As a small business owner, you will encounter the need for capital at various points in your business development. Understanding financial options available is a crucial business step to take, as the primary cause for small business failure is under capitalization. While you may not be having a cash crisis, you may simply be seeking the money to expand your business. If you are unable to turn to traditional financing, accounts receivable financing may be a sound option for you to consider.
What is Accounts Receivable Financing?
In its simplest terms, accounts receivable factoring is the selling of your outstanding receivables at a discount to a factoring company. Accounts receivable financing is also known as accounts receivable factoring or accounts receivable funding. In this transaction, the factoring company pays you a percentage of the accounts receivable up front, typically 75-80% of the total, with the remainder to be paid once the invoice has been paid. The factoring company will charge you a nominal fee for the transaction, but will handle the collections of your accounts receivables that you have sold to them. The fee that you will be charged will be based upon the factoring company that you select, the amount of the invoices that you sell and the duration of time that it takes for the invoice to be paid. Typically, the shorter the time it takes to have the invoice paid, the smaller the factoring fee. So, for companies that have clients who quickly pay their invoices, the fee could be as small as 1%.
The process of accounts receivable financing is quite simple. Your business will sell your accounts receivable, either all or a portion, to a factoring company in return for a discounted rate. The factoring company will generally wire you the funds the same day or the next day once they have received their proper paperwork, and then they will handle the collections of the invoices. Once the invoices have been paid, the remainder of the invoice, minus any applicable fees will be paid to your company directly. Most factoring companies will provide you with a consolidated monthly statement so that you can review the transactions and for your company’s record keeping.
Benefits of Accounts Receivable Financing
Pass off Collections: Outsourcing your accounts receivable management to another company can free up your previously dedicated accounts receivable resources to focus on other more productive activities such as selling. Once you sell your accounts receivables, the factoring company manages collection of the payment.
Free up Working Capital: Most small businesses have a need for additional working capital, yet have their assets tied up and are unable to qualify for additional financing. Accounts receivable factoring can provide your company with cash as quick as the same day for invoices submitted. This cash can then be used for your customary business expenses, to meet payroll or for business expansion needs.
Quick Financing: Accounts receivable factoring will not require a business plan, long applications, credit checks, tax statements or other financial information. Accounts receivable factoring is not considered to be a loan, so there is much less qualification work involved to establish a relationship with a factoring company. Also, the approval process can generally only take a few days instead of a few weeks when compared to traditional financing.
Assistance with Slow Paying Customers: One of the challenges that many small businesses face when trying to grow is that many of the larger customers that they are looking to partner with have slow paying accounts receivable policies. For example, many larger retailers have a standard payment policy of 90-120 days. If it requires a substantial amount of capital to fulfill their product orders, your small business could be placed in a cash crunch simply by accepting a great new, large retail customer. Accounts receivable factoring allows you to sell this invoice for a discount in order to capture the capital that you had to spend in order to fulfill the order.
Selecting Factoring: Many factoring companies will allow you to pick and choose which invoices you send to them to factor. This can mean a substantial cost savings to your business and will allow you to factor only the larger invoices, or the ones that you know in advance are going to be paid in the mid term, giving you the cash that you need and helping to justify the fees associated with factoring.
Once you are ready to consider factoring as an option for your accounts receivable, ask the following questions of the companies that you are interviewing:
* Is the money needed necessary for your company’s survival? Or, are you looking to take advantage of a business opportunity?
* How does this financing strategy match with your business plan? If you so not already have an established business plan in place, put one together prior to seeking factoring financing. Having a solid business plan will help you to make choices for your business that are in alignment with all of your business purposes and goals.
* Is your business in need of expansion capital? Have you explored other more traditional methods of financing?
* Have you reviewed the real cost of factoring your accounts receivable? For example, what percentage of your current repeating customers pay on time, how many pay late and do you traditionally have any issues with customers who don’t pay?
* Have you researched multiple factoring companies to determine their rates and services before selecting one?
Getting financing can often mean the difference between a company closing its doors and staying open.
While it can do more than just prevent bankruptcy, many business owners are not aware of the process or its benefits. Spend the necessary time to investigate the companies you are working with, inspect the contracts prior to signing, and work to negotiate discounted rates for your business.
1. Low Doc Loans stands for low documentation loans. These are typically used to purchase property and to be accepted for this type of loan a consumer does not need the same level of documentary proof as required for standard bank loans. Most banks require verification of income, assets and liabilities, and want to see pay slips and tax returns, before they will give the go ahead on a home loan.
2. The low doc loan market accounts for around 5 per cent of Australian home loans and has grown up to service the needs of self employed workers. It also helps people who don’t lodge full tax returns, and people who find it hard to provide proof of earnings to get a home loan. This form of credit approval is known as self verification. Consumers on low incomes and those with poor credit ratings also use low doc loans to purchase homes.
3. This type of loan is characterised by higher interest rates, as lenders charge for the increased risk that comes with not checking pay slips and tax returns. The level of risk lenders take in not checking documents is illustrated by the default rates on low doc loans, which are about 3 times higher than mainstream loans.
4. Other features of low doc loans can include a requirement for extra security, such as a car or other asset, as well as the need to provide a larger deposit towards the cost of a property. Typically low doc customers have to take out mortgage insurance, which often protects the lender rather than the consumer. Fees and charges on this type of credit product are normally higher as well.
5. In the past, low doc loans were provided by non bank lenders, but in recent years the market has become increasingly competitive and mainstream lenders and banks also compete for low doc custom. Long gone are the days when a bank would tell a customer to go away and get a bigger deposit.
6. Predatory lenders have given low doc loans a bad name. Rogue lenders and brokers prey on hard pressed home owners, typically with the intention of enriching themselves at the expense of their victim by setting up unaffordable loans and charging excessive fees.
7. Australian Tax Office officials swooped on a large number of low doc loan customers after they conducted an inquiry into tax evasion. They found that about half of a study sample of 350 people with low doc loans, across 8 different lenders had not lodged tax returns. On average these people were three years outstanding with their returns. Tax office officials took action against this group, making them lodge tax accounts, with 8 finding themselves convicted for tax offences.
8. The future of low doc loans has been thrown into question by plans to reform the way brokers operate. The Australian government’s draft National Finance Broking Bill has put forward plans to make brokers responsible for ensuring consumers have the means to repay their debts. Critics of the draft bill believe this could kill off low doc and no doc loans, as it would be very hard for brokers to meet their requirements if the bill became law.
9. Commentators have predicted Australian home owners with low doc loans could suffer higher repayments as a result of the credit crunch. The credit crunch has left consumers with a poor credit rating vulnerable to higher credit costs.
It may be the greatest rewards program ever—the travel rewards. Just think about it. These travel rewards credit cards allow you to travel in style after you’ve earned enough points. And the best thing about many of these travel rewards credit cards is that it’s double as easy to earn enough points to travel.
The reason is pretty self-explanatory. For one thing, many of these travel rewards credit cards are put out by the major airline companies. They offer you a program where you can earn premium points every time you use their card to buy tickets on one of their planes. Say they give you two points for every dollar spent on one of their tickets. That’s bonus number one.
Then, these cards usually give you regular bonus points—say, one point for every dollar spent—anytime you make a purchase on any other item, like a night out at a restaurant, a new recliner for the living room, or just a soda and bag of chips at the convenience store. That’s bonus number two.
The third bonus is where it gets really good. That’s because all of these points you’re accumulating usually go straight into your frequent flyer program at the airline. And remember, anytime you fly on one of the company’s planes, the miles you fly are added as points to your frequent flyers account too. That means, essentially, you’re getting double the points every time you use your card to buy a plane ticket for the airline, and then get on the plane.
These cards have become so popular that even online travel sites are getting into the travel rewards credit card business. Their deals may seem a little sweeter if you frequently shop online for the best flight deal and don’t necessarily fly the same airline every time. Some of these new cards also have much lower bars when it comes to earning free stuff. In other words, it may take one-third, or even one-quarter, fewer earned points before you can get free trips or steep discounts.
You best bet is to take advantage of the heated travel rewards credit card business out there, and shop around. Let the credit card companies come to you with the great deals, while you do research on your own for other competing deals. Shop until you find the travel card that will get you the most flights for your spent buck.
The parent plus loan is part of the Federal Direct Student Loan program. This type of financial aid is for parents, who have students attending a qualified post-secondary institution and are obtaining their first undergraduate degree.
In order for parents to apply for the Parent Loan, they must complete the FAFSA, which stands for Free Application for Federal Student Aid. This application takes into consideration the parents financial status and how much they are expected to contribute to their child’s education.
Parents who borrow a Parent Loan are held responsible to repay back this federal student loan in full. The student is in no way held responsible to pay back any part of the parent loan. It is up to the parent to make sure payments are on time and for the minimum payment. If parents are unable to make monthly payments then they run the risk of impacting their credit score.
Parent Plus Loans offer very competitive interest rates for parents looking for additional funding for their child’s education. Current Parent Loan interest rates are 3.28% variable rate for all new loans established between 2009-2010. Parents are required to pay a fee of up to 4% of the loan, deducted proportionately each time a loan disbursement is made. The entire fee goes to the government to help reduce the cost of Federal Direct Loans.
Parent loans are another option for students and parents if they have financial difficulties paying for a post-secondary education.
To learn more about the Parent Plus Loan and how you can benefit from this type of financial aid, visit
http://www.ParentLoan.org
http://www.ParentPlusLoanApplication.com
http://www.PlusLoanConsolidation.com
The key to any successful startup is maintaining cash flow. Of course, if you are new, getting startup funding for your company can be difficult because….. you and/or your new business and have no track record. Bit of a catch 22 situation there.
However, something you may want to think about is unsecured loans are loans that do not require any cash down, home equity, personal assets, or business assets of any kind. Obviously, unsecured lending is a valuable option for startups which have property or assets they want to protect. Should you default on the loan and unsecured versus secured, your property and/or assets will be protected from any liens…. now while these are attractive, can you really find such an animal?
Without a doubt, an unsecured business line of credit is probably the most valuable financial tool that a small business owner can possess. Essentially, the credit line works like a huge credit card but at times can have added benefits like check writing and lower interest rates as compared to most business credit cards.
An unsecured line of credit loan is extended by banks or other types of lenders. The amount of the credit line offered is based solely on the credit worthiness of the company and does not require a personal guarantee. Even though unsecured business lines of credit have been in existence for many years, it still comes as a surprise to many small business owners that the program exists or that their company can even qualify.
One typical and smart question that you should ask yourself is why would banks make unsecured line of credit loans? The answer is simple. Banks and other lenders are already making unsecured lines of credit to you as an individual. Why shouldn’t they offer a commercial program? So in reality, it is not nearly as big a stretch as most people think.
If you think about it, almost every American carries at least one Visa, MasterCard or American Express credit card in their wallet or purse. I know in my wallet, with multiple businesses + personal, I carry 8 credit cards at a time. In this case, then one way to think is that the total of all the credit limits on all the cards is your total line of credit. Now, we don’t advocate going out and rapidly blowing that but change a way to change your perspective on things.
The credit cards and the limits on each are issued to you based on your credit worthiness as an individual and are totally unsecured. Therefore, it makes good business sense to offer an unsecured credit line program to corporations. In fact, corporations could be viewed as more stable than an individual and are more likely to use the lines more frequently.
When you are a startup, of course this gets a little tricky and requires some unique techniques above and beyond the scope of this article. But, if you have a startup and are looking for capital credit lines, you should really look down this path. Fortunately, just like your personal credit cards, you only pay on what you use and for new business, we suggest you play it very conservative. However, when you get your credit line, it gives your business access to capital when you need it.