Heritage Commercial Funding Articles

Creative Business Funding Options

Wed, 20 Nov 2024 02:40:35 GMT

Building Up Your Business, with Erica Dill from Operationally Up

This latest episode of Building Up Your Business discusses the various funding options available for businesses. Kristy Melton even shares creative funding options for those companies who don't qualify for traditional funding.

Reduce Costs When Factoring Invoices

Sun, 26 Jun 2022 00:57:38 GMT

Here are five ways your business can reduce or offset the cost of factoring and still improve cash flow:

When a business is strapped for cash they often turn to factoring accounts receivable as a financing solution. Of course a factoring company expects to earn a profit on the cash advance and charges a fee for their service.

Since the overall goal is improved cash flow, a company considering accounts receivable financing will carefully weigh the benefits against the costs.

Strategy #1 – Early Payment Discounts

Use the money to take advantage of early payment discounts offered by suppliers and service providers. A standard early payment discount is 2/10 net 30. In this scenario the vendor will provide a 2% discount if the bill is paid within 10 days, with the full amount due in the standard 30 days. While the savings might seem small ($2.00 for every $100), over time it can really add up. It will also help offset the discount fee charged by factoring companies. If you don’t see an early pay discount on the invoice, then ask!

Strategy #2 – Bulk Purchasing

A supplier will often provide a reduced price for bulk purchases. If you can order 500 widgets for $1.00 each or 1,000 for $0.75 each it makes sense to take advantage of bulk pricing since this can equate to a savings of 25%, or more. Just be sure to purchase items the company is certain to need and utilize.

Strategy #3 – Target Fast Paying Customers

Time is Money and the length of time it takes a customer to pay on the invoice has a direct relation to the cost of factoring. The discount fee charged by the factoring company goes up the longer it takes your customer to pay. By targeting invoices with customers that normally pay quickly a company can reduce their factoring cost.

Strategy #4 – Timing Invoice Submission

Another way to make the “Time is Money” principal work for your business is to first age the invoices for 10-20 days before submitting to the factoring company for a cash advance. Even customers that typically pay in 45 days can be turned into 30-day customers by first aging the invoice for 15 days prior to factoring. Policies on this strategy can vary by factor so discuss the parameters upfront.

Strategy #5 – Increase Profit and Growth

If a company can increase profits by an amount greater than the cost of factoring it can make economic sense to consider this business financing option. An increase in working capital can provide the funds it takes to accept and fill another order. Additionally, it can contribute to increased profit margins since many overhead costs are fixed and may not incrementally increase with the cost of goods.

When a company wants to increase cash flow by factoring accounts receivables the impact of the factoring cost can be greatly minimized. Just be sure to consider these 5 cost reducing strategies that pay close attention to the timing of invoices and how the factoring cash advance is spent

Debtor In Possession

Sat, 25 Jun 2022 22:25:41 GMT

Debtor in Possession (DIP). Financing for companies in Bankruptcy.

Businesses in financial distress find they have very limited options for funding when they need it the most. A company’s abilities to obtain capital from their current lender will likely be cut off, and they may also fall into default on their loan covenants.

For many distressed companies, there is hope for new financing. Through the bankruptcy courts, they can file for Chapter 11 for bankruptcy protection. This will allow them to take advantage of DIP financing to help them reverse course, restructure, and return to profitability. Note that DIP financing is not applicable for Chapter 7 bankruptcy where businesses are liquidated and walk away.

Medical A/R Factoring

Sat, 25 Jun 2022 22:12:20 GMT

Medical A/R Factoring.

We have looked before at the challenges of carrying slow pay- ing accounts receivable. Paying the discount fee to a credit card processing company seems like no big deal when you consider the alternative-waiting 30, 60 or 90 days to get paid if you don’t have deep pockets and you have payroll and lots of other bills to stacking up.

Some reports estimate that more than 91% of businesses suffer from late payments.

Accounts Receivable Financing (aka Factoring) is one-way business owners speed up payment on their invoices. It’s the oldest form of business funding-currently a billion-dollar industry.

ABL-Asset Based Lending

Sat, 25 Jun 2022 22:08:11 GMT

Asset Based Lending.

It’s almost inevitable that at some point your business will need some financing that exceeds what your existing bank lines of credit can accommodate. In most cases, this need would correspond with one of the periodic bursts of growth that most businesses experience.

If your business is new or hasn’t shown steady profitability, it’s going to be very difficult to secure a small business loan since banks are notoriously conservative. I even had one banker tell me that if a business is growing more than 10-15% per year, that’s considered too aggressive for traditional bank financing.

PO Funding

Sat, 25 Jun 2022 21:57:33 GMT

Purchase Order Financing.

What if you’re a small to medium-sized company and you’re awarded a large purchase order but have no access to working capital to complete the transaction?

The solution you could be looking for is called Purchase Order (PO) Financing. PO financing enables good companies to complete their viable trade transactions. It’s most suitable for fast growing and relatively small, undercapitalized companies with large, seasonal or opportunistic orders.

Like many other alternative financing programs, this solution serves as an alternative to equity.

Funding Update

Sat, 25 Jun 2022 21:41:58 GMT

In these changing times, we're adapting quickly to adjust to the new normal.

For the past couple months, business owners have been focused on figuring out how to adjust or to survive this pandemic. Regarding funding, most have spent their time trying to access the disaster loans like the PPP, Paycheck Protection Program Loan, through their bank. But those loans only provide the funds to cover about 2.5 months of payroll. Besides that, some businesses could not qualify for those loans (i.e. foreign ownership) or could not secure a funding source. So, it’s important to know what other options are available.

Working with a Broker

Sat, 25 Jun 2022 21:34:57 GMT

Small businesses benefit from working with a Business Finance Broker.

We are collectively experiencing an unprecedented time in American history. Just recently, we learned that funds from the SBA’s newly released Payroll Protection Program are already exhausted. The SBA can no longer accept new applications or enroll new PPP lenders until more money is appropriated by the government.

SBA Loans

Sat, 25 Jun 2022 21:29:25 GMT

The Fed dropped interest rates again.

In light of what is happening around the world and to our economy, the Federal Reserve just lowered the benchmark interest rate again-this time by a full percent- age point. This brings the current Prime Rate down from 4.25% to 3.25%.

A/R Financing

Sat, 25 Jun 2022 21:24:19 GMT

Small businesses can us A/R Financing to Compete with large companies.

If you are in an industry that gets paid right away by cash or credit card, consider yourself one of the lucky ones. Even paying the discount fee to your credit card processing company seems like no big deal when you consider the alternative waiting 30, 60 or 90 days to get paid when you don’t have deep pockets and you have payroll and lots of other bills to stacking up.

Short Term Funding

Sat, 25 Jun 2022 21:16:07 GMT

What do you do if you need money right away?

You need to know where to go but there are lenders out there that can fund a business in as fast as 24-48 hours.

I get call all of the time from business owners that need funding fast. Maybe they can qualify with their bank but something's come up and they don't have time to wait.

Tips For A Smooth Factoring Application

Sat, 25 Jun 2022 21:01:05 GMT

Tips For A Smooth Factoring Application

Every day business owners juggle the cash flow demands of their companies. More than ever, they are turning to invoice factoring as a trusted solution, even when banks decline loans and credit lines.

If you are considering accounts receivable funding it pays to be prepared. Save time and money by understanding these five tips before making application to factor your accounts receivable:

1. The Factoring Application

The first step in the process is helping the factoring company get to know your company. This might start with a phone conversation but will eventually be formalized in a factoring application . This provides basic information including:

Company name
Contact Information
Type of Business
Information on Your Customers

The nature of the business and type of customers play the leading role in determining whether a factoring company will move forward with the transaction. Most factors are looking for invoices that are owed by a businesses rather than individual consumers.

Other factors specialize in certain types of invoices. For instance construction factoring or medical receivables will only appeal to a company that targets those areas.

2. Aging Reports

The aging report provides the detail that goes along with the initial application. This report reflects the amounts owed by your customers and the length of time it takes them to pay on the invoices. A customer that pays within 30 days is more attractive than a customer that takes 45-60 days.

3. How Factoring Works

Factoring is the purchase of accounts receivable at a discount. The factoring company provides an advance on approved invoices. The factor handles collection and releases the reserve balance when the customer pays the invoice. The factor deducts their fee before releasing the balance.

4. What it Costs

The first question every business wants to know is, What will factoring cost me? Don’t be frustrated when the response is, “It depends.” The industry, strength of the customer, and length of time it takes to receive payment affect the advance rate and the discount fee.

The volume of invoices a business plans to factor also impacts pricing. A company desiring to factor $400,000 every month will receive better rates than a business factoring $15,000 on a sporadic basis. The terms offered by the factor can often be negotiated and will ultimately be spelled out in the contract.

5. The Underwriting Process

The factor is very interested in the strength of your customers since they are actually purchasing the account receivables rather than making a loan. The factor will evaluate the creditworthiness and establish credit limits for each customer.

The factor will also perform a public records search on your company to verify there is clear title to the accounts receivable. This search usually includes corporate status, judgments, liens, UCC, pending litigation, back taxes, criminal records, and any other items that might interfere with the factor receiving payment on the invoices.

This due diligence process takes an average of 5-10 days on new accounts. Once the initial review process is complete it can take as little as 24 hours to receive cash for invoices with approved customers.

Factoring provides cash flow solutions to both new and established businesses providing funds for operational expenses, expansion, and growth. We invite you to contact us if you have any questions or need assistance with invoice factoring services.

How Recourse and Non Recourse Factoring Compare

Sat, 25 Jun 2022 20:53:24 GMT

Here are five ways your business can reduce or offset the cost of factoring and still improve cash flow:

If you plan on selling invoices it is important to know whether the funding proposal is for “recourse” or “non-recourse” factoring. Here is an overview of both methods.

A Look at Non-Recourse Factoring

Just like it sounds, there is no recourse for unpaid receivables against the client. The client selling invoices is not financially obligated to the factoring company in the event an approved and funded invoice is not paid by the customer.

To protect their investment, the factoring company will check the credit strength of account debtors and verify invoices with customers. They will also want to handle the payment collection and accounts receivable management.

Understandably, this is the most popular type of invoice financing with “non-recourse” factoring making up over 2/3rds of all transactions.

This does not remove the client from all possibility of needing to repay the invoice. The client is still responsible for resolving any disputes regarding the product or service itself. For example, if the client delivers a product and that product is found faulty causing the customer to not pay, the client is still responsible to make good on the invoice.

Although non-recourse may be the more attractive method to the client, the factoring company will look closely at the credit worthiness of the paying customer or debtor and charge fees accordingly.

Now A Look At Recourse Factoring

With recourse factoring the company selling the invoices is guaranteeing the invoice will be paid in full.

In the customer or debtor does not pay the invoice, the selling company must make up the payment. This is usually accomplished by either lowering future funding via a “reserve” or by replacing the “bad” invoice with another “good” one. Any delinquent delinquent invoices are generally charged back to the business client after 90 days, depending on the terms of the agreement.

In addition to who “makes good” on any “bad” invoices, the client may receive much better pricing if they are open to a recourse situation. Since the factoring company isn’t taking all the risk, they can offer more attractive advance rates and lower fees.

Your final choice will be for the method that best fits your situation. There is no right or wrong, but if comparing factoring options side-by-side and you have the option of non-recourse for the same or similar terms – then non-recourse will likely be your preferred choice!

How Recourse and Non Recourse Factoring Work

Sat, 25 Jun 2022 09:08:36 GMT

If you plan on selling invoices:
It is important to know whether the funding proposal is for “recourse” or “non-recourse” factoring.

Here is an overview of both methods.

A Look at Non-Recourse Factoring

Understandably, this is the most popular type of invoice financing with “non-recourse” factoring making up over 2/3rds of all transactions.

Although non-recourse may be the more attractive method to the client, the factoring company will look closely at the credit worthiness of the paying customer or debtor and charge fees accordingly.

Now A Look At Recourse Factoring

With recourse factoring the company selling the invoices is guaranteeing the invoice will be paid in full.

Term Loan versus Line of Credit

Sat, 25 Jun 2022 08:17:57 GMT

Figuring out how to finance your business is just one of the many challenges facing business owners.

For example, is a term loan or a line of credit the best fit for your business? These are the two most common forms of business financing so let’s take a

look.

Alternative Financing

Sat, 25 Jun 2022 08:00:19 GMT

Heritage Commercial Funding Articles

Creative Business Funding Options

Building Up Your Business, with Erica Dill from Operationally Up

This latest episode of Building Up Your Business discusses the various funding options available for businesses. Kristy Melton even shares creative funding options for those companies who don't qualify for traditional funding.

Reduce Costs When Factoring Invoices

Here are five ways your business can reduce or offset the cost of factoring and still improve cash flow:

Strategy #1 – Early Payment Discounts

Strategy #2 – Bulk Purchasing

Strategy #3 – Target Fast Paying Customers

Strategy #4 – Timing Invoice Submission

Strategy #5 – Increase Profit and Growth

Debtor In Possession

Debtor in Possession (DIP). Financing for companies in Bankruptcy.

Businesses in financial distress find they have very limited options for funding when they need it the most. A company’s abilities to obtain capital from their current lender will likely be cut off, and they may also fall into default on their loan covenants.

Medical A/R Factoring

Medical A/R Factoring.

Some reports estimate that more than 91% of businesses suffer from late payments.

Accounts Receivable Financing (aka Factoring) is one-way business owners speed up payment on their invoices. It’s the oldest form of business funding-currently a billion-dollar industry.

ABL-Asset Based Lending

Asset Based Lending.

It’s almost inevitable that at some point your business will need some financing that exceeds what your existing bank lines of credit can accommodate. In most cases, this need would correspond with one of the periodic bursts of growth that most businesses experience.

PO Funding

Purchase Order Financing.

What if you’re a small to medium-sized company and you’re awarded a large purchase order but have no access to working capital to complete the transaction?

The solution you could be looking for is called Purchase Order (PO) Financing. PO financing enables good companies to complete their viable trade transactions. It’s most suitable for fast growing and relatively small, undercapitalized companies with large, seasonal or opportunistic orders.

Like many other alternative financing programs, this solution serves as an alternative to equity.

Funding Update

In these changing times, we're adapting quickly to adjust to the new normal.

Working with a Broker

Small businesses benefit from working with a Business Finance Broker.

SBA Loans

The Fed dropped interest rates again.

In light of what is happening around the world and to our economy, the Federal Reserve just lowered the benchmark interest rate again-this time by a full percent- age point. This brings the current Prime Rate down from 4.25% to 3.25%.

A/R Financing

Small businesses can us A/R Financing to Compete with large companies.

Short Term Funding

What do you do if you need money right away?

You need to know where to go but there are lenders out there that can fund a business in as fast as 24-48 hours.

I get call all of the time from business owners that need funding fast. Maybe they can qualify with their bank but something's come up and they don't have time to wait.

Tips For A Smooth Factoring Application

Tips For A Smooth Factoring Application

1. The Factoring Application

2. Aging Reports

3. How Factoring Works

4. What it Costs

5. The Underwriting Process

How Recourse and Non Recourse Factoring Compare

Here are five ways your business can reduce or offset the cost of factoring and still improve cash flow:

A Look at Non-Recourse Factoring

Now A Look At Recourse Factoring

How Recourse and Non Recourse Factoring Work

If you plan on selling invoices: It is important to know whether the funding proposal is for “recourse” or “non-recourse” factoring.

A Look at Non-Recourse Factoring

Now A Look At Recourse Factoring

Term Loan versus Line of Credit

Figuring out how to finance your business is just one of the many challenges facing business owners.

For example, is a term loan or a line of credit the best fit for your business? These are the two most common forms of business financing so let’s take a

look.

Alternative Financing

Are you one of the millions of small businesses who cannot qualify for funding with their bank?

There are alternative options available. Let’s answer some FAQ’s:

If you plan on selling invoices:
It is important to know whether the funding proposal is for “recourse” or “non-recourse” factoring.