8. October 2012 10:03
Payroll funding can be one of the biggest financial obligations that your business faces. Depending on your size and your industry, payroll financing may be one of your biggest expenses alongside materials. But how do you cover it? And what can you do if your staff frequently changes? The answer may be a line of credit. There are three major types that offer the flexible kind of funding that works best for payroll.
Accounts Receivable Financing
A/R financing, also known as a ledgered line of credit, is a flexible option that works for a wide variety of businesses. Every invoice you issue is recorded and funding is issued based on that. This structure means that it's a highly adaptable form of credit, but it also means that it can exactly match your current needs. As you issue more invoices, you're going to need to spend more to finance them – and accounts receivable financing provides the funds you need.
Factoring offers flexible financing that functions very similarly to a line of credit but is not technically considered one. Under an invoice factoring agreement Crestmark structures your funding facility based on accounts receivable/invoices. The invoices are purchased at a discount to provide immediate availability of funds to your company.
Asset Based Lending
This form of line of credit is secured based on inventory, invoices, or a combination of the two. The amount available through a line of credit varies according to how much inventory is owned or how many invoices are issued. The main difference between asset-based lending and accounts receivable financing is how much funding is issued. With ABL, assets (including invoices) are reported in batches, whereas accounts receivable financing will involve submitting each invoice individually.
8. May 2012 04:57
There are a number of reasons why a company may not want to take a term loan. They may want to pledge personal collateral, find it difficult to obtain this more traditional form of financing, they may simply not want to accept the terms that are available, or they may simply prefer these non-traditional financing options as a way to meet their financing needs. Whatever your situation, if you're looking outside the term loan box, you should look at these potential solutions.
Accounts Receivable Financing
A/R financing is a flexible line of credit solution available to most businesses. This type of financing leverages the money you are due to receive from invoices you have sent to your customers. A/R financing helps bridge the gap between your cost of sales and when you get paid for your goods or services.
Asset Based Lending
This line of credit is secured by an asset that your business currently holds. Asset based lending is a line of credit, meaning that you can use as much or as little of your potential credit as you select up to the value of the collateral pledged. You can change it monthly, weekly, or even daily depending on your needs.
In this type of financing, a third party factor actually purchases your unpaid invoices. You receive a portion of the value upfront, with the rest of it being delivered, less an administrative fee, when your client makes good on the debt. Factoring may be traditional, where the factor fully purchases the invoice and assumes both the credit risk and responsibility for collection of the receivable. Or on a recourse basis where the receivable is sold back to the seller after a certain period of time elapses. Unlike other types of financing there are less restrictive covenants inherent in factoring transactions.
25. April 2012 06:35
Accounts receivable financing is one option for businesses whose working capital needs exceed what can be obtained through traditional term loans from conventional banks. Whether your enterprise is new, your funding demands unusual, or you're simply having trouble getting credit in a tight economy, accounts receivable financing can be a good choice. But what kind best suits your business? There are two main options: traditional A/R financing or discount financing.
Traditional, Non-Recourse Accounts Receivable Financing
Traditional A/R financing begins with your potential financier checking your customer's credit. This should happen before you invoice to determine approval. Once your client is approved, the financier (known in this case as the factor) will purchase the invoice from you. In this case, the factor actually assumes complete responsibility for the invoice because they now own it. That includes ensuring payment even if your customer is unable to pay.
Discount, Recourse Factoring
Discount factoring is similar to traditional accounts receivable financing. It too involves borrowing against unpaid invoices, but in this situation the factor does not actually purchase the accounts or assume liability for them. Advantages of this system include lower fees and in some cases faster turnaround and greater availability of funds.
Both of these options allow for flexibility and funding that might not otherwise be available. Both also involve your factor working directly with your client, a proven system that shortens the time between invoice and receipt of payment.
To learn more about accounts receivable financing, contact one of Crestmark's experts. We can help you understand the details and differences between discount/recourse and traditional/non-recourse factoring and select the right option for your business.
18. April 2012 12:22
Invoice factoring allows businesses to collect cash from invoices faster. In some cases, companies may even be able to recover funds from a transaction even if the buyer becomes unable to pay. The premise behind invoice factoring is that accounts receivable can actually be sold. The company that purchases your accounts receivable is known as a factor, hence the term invoice factoring.
There are two types of invoice factoring, The first, non-recourse, involves the complete sale of the invoices. In this situation, the company assumes all responsibilities related to the invoice. You receive cash immediately in exchange for this sale. One of the advantages of this option is that the factor may actually take on the risk of non-payment, meaning that you receive cash even if your client can never meet the bill.
Recourse factoring is the other type of invoice factoring. Also known as discount factoring, it provides much of the same financing options as non-recourse, typically at less of a cost. Both types of factoring require an exchange of information and discussion before approval. You will need to provide information about your top customers to the factor and provide a figure for how much funding you need from each.
One of the biggest benefits that applies to both non-recourse and recourse factoring is that they are flexible. You can finance as much or as little of your accounts receivable as permitted based on client credit and as needed for your business in its current state. This inherent adjustability is rare in term loans and more rigid financial instruments.
Crestmark is proud to provide invoice factoring for a variety of industries. If you would like to learn more about how this non-traditional financing technique can help you make payroll, fund an expansion, or just keep your business running smoothly day to day, our staff will be happy to talk with you.
28. March 2012 04:15
Even the healthiest of businesses can sometimes experience lean times. When your business is seasonal or just starting, the need for short-term working capital can be even greater. Often banks will require at least three years of operating performance before giving a loan to a startup company or if they do they require the pledge of the personal assets of the principals. In the case of seasonal busineses, the caps placed by banks don’t allow these business to grow inventory as needed to meet demand. In many of these situations, traditional loan-based financing can fall short. It just doesn't offer the flexibility required, and may not be available as quickly, or in the volume you require. However, loans aren't the only option, and in many cases they aren't even the best option. There are many other ways to get working capital.
Asset-based lending is a strong option for working capital in invoice-based businesses. The idea is simple: you provide an invoice at the time services are rendered, but you may not receive payment on the invoice until a later point. You turn over the full amount of the invoice in exchange for money now, providing an effective bridge for current expenses. There are many uses for this kind of financing, ranging from taking advantage of current opportunities to buy in bulk to using the funds to make payroll. Seasonal businesses often employ asset-based loans against inventory to build up inventory to meet seasonal demand.
Factoring has similarities to asset based lending, and can be an equally promising source of working capital. In factoring, a third party (known as a "factor") purchases the accounts receivable (or invoice) from the approved company that issued them. Essentially, you sell your unpaid invoices and receive a large percentage of the cash from that invoice immediately; shortly thereafter you will receive the remaining amount (less any managerial fees that were agreed upon in your contract). One of the most important elements of some forms of factoring is that the factor assumes responsibility for the potential of unpaid invoices, and often provides additional services such as credit and collection. This allows the client to focus on what they do best — selling.
Both asset-based lending and factoring can be good solutions for working capital. Crestmark business development officers can help you understand the nuances that separate them and determine what is best for your business. Feel free to contact us for more information.