What is Factoring & AMP; How Can I Use It?

What is Factoring? Factoring is loaning money to a company against their accounts receivables. Company’s that are not financially strong or just are in a Cash Crunch. What is reviewed? The borrowers PFS, Equity in company, cash flow, how high leveraged he is, the debt to cash flow ratio, Monthly sells, What type of product do the sell and who to and Amount of receivables outstanding. They are looking at the customer and how strong that money coming in is. If the customer is credit worthy, and is their an income trail of money coming in from the client. In other words do they have some good contracts that pay them consistently. When is factoring the option? A. Many times a company may pick up a new account or increase production to an account. They will need to get cash to pay for the needed inventory, payroll, supplies, etc… Many company’s hurt during payroll time, because they are not paid by their clients for 30days+ Factoring can help the business owner get paid for these contracts before the payment date. B. Business owners turn to their bank turn for credit lines. If these These clients are turned down from the bank due to low net worth or taxes showing a large loss for example. In this case Factoring Is good option. The bank will not look at the current contracts or new contracts made, but Factoring Companies will. C. Maybe the borrower has an existing credit line with the bank can not go high enough. Factoring can pay off that line and add to it. D. Also if the borrower has a credit line with their supplier but they will not increase their line because they have not been in business long enough. *Great idea for the client: Factoring cost 2% and if they client gets a 2% discount for paying early then factoring pays for itself. They would be borrowing money for free. If they negotiate well they can get a 3% discount and make 1% using the factoring company. E. (This is my favorite) If you have a Commercial borrower looking to refi their business to get cash out, and are denied because the property is not able to be refinanced. Factoring becomes an awesome option. *Another plus in factoring is pay out to you. Most factoring Lenders will pay a monthly fee ( like a Maint. fee or Activity fee ) to you as long as the client continues to use their services. Many times a company will continue this service for a long period of time because spending 10% or so is worth getting their money early. At the end of the year they add this to the loss column and write it off. A Good Example of the above.I have a client that is a tile company. They just landed a big contract with a major Nationwide chain that will be selling their tile. The downside is that immediately they need to stock up on all of this tile that that will be for sell. This is a huge order. But when the new contract comes calling they can’t say ok, I’ll order it and expect it in 30 days. Their product needs to be available then and there. So that means to stock up on this they will need to come out of pocket and wait for the Tile to be sold and then they need to wait to be paid. This can put a major hault on cash flow for other projects, jobs, and or daily operation. As you can already tell Factoring was perfect. Once the first order was in my Purchase order contract or Factoring facility was ready to go and in play. Now they will not have to wait for the 30-60 day payment I can supply them with cash now. As this company grows, and their business grows, as does the orders and my check back from the facility I put in place.