Factoring: Get The Money You Need Without Loans

The days of the easy bank loan are now a distant memory.
The ‘credit crunch’ has caused a major tightening in underwriting parameters at banks nationwide. Businesses who would have easily qualified for a line of credit six months ago are getting turned down.

Financial institutions such as banks have done an about face when it comes to their lending practices.

If you can’t get the money you need to keep your business going, don’t despair. There is a solution. It is called Factoring.

Factoring is an excellent money management means of acquiring needed cash flow. There are very positive differences between bank loans and factoring.

  • Factoring is not a loan. It is an off-balance sheet transaction so the factoring fees are a deductible expense.
  • Personal guarantees aren’t required, as they are for a bank loan.
  • Funds can be received within a week of applying, provided all documents are received in good order.
  • With factoring, additional collateral is not required to be pledged.
  • Funding is only limited by the company’s pool of receivables, as opposed to bank financing, which usually loans a maximum amount.
  • The credit of the business or its owners is not of major importance to the factoring company.

The main problem with a traditional bank loan is that it creates debt on which you pay long term interest at high rates. In addition, a low credit score can lock you out of qualifying, and it often requires a personal guarantee and additional collateral.

This is what makes factoring a much more attractive money management strategy.

With factoring, funding is limited only by the amount of third party receivables the business has on its books. The advance rate is typically 75% – 85% of the estimated net collectible value of the invoices, with the remaining reserve amount paid upon collection of the invoice less a modest factoring fee.

Factoring Examples

Factoring For Doctors, Dentists, Health Professionals

Medical receivables factoring is the business of buying third-party insurance accounts receivable at a discount so as to make a profit from collecting them.

Until recently, individual doctors, dentists and physician groups could easily go to their local bank and get all the working capital they needed. But, while banks still loan money for that purpose, getting a loan or line of credit can be an uphill battle.
Third party receivables are those amounts due from insurance companies like Blue Cross and government programs such as Medicare and Medicaid. With medical invoice factoring, the healthcare provider submits a batch of invoices to the factoring company and receives an advance at a rate that is determined by the contract

The advance rate is typically 75% – 85% of the estimated net collectible value of the invoices. The remaining amount (the reserve) is remitted back to the provider upon collection, less the factoring fee.
Many health care professionals don’t realize that they don’t have to go through the arduous process of trying to get a loan. Hopefully they will look further into this financial alternative.

Factoring Construction Receivables to Get Working Capital

You’re ready to start your next construction project. Then you realize the money you need is tied up in accounts receivable. Construction invoice factoring gives you the working capital needed for materials and labor. Your construction receivables are an asset that can be leveraged.
Owners of construction companies are frequently hampered by the lack of working capital, particularly when they’re involved in multiple projects. The dilemma is magnified when their funds are tied up in construction receivables. In many cases, materials must be purchased without the benefit of credit and employees must be paid weekly. This can cause a major cash crunch, but construction invoice factoring is an excellent money management solution to the problem.

With factoring, cash is advanced to the client upon submission of an invoice. The services being billed must be approved and acceptable to the client’s customer. With construction factoring, there must be a “milestone” for each billing. In other words, a certain part of the contract must be performed and an actual invoice generated, as opposed to a percentage of the entire contract completed.

The advance for construction factoring is typically between 65% and 75%, depending upon the situation, with the remainder remitted to the construction company upon collection of the invoice, less the factoring fee. The advance can be advantageous in a variety of ways, including the ability to obtain materials purchase discounts and to be able to negotiate optimal pricing. The influx of working capital from factoring construction receivables fuels the company’s growth.

Factoring provides cash flow to:

  • Cover payroll and other expenses
  • Take on new jobs
  • Take advantage of volume discounts on material purchases
  • Increase your company’s growth

One frequent question is Can invoice factoring be utilized if the service provided spans a long time frame? The answer is yes, but the way the company bills the client is critical. When you initially set up the agreement with the customer, you should specify the exact work to be performed as it relates to billing. In other words, both parties should agree that an invoice can be generated upon a certain level of performance, or milestone. The factoring company will be able to advance funds based upon that invoice even though the entire job isn’t completed.

Contrast this scenario to progress billings, an arrangement in which the customer advances money for the job as a whole. The factor is hesitant to advance funds to the client with progress billings, since the company getting billed may become unhappy along the way and stop making payments. With milestones, on the other hand, that is not a problem.

“Two years ago my construction company was close to bankruptcy with only $30 in our bank account and no way to pay bills. Using the Money Management Solutions program we are doing so well now. With the power of this system and the financial stability it has helped us create, we now have $130,000 in reserves and always have $250,000 or more in our bank operating account.” K. A.

Factoring Works For Many Types of Businesses!

The inability to get bank loans and credit is a very serious situation in our economy. Many would have you believe that there is no other solution.
Don’t believe it. You owe it to yourself to find out more about Factoring.

For information on a reputable and ethical factoring resource for your receivables, call us at 239-331-7055 or send us an email.