Factoring
Accelerate cash flow by tapping in to accounts receivable, invoices and long-term contracts.
A valuable cash flow tool, factoring helps to free up cash stuck in accounts receivable, invoices or seasonal contracts to even out cash on hand and payments due to your business. A well-known practice in the apparel manufacturing industry where invoices often have terms of 30, 60, 90 days or longer, many B to B firms, among others, are discovering the value of factoring. Soundview has the relationships to source the factoring contract to meet your businesses’ objectives. Let us help you find the right factor and open up new avenues for cash flow.
You’ll receive a portion of the funds owed up front, then, once your client has fulfilled the terms, you will receive the rest of your money, minus a factoring fee. Best of all, you won’t be responsible for the efforts to collect the funds as the factor will work with your client to finalize payment on the same terms you originally negotiated. Have a look at the four primary categories of factoring: accounts receivable, purchase orders, limited recourse factoring, and contract financing.
Accounts Receivable
What do you do when your contract specifies 90 days, and your client is willing to pay two months of interest, but you need to move on to your next quarter? Unsecured Lines of credit come with high interest payments that can put you behind the curve in the growth of your business. Secured loans based on your valuable equipment put your operations at risk.
Many businesses feel the financial pinch from situations just like these. Without cash coming in, paying bills and retaining flexible decision making become difficult.
When you factor accounts receivable you sell the account, after goods have been received by your client, to a factor. Your initial payment may even come in the same day as the contract is closed as compared to the often lengthy approval processes of traditional lending. Your business also does not need a credit check. The client’s credit and payment history is more important in an accounts receivable factoring agreement.
Purchase Orders
The Business to Business side of your industry is probably built on the PO and billing cycle. With various terms for payment, you can accelerate your cash flow by receiving funds as soon as the PO is cut. The process does require credit history from your client, but for industries with regular reorders and continuous purchase processes in place, this is a great option to keep business moving.
You can open an account as soon as the PO comes in to provide an immediate infusion of cash. At the same time, you can hold the PO and open it at a later date to manage overdue accounts to balance with your cash flow. Like a factored invoice, the factor will look at the payment history and credit of your client, rather than pulling a business credit rating on your business.
Purchase Orders
The Business to Business side of your industry is probably built on the PO and billing cycle. With various terms for payment, you can accelerate your cash flow by receiving funds as soon as the PO is cut. The process does require credit history from your client, but for industries with regular reorders and continuous purchase processes in place, this is a great option to keep business moving.
You can open an account as soon as the PO comes in to provide an immediate infusion of cash. At the same time, you can hold the PO and open it at a later date to manage overdue accounts to balance with your cash flow. Like a factored invoice, the factor will look at the payment history and credit of your client, rather than pulling a business credit rating on your business.
Limited Recourse Factoring
Factoring is a collaboration between your business and the factor. With traditional factoring, the factor wants to be paid for their work in financing and collecting on the sales that are factored. That means, they want you to hold the risk should the client fail to pay. The factor is not a collection agency overseeing accounts in default, so if an account goes into default, you will need to pay the factor back for the advanced funds on the account.
Not so with limited recourse factoring. In this circumstance, the client takes on a portion or all of the risk (determined by the terms of the agreement) for the funds advanced. You will pay higher fees, but your risk is reduced, and you won’t need to pursue debt collection efforts to retain the initial payment, or portion thereof that is limited.
While fees are higher, limited recourse factoring gives greater piece of mind, and if you are in an industry with the right kinds of margins, it can be better to simplify the agreement with less rework on unsuccessful accounts.
Contract Financing
When your business operates on annual or seasonal contracts, contract financing can help even out your cash flow. Instead of a lump sum, contract financing works the opposite way, distributing the revenue evenly across the year. Do you work intensively through the spring, summer and fall but take the winter off? Distribute your revenue evenly so you and your team are getting paid while you work to close contracts for the upcoming season.
This helps you manage your sales, marketing and production budget and maintain a consistent team throughout the year.
Regardless of your contracting and invoicing procedure, Soundview Lending Group has options to help you manage your cash flow. Call us to start a conversation about factoring and contract financing.
Schedule a Consultation
With lenders ready to work with you and with loan amounts from $5,000 to $5 million +, there's no reason not to start a conversation or to pre-apply to see for what loans you could qualify. We work with businesses in every industry and at every stage in the life of your business.
