Staying Afloat When Big Clients Delay Payment

by Crestmark 25. July 2012 10:49

As the economy has continued to adjust, companies are seeking ways to save money. One method they've chosen involves delaying payments to their (often smaller) suppliers for as long as they can. Sometimes it’s by asking for extended dating. Other times it’s by involuntarily stretching their payments. This delay of payment can create major problems for these smaller companies because they rely on payment to finance their upcoming work. If this situation describes your company, you need short term working capital to keep your business on track.

When this happens, the majority of your capital is essentially in limbo. You've already provided the goods or services to your client, but they're delaying payment – sometimes for months. This puts you in a tough position. Big banks aren't likely to want to get involved in loans as small as what you need, and term loans aren't the best solution for this type of situation anyway. What you need is a mechanism to smooth out the peaks and valleys of your cash needs. What you want is a line of credit, but one that's based on your outstanding unpaid invoices to your clients.

Invoice factoring is the solution for this exact situation. Invoice factoring allows your company to borrow against your clients' unpaid invoices. It provides immediate access to the money you're going to receive in the future. Because of the nature of this borrowing, it also means that you don't have to be worried about your credit. This short term working capital is secured against your client's credit rather than your own, which takes a lot of the burden off of you.

In this market, small business owners and suppliers are feeling the squeeze. Crestmark can help you get the funding you need by facilitating borrowing against your future receipts, essentially negating the payment gap and providing those funds long before your client pays. 

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Discount Vs. Traditional Accounts Receivable Financing

by Crestmark 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.   

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Invoice Factoring: A Short Introduction

by Crestmark 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. 

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Last Resort Financing?

by Michelle 4. June 2009 04:22

There has long been a misconception that companies who use factoring are dangling one foot over the abyss of financial ruin.  This perception is untrue and often the result of rumor and ignorance of what factoring really is and how thousands of business owners benefit from this type of financing.  

 

• Do business owners turn to factoring when they have experienced a downturn?

 

• Is factoring a good option for companies who have been turned down for a more ‘traditional’ line of credit?

 

The answer to both of these questions is, yes.  So, while using factoring to help a business owner take control of their cash flow and firm up their balance sheet to get them through a rough patch; it can also be said with a good measure of veracity that factoring can also assist a strong business grow and keep up with increased demand.

 

 

Many business owners turn to accounts receivable factoring because their cash flow is inconsistent.  A business may have a relatively small cash flow for part of the year, and when they are in their peak business cycle, their cash flow increases significantly. 

 

By factoring their invoices business managers and owners control this cash flow cycle.  They find that rather than being reactive to the ebb and flow of their cash flow, they can make their receivables work for them.  It becomes a much easier and less stressful event to say ‘yes’ to new customers or larger orders once business owners are confident they are not going to be strangled by tight cash flow.

 

Used correctly, factoring is a very effective tool for a variety of situations.

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What Will My Customers Think?

by Michelle 4. June 2009 04:17

Almost to the client we are asked this question.  Understandably this is a common concern of most new clients. 

First, lets understand that as discussed in my previous blog about  factoring,  it is not a black mark for a business.  In fact it is very normal for a business to have a line of credit.  Factoring is little more than a line of credit which utilizes accounts receivable as collateral.  Having a factoring line in place can help to put your business on a much stronger footing than your competitors.  You have the advantage of being able to positively manage your cash flow.

You might be surprised to find out from your customers that some of them are already familiar with factoring and may even be having some of their invoices from other vendors factored.

What do you tell your customers?

Tell them due to growth and to keep up with your cash flow you have decided to factor your invoices.  This is a positive step for your business and will allow you to continue providing your customers with the great service they have come to expect.  Your customers will continue to have the same level of contact with you that they have always had.

By the way, this is also a benefit to your customers as it allows them the luxury of paying on terms.  You’re not the bank…we are!  So, let the factoring company worry about when your customers are going to pay your invoices.

Communicating proactively and positively with your customers will go a long way in making factoring a smooth transition.

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