Invoice Factoring Blog

Factoring is basically when a business sells its accounts receivable invoices at a discount, and it is different from a bank loan in several ways. Banks base their decisions on a company’s credit worthiness, whereas factoring is based on the value of the receivables. Secondly, factoring is not a loan – it is the purchase of a financial asset, or the receivable. Bank loans involve two parties, while factoring involves three parties.

Factoring should not be confused with invoice discounting, Factoring is the sale of receivables. Invoice discounting is borrowing where the receivable is used as collateral.

The three parties involved in factoring are: the one who sells the receivable, the debtor, and the factor, or factoring company such as IFG. A receivable is essentially a financial asset associated with the debtor’s liability to pay money owed to the seller, which is typically for services or work that has been performed or products (merchandise) sold. The seller sells one (spot or single invoice factoring) or more of its invoices (the receivables) at a discount to the third party. The factor (IFG) obtains the cash. Therefore the sale of the receivables essentially transfers ownership of the receivables to the factor, so the factor obtains all of the rights and risks associated with the receivables.

It is tax time again. That means it’s time to organize your 2008 receipts and strategize any last-minute tax savng tips. With many investors down this year, the good news is that you can apply up to $3,000 of any losses to offset your taxable income AND carry forward any losses in excess of $3,000 for future tax years. One note however-if your losses are from a 401k or IRA, you will not be able to claim the $3,000 loss on your tax return because the credit is only available to you if you “sold” investments.

Next … did you know that there is a new tax break for homeowners who do not itemize their taxes? For the first time, this year individuals can claim a property tax deduction of up to $1,000 on top of the standard deduction.

And if you are a homeowners who has unfortunately had the balance of their mortgage reduced because of foreclosure, you will not have to pay any tax on the difference. In the past, reductions were considered taxable income.

Last … it’s time to think about ways to manage your debt in 2009. Another tip is to begin using invoice factoring when and if clients get behind in payments so YOU will stay on top of your debts every month.

Did you know that there are more than 30 million people in the United States with bad credit scores (under 620) so that it makes getting credit cards and loans with fair terms more difficult? To help fix the problem, you need to first face your real credit score, and despite free credit report offers, you still have to pay to find out your score, which is a three-digit number ranging from 300 to 850.

Go to MyFico.com. Or you can get Experian’s “consumer education” credit report. Here are some tips towards credit repair:
1) Use credit cards sparingly. Racking up big balances can hurt your score, regardless of whether you pay your bill in full each month. What is reported to the credit bureaus, and calculated into your score, is the balance reported on your last statement.
2) Pay down or pay off credit cards. The credit-scoring system is based on favorability towards a gap between the amount of credit you’re using and your available credit limits.
3) Rotate your cards. The older your credit history per card, the better it is, so if you stop using a card, the issuers may stop updating the account at the credit bureaus, and it won’t be given as much weight in the credit-scoring formula as active accounts.
4) Keep tabs on your credit limits. If you are charging the same amount each month — say $500 to $800 the credit-scoring formula may think you are you’re regularly maxing out the credit card. Simply pay your balance down or off before your statement period closes.
5) Consider factoring to help pay off credit card debt. You can use single invoice factoring, also known as accounts receivable financing, for immediate cash. IFG Network stands ready to help.

It is not just small businesses that are facing a cash crunch; many venture-capital funds are low on cash as well, thanks to the financial downturn. Some VCs are even taking more drastic steps to ensure that they are able to fund investments by selling their equity stakes in start-up companies. This tactic allows them to protect their cash so that they can choose to make other types of investments down the road.

Just like small businesses, many funds that have not yet received all their capital face cash difficulties, because some institutions are reluctant to honor commitments. And right now, it is also tough for venture investors to borrow money, because so many banks are just not lending. Accounts receivable factoring might be one way that a start up, or small business can hang on.

It’s all about cash economics and cash flow. What happens if you do not get paid for a few months and you don’t have time to seek alternative financing through banks or venture capitalists? Single invoice factoring just might be the solution. Since many businesses do not get paid right away for delivered products or services, The Interface Financial Group (IFG) offers short-term working capital. It is a fast way to turn receivables into cash, rather than having to wait 30, 60, or sometimes even 90 days for invoices to be paid. And IFG knows that time is money.

If you have been getting “late payments” or “missed payments” notices and charges on your business credit card accounts lately, then it may be time to listen up and make some changes. As an entrepreneur, it is often difficult because you never know when and if people will pay your invoices on time. You probably have little money in the bank and you are not likely to get a loan, especially in today’s economic climate.

Just in case you are wondering, if you have been late in making credit card payments lately, you do not have to worry about creditors reporting late payments to the credit reporting agencies unless they are more than 30 days late. Your payment missing the due date by a few days or a couple weeks will have little effect on your credit score.

What’s more, the late-payment fees are sometimes more than what you are charged in interest for the month, which can be the equivalent of paying a 30 to 100 percent penalty.

How do you avoid this problem? Get organized and choose a strategy below, then stick to it. Then if people are not paying you on time, and you need some cash, think about receivables factoring.
Step 1) If at all possible, pay your bills the same day they arrive in the mail.
Step 2): Mark a calendar with due dates for credit card bills and other accounts in bold ink. Now, go back two weeks for a mailed payment or four days for an online payment. simply pay the bill on that date.
Step 3) Figure out what time of the month is best for you to pay your credit card bills and contact your creditors and ask that your due dates be changed to that time of month. You will then avoid confusion over multiple due dates. Watch your statements carefully and always keep records.

Last, if you are not being paid on time, think about how many bills you could pay on time if you just had some money in reserve. Then start doing single invoice factoring every month. This helps by providing companies like yours with immediate working capital, allowing you to increase your revenue – because with increased cash flow you can accept more purchase orders.

Just choose one invoice and call IFG. How can this help? Single invoice factoring comes in especially handy when a client is on a 60 or 90 day pay cycle, and you can get up to 90 percent of what they owe you … early! IFG gets involved after the product or service has been shipped or delivered and an invoice is produced. You will typically get the money in 24 hours and the rates are competitive. There are no minimum sales volume requirements. Clients use the service only as needed, plus there are no maximum limits either.

Once you have tried accounts receivable factoring, you will know just how easy and convenient it is, and that you can rely on it for fast cash.

All too often people go into business without any savings, and instead obtain loans from banks, family friends or the Small Business Association (SBA). And then, they believe that they’ll be able to start paying the loans back right away with the profits from their new busness. Not… What they fail to realize is that it can take months or even years to make a profit.

And today, with a tough economy, the banks are even more strict about credit, so once a lender discovers that your business isn’t quite as profitable as expected, they are apt to call in the loan, or they often will refuse to renew it. It is sad to say, but many times new business owners end up having to take out a home equity loan or use worse, they use credit cards to pay off their loans.

When starting a business, it’s much better to first save up as much of the needed investment money as possible, including your living expenses for the first year or two. Even if you get plenty of business coming your way — and your customers pay you on time, which isn’t always a sure thing — you’ll want to be able to invest most of that money back in the business.

Another tips is that if your clients are not paying in a timely fasion, you can always get the much needed money to keep your business afloat via single invoice factoring. This is the process of selling invoices or receivables to a factoring company, like IFG, which will give your an immediate cash flow infusion.

Last, when starting a business, be sure you “husband your money,” or in more simple terms, keep an eye on your spending, and instead think small. Don’t rent office space if you can work from home. Have a business plan that outlines how you intend to make a profit. You need to know your “break even” costs such as how much you’ll spend for inventory, employees, rent, supplies, etc. Then you can figure out exactly how much you need to sell each month, for how many dollars it is going to take to cover these expenses and still have a profit.

And even after your business is profitable, think about continuing to use receivables factoring. It can be a standard business practice that will help you keep an edge in business.

Historically factoring has been around for more than 4000 years -- since the beginning of commerce and trade. Invoice factoring is also one of the most misunderstood financial tools available to small businesses today. But in the United States, factoring is becomming a popular method of financing to improve the cash flow of a business. And in case you still do not understand it -- factoring is when a company decides to discount its accounts receivables, at which time the factor then bears the credit risk for the accounts and becomes the recipient of payment from the customer. It is among one of the most effective and efficient forms of financing.

The roots of factoring can be traced back to a Mesopotamian king Hammurabi. Documented use of factoring took place in our American colonies before the American Revolution during a time when raw materials like cotton, furs, tobacco and timber were shipped to Europe. Back then, merchant bankers in London and other parts of Europe advanced funds to the colonists for these raw materials, enabling the colonists to continue to harvest their new land, free from the burden of waiting to be paid later by their European customers. This practice of receivables factoring was quite helpful to the colonists, because they could go ahead and begin their harvesting without waiting for the money.

Factoring agreements of the past were on an all or nothing basis where one either factored your invoices or not, however, recently, single invoice factoring (spot factoring) has become popular because you are allowed to factor as many or as few invoices as you wish.

As an example, you might own your own small business, and even as things are going really well, you wish you could get some additional working capital to move your business to the next level. Whether it's a one-time need, or an ongoing necessity, working capital or the lack of it, is most often the difference between success and failure of a small business today. How do you know whether factoring is right for you and your small business? It has to be the right time for a small business to use spot or invoice factoring to speed up cash flow, and increase working capital so the business can grow.

While often confused with accounts receivable factoring, which is another way of saying invoice factoring, accounts receivable financing technically refers to a loan agreement between two parties. Factoring is a financial purchase or transaction and involves three parties. The biggest difference is that with a loan it's your credit that matters, with a factoring agreement it's your customers credit worthiness that matters.

Just when you thought you had factoring figured out, you hear things like accounts receivable factoring with and without recourse. What does this really mean?

This term "spot factoring" is the same thing as single invoice factoring. The reason that it is called spot factoring, and is becoming more common in its usage, is that it refers to the increasingly popular practice of being able to pick your spots and choose which invoices, if any, you want factored. This allows you to retain the most amount of your money, while spending the minimum fees for adequate cash flow.

Today as we near the presidential election, Kelly K. Spors wrote an article in the Wall Street Journal today entitled, “Slow Payments Squeeze Small-Business Owners.” Once again we are being informed that this is just another aftermath of the credit crisis.

Many small businesses could stay afloat if their clients paid invoices on time, so today’s economy is causing business owners to rethink their operating strategies. Often firms don’t get paid immediately for delivered products or services; however, in order to sustain and grow their business, they need some cash on hand. That’s where single invoice factoring can benefit businesses, and especially those who do not get paid for 30, 60 or 90 days.

One of the oldest and most widely used forms of funding for businesses, standard receivables factoring has been around for thousands of years. There are a number of innovative solutions where companies can get short-term working capital to grow their businesses and improve cash flow. And if you are a small business, especially a start-up, you know how tough it can be to attract conventional funding.

IFG specializes in small business factoring, and will advance up to 90 percent against invoices. After we have looked at the creditworthiness of your customers, funding can be provided within as little as 24 hours. We don’t expect to buy 100 percent of yourreceivables, so there are no minimum or maximum sales volume requirements. Each invoice purchase is a separate transaction and does not form part of a portfolio lending approach. The transaction is modeled as a buy-sell transaction. Basically, spot factoring means that we purchase selected invoices at a discount. It’s a great way to turn your receivables into cash. Each and every client’s circumstances will vary and so this may have an impact on the fees charged.

This “use it as you need it” funding option can be very effective during tough economic times like many small to medium-sized businesses are experiencing today. Here’s how it works. First we undertake a due diligence that often takes one to two business days. Once this step has been completed, you are at liberty to offer invoices for purchase. Upon receipt of the invoices, we’ll check the credit of each debtor named on the invoices you provide. Then we make sure that the sale represented has been satisfactorily completed. Once this is done, we notify the debtor of the purchase of the invoice, and you’ll get your funding. At the end of the credit period the debtor will then pay us directly, completing the transaction.

IFG’s services for factoring accounts receivable today are user friendly, flexible, cost effective, and most of all, fast.