Daily Archives: January 21, 2010

The Difference Between Merchant Cash Advances and Factoring

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A low-credit merchant cash advance is typically structured as a purchase of future credit card sales for a business with a merchant account. Typically, a finance company estimates the credit card sales of a small business and projects how it will fair in the coming months. This is based on the information provided on the application.

Other factors include industry type and the details about customer transactions in deciding whether to provide a merchant cash advance. Then based on the credit card sales estimate and the risks assigned to these other factors, the business cash advance company will offer to pay cash up front to the business. This can often take as long as a week.

On the other hand, factoring is the process of purchasing commercial accounts receivable (invoices) from a business at a discount. Factoring companies like IFG will buy your invoices for less than face value and then be paid in full by your customers. The difference between the discounted rate and the face value is the factors profit or incentive for buying your invoice upon submission.

Many small business owners believe that factoring is faster and safer than cash advances from their merchant banks.

Reuters Reports NFIB Small Business Optimism Down

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Today the National Federation of Independent Business – NFIB – reported its December small business optimism index fell for the second month from 0.3 point to 88.0.

According to the Federation, weak sales through the end of the year of 2009 caused small business owners to be less optimistic about 2010. The are not hiring, or restocking, nor spending, and many are having to liquidate their inventories

Small business owners with plans to make capital expenditures over the next couple of months rose only two points to 18 percent. This is just two points above the 35-year record low. Only 7 percent of those surveyed believe this is a good time to expand facilities, which since November is down 1 point. 92 percent of those small business owners surveyed were not interested in borrowing.

The NFIB didn’t ask if anyone of these small business are using invoice factoring to make ends meet.

Invoice Factoring Mitigates Tight Credit Markets

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A Treasury report released late Friday stated the country’s largest banks cut their collective small business lending balance by another $1 billion in November. This was the seventh straight month of declines.

Twenty two banks who benefited most from the Treasury’s bailout programs have cut their small business loan balances $12.5 billion since last April. That was when the Treasury began requiring them to file monthly reports. The banks’ total lending has fallen 4.6% in that seven-month period, to $256.8 billion.

Banks say they are lending less for one main reason, and that is because small businesses are risky borrowers. Additionally, many new business owners simply do not want to borrow. When sales are slow, the last thing people want is debt.

However tighter lending standards have left most small businesses unable to access the credit they need to grow. Many small business owners say they have not been able to finance buying materials to fulfill customer orders.

According to the Federal Reserve’s most recent Senior Loan Officer Study, released in October, lending standards have been growing more restrictive over the last three years.

There is one small business strategy that a number of small business owners have started to employ – and that’s invoice factoring. Ideal for businesses with customers who pay 60 to 90 days out, factoring leverages small businesses accounts receivables, so they get paid within 24 to 48 hours.

Confidence for 2010 – Says KPMG Survey on Construction Industry

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According to the annual global construction survey by KPMG, the construction industry globally is confident about business in the year the 2010. Even after the worst recession for 60 years, most construction industry professionals believe that profits will stay the same or increase by mid-year 2010. At least two thirds of the industry’s construction companies took part in the survey.

This research covered 30 countries, finding that the sector appears to have weathered the economic storm. 64% reported that they believed business would stay the same or improve.

Experts believe that one reason may be that the long term nature of many construction industry projects may have provided protection against the recession.

Other reports have warned that commercial and residential property work has suffered because funding has dried up thanks to the global financial crisis, and although KPMG’s construction industry survey reported a fairly positive outlook, some analysts warn against believing it.

Sub-contractors are often required to wait for payment before starting on the next phase of a project, or to begin construction on a new project. With invoice factoring, the sub-contractor or construction firm can realize quick turnaround (often within 24 hours) on accounts receivable due for completed stages of a construction project.

Thanks to construction invoice factoring, the sub-contractor, can be paid almost overnight for these accounts receivable, which speeds up cash flow and improves the company’s ability to start immediately on the next phase of construction.

There are a substantial number of contractors in companies who have made good use of construction factoring, in order to keep their businesses flowing, in between invoices.

Banks Removed $1 Billion from Small Businesses in Seven Months

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Today according to a segment on CNN, the Treasury of the United States, confirmed that banks have removed about $1 billion from their small-business lending programs since last November.

What does this mean exactly? It means banks have reduced their lending to small businesses for more than seven months and the total reduced to small businesses is $12.5 billion, since April of 2009.

And now one reason unemployment is at ten percent is because when the banks reduced money loaned to small businesses, small businesses, the backbone of the U.S. economy, could no longer hire employees, causing higher unemployment.

Many small businesses have been able to weather the storm and survive, thanks to strategies like invoice factoring, ghard work, and loyal workers who worlked in many cases for less money just to keep their jobs and some income.

Banks say they are lending less primarily because small businesses are risky borrowers. This has also left small businesses unable to access the credit they need to grow. Many small business owners say they have not been able to finance buying materials to fulfill customer orders.


Invoice factoring is perfect for businesses with customers who pay 60 to 90 days out, factoring leverages small businesses accounts receivables, so they get paid within 24 to 48 hours.