced.Marketing originates with the recognition of a need on the part of a consumer. Marketing terminates with the satisfaction of that need by the delivery of a usable product at the right time, at the right place, and at an acceptable price. There are five distinct concepts related to Point of Sale marketing. First is the exchange concept, which, as the very name indicates, holds that the exchange of a product between the seller and the buyer is the central idea of marketing.While exchange does form a significant part of marketing, to view marketing as a mere exchange process would amount to a gross undermining of the essence of marketing. Exchange
The following table provides an overview of BSP, Inc’s current financial position.
Business Services and Products, Inc (without financing)
Yearly sales:................................$300,000
Lost new sales opportunities:..........Unknown
Total Sales:.................................$300,000
Variable Costs(60% of Sales):.........$180,000
Fixed Costs(Rent, phones, etc):........$20,000
Total Costs:.................................$200,000
Profit (Sales – Costs):....................$100,000
Although the company’s prospects appear great, Jane may have to stall her company’s growth until she builds a large enough cash cushion at the bank to finance her company’s growth.
After careful consideration, Jane decided that a factoring line of working capital could help strengthen her company’s financial position. Furthermore, factoring her invoices would enable BSP Inc. to take on new customers and continue growing, knowing that she could capitalize on her slow paying customers. BSP Inc.’s financing agreement will provide the company with an advance of 70% of her invoiced services. This means that the company can get 70% of the face value of the factored invoices within 24 to 48 hours of submitting them to the factor. The remaining 30% of the funds, less the factoring fees, will be quickly rebated as soon as the customer pays their invoice.
This line of working capital strengthened the company’s financial position and bank account, enabling Jane to pay for new employees to service new contracts. Jane also decided to use the extra capital to pay her vendors early, obtaining quick payment discounts and helping to reduce the cost of factoring.
BSP Inc. customers pay their invoices within 30 days of receipt. The discount (factoring fee) for these invoices is 6%. Every time an invoice is paid, the factor rebates BSP Inc. the remaining 30% that was not advanced less the factoring fee. This means that once the transaction is completed, the factor rebates 24% (30% - 6%) to BSP Inc.
Thanks to the factoring line of working capital, Jane was also to secure an additional $120,000 worth of business, bringing her annual revenues to $420,000. The following table shows BSP Inc.’s financial position a year after using factoring.
Business Services and Products (with factoring)
Existing Sales:...................................$300,000
New Sales:.......................................$120,000 (factored)
Total Sales:......................................$420,000
Variable Costs (60% of Sales):.............$252,000
Fixed Costs (Rent, phone
Curt and Justin were lifelong fishing buddies. Now, in their retirement, they had together taken up the art of do-it-yourself home-improvers. Curt decided to tackle wallpapering his living room. When he finished the job, he proudly called his friend over to see his handiwork. Justin was very impressed. In fact, he liked it so much, he asked his buddy if he would mind if he got the same wallpaper for his living room. Their homes were practically identical in size and layout. Curt thought that was a great idea. So Justin asked him how many rolls of wallpaper he bought for the job. Seven was the reply.Justin went right to work and when he finished, called his buddy over to his house. “Ah, man, that looks really good”, said Curt. Then Justin said to his friend: “But you know, Curt, it’s a funny thing; our living rooms are the same size, but I had two rolls of wallpaper left over! How come that?” To which Curt replied: “You,
This line of working capital strengthened the company’s financial position and bank account, enabling Jane to pay for new employees to service new contracts. Jane also decided to use the extra capital to pay her vendors early, obtaining quick payment discounts and helping to reduce the cost of factoring.
BSP Inc. customers pay their invoices within 30 days of receipt. The discount (factoring fee) for these invoices is 6%. Every time an invoice is paid, the factor rebates BSP Inc. the remaining 30% that was not advanced less the factoring fee. This means that once the transaction is completed, the factor rebates 24% (30% - 6%) to BSP Inc.
Thanks to the factoring line of working capital, Jane was also to secure an additional $120,000 worth of business, bringing her annual revenues to $420,000. The following table shows BSP Inc.’s financial position a year after using factoring.
Business Services and Products (with factoring)
Existing Sales:...................................$300,000
New Sales:.......................................$120,000 (factored)
Total Sales:......................................$420,000
Variable Costs (60% of Sales):.............$252,000
Fixed Costs (Rent, phones, etc.):...........$20,000
Cost of Factoring (6% of $120,000):.........$7,200
Total Costs:......................................$279,200
Net Profit (Sales – Costs):...................$140,800
As can be seen from the above table, factoring helped BSP Inc. increase profits substantially from $100,000 to $140,800 - a 40% increase. It placed BSP Inc. on a more stable financial footing, priming it for growth. Furthermore, the cost impact of factoring on the bottom line was minimal, as it was easily absorbed by the additional business, showing that factoring was paid for directly by the growth.
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