Can you answer Gliu’s question about Factoring?:

I need to know the actual norms that regulate the use of CASH FLOW in US(FASB)!!

Well.. I found about US GAAP, FASB (with differnt numbers)
Please help! I’m confused!

Get a Money-making Website

What is Invoice Factoring?

Invoice factoring companies provide businesses in need of instant capital with the funds necessary for them to operate. Invoice factoring is not a loan from the factoring company, instead the factoring company purchases the invoices owed or accounts eceivables from the business. The invoices are sold to the factoring company who then instantly fronts a percentage (typically 65% to 90%) of the money owed. The invoices and account receivables are sent by and paid directly to the factoring company, which then sends the company the remaining amount due, less a small fee for the transaction.

Most businesses opt for invoice factoring, as opposed to a business loan, because the funds provided through invoice factoring are easier to obtain. And since invoice factoring companies base their decision to provide funds on the credit worthiness of the company’s clients, as opposed to the company itself, no debt is added to the company.

There are several advantages to the invoice factoring method. The most important advantage from a business perspective is that there is no delay in the business’ day to day operations or cash flow. On projects that require equipment or other resources for deliverables, invoice factoring allows the work to proceed. Another major advantage to invoice factoring is that the business does not incur any liability in the loan repayment; the clients required to pay the invoices are carefully screened for creditworthiness before the factoring is approved. Therefore it is the responsibility of the factoring company to obtain the payment funds.

From a business perspective, retaining full ownership of the company and not having any future debt to repay is very important when obtaining funds from outside sources. Unlike angel investors or capital venture lenders, with invoice factoring the company does not lose any decision making abilities to the factoring company. The company also does not owe a debt after the funds have been received, as the debt still belongs to the clients that have been invoiced.

Factoring is beneficial to all parties involved. Businesses are able to maintain their cash flow, focus on day-to-day operations and scale their resources as required by the customers; customers receive timely products and services; and the factoring company receives (from the customers) the funds they allocated along with the preset Transaction fee. This win-win-win situation makes Factoring an excellent choice for both small and large businesses alike.

Thanks

Gary

Invoice Factoring Company

www.capitalplus.com



Thanks to Alam for contributing this article to our Factoring blog:

Invoice Discounting

Can you answer KAH’s question about Factoring?:

I am working on a problem. I have a couple’s Statement of Financial Position and Annual Cash Flow Statement. From this info, how do I calculate discrectionary cash flow?

Accounts Receivable Factoring

Can you answer Christopher B’s question about Factoring?:

I came upon a term I did not fully understand. What is the capitalized cash flow method for assessing a rental properties value? Ten points for who ever answers first and provides a reference.

Have you claimed your Genesis site?

Factoring is a financial tool, which allows you to immediately get money against your credit sales instead of waiting for it to mature. It is a process followed down from hundreds of years ago and now modified to suit various types of industries.

Basically, factoring means selling your credit invoices to a third party, called a factoring company and getting immediate payment against that invoice. The factoring company pays you the invoice amount in 2 installments. The first installment is about 60 to 90 percent of the invoice value and is posted electronically to your bank account with one or two days, and the second installment, minus the factoring company’s fee is paid to you when your customer pays the invoice amount.

This fee is normally 1.5 to 5 percent of the invoice value and normally depends on factors such as your customers’ credit rating with the factoring company, the number of credit days as mentioned on the invoice and the total value of business you give to the factoring company. In addition, factoring companies can also take care of your payment collection from your customers.

Factoring therefore is a boon for your business, if you have mostly credit sales to a wide range of customers. It not only improves your cash flow dramatically, enabling you to use that money for staff salaries, payments to your suppliers or even to buy in bulk quantities, but also frees up your collection staff which you can re-direct to some other department. It also frees you from the hassles of payment collection and worrying about customers not paying on time. The factoring company will give you regular updated statements of payments collected by them and the pending receivables statement.

Factoring is directly linked to your sales and hence is much better than trying to avail a bank loan, which might involve submission of many documents and collateral or guarantees and you will still have to pay interest on that loan. Through factoring, it is now possible to go in for a big order given by your customer, which previously would have locked your money. You can also make bulk purchases with the money received enabling you to get extra discount, which can be used to increase your sales and profit margins. So it is a win-win situation for you.

However, you should note that factoring is suitable only if you have a minimum of 15 percent of gross margin on your sales and that the credit period offered to your customers is not very high. Calculate your profit margin after deducting the factoring company’s charges so that you can decide whether it is viable financially to employ their services. Also, since your customers will have to be informed about your arrangement with the factoring company, some of them might not be comfortable of making payments to third parties.

There are various types of factoring facilities available such as invoice factoring, purchase order factoring, etc. which have different percentage of charges. You can find different factoring companies advertising on the internet. You can even hire the services of a factoring broker to find you the right factoring company to match your needs. It normally takes a week or two to set it up.

So, go in for factoring and watch your bottom line and sales improve. It’s easier than it sounds.



Thanks to Kris Koonar for contributing this article to our Factoring blog:

How to Make Money Online