Why AmeriFactors and FACTORING are Better!

2012-01-20T08:37:00.000-08:00

FACTORING Versus ASSET BASED LOANS

Introduction

Factoringand Asset Based Loans (ABL) are two very important, but different, financialproducts that offer advantages greatly needed in today's economy.

Asset Based Loans

An ABL is a revolving credit facility that can be drawn down andrepaid. The borrower grants a security interest in its inventory as collateralto secure the loan. In the event of a default the lender is granted ownership ofthe borrower’s assets. The borrower’s receivablesare supposed to be used to pay down the debt. Additional advances from the lender will beprovided to the borrower as requested and approved.

With anABL the borrower manages its own credit determinations and receivables for allcustomers. The lender manages the credit facility and related collateral inorder to provide the largest possible loan throughout the term of the contract.

Lenders ofan ABL offer tiered advance rates depending on what they consider differentasset classes. As an example of a typicalloan an ABL lender provides 50% to 75% against eligible receivables and 30% to40% against eligible inventory. Keep in mind that an ABL lender will not advanceagainst the manufacture of goods and services in progress. Advance rates makeup the entire amounts that are borrowed at any given time. A Borrowing BaseCertificate is required from the borrower at least monthly depending on thelender's requirements.

A broadbased three-tier system exists which help’s classify the types of ABL lendersavailable in the marketplace. Each tier represents the industry niches servicedby the lender.

Tier 1 ABL’s are for companies withperfect credit. An initial funding of at least $10 million is required. All ofthe big ten banks have ABL divisions who are considered Tier 1.
Tier 2 ABLs are for companies who haveless the perfect credit and require smaller loan amounts then Tier 1. In this category a Tier 2 ABL lender charges ahigher interest rate than Tier 1. Tier 2 ABL’s require funding’s of $3 millionto 10 million.
Tier 3 ABL’s are for companies whohave a low earnings but adequate inventory liquidation values. These types ofABL’s have become more typical due to the economy. Normal loan amounts varybetween $1 million to $3 million.

Tier 2 ABL Example Terms

ExampleLoan: $5 million Facility with $3million funded (1 year commitment)
InterestRate: Prime rate + 2% (Prime = 3.25%)
AdvanceRates: 50% to 75% of eligible A/R
30% to 50%of eligible inventory
40% to 50%of eligible Fixed Assets
Closing Fee:1% of Facility Amount
Collateral MonitoringFee = $24,000.00 per year
Unused LineFee = .75% per year on unused portion
Audit Fees =$12,000.00 per year

Tier2 ABL 'Example Terms' Effective Interest Rate

Total Interest Cost ($3MM x 5.25% interest rate) = $157,500.00
Closing Fee ($5MM Facility Amount times 1%) = $50,000.00
Collateral Monitoring Fee = $24,000.00
Unused Line Fee ($5MM Facility, $3MM Funded at .75%) = $15,000.00
Audit Fees = $12,000.00
Total Annual Cost of ABL Loan = $258,500.00
Effective Interest Rate($258,500/$3,000,000) = 8.6%

Factoring

To conduct a fair comparison between the ABL example listed aboveand Factoring we need to figure that the borrower would have around $15 milliona year in receivables. Let’s say a company chooses to bypass an ABL and obtain accountsreceivable financing (i.e. Factoring) on $15MM in invoices a year.

With non-recourse factoring the fee might be anywhere from 1% to 3%depending on the credit worthiness of the debtors, the type of industry of theclient, and when the invoice is paid. So if the factoring fee is 1% then overthe course of twelve months the fees would equal $150,000.00. That’s$108,000.00 less than an ABL just on the interest rate alone.

The 1% fee includes full accountsreceivable financing, accounts receivable management, creditservices, credit insurance, collections, full reporting, and the ability toincrease the line as required for new business. There are no audit expenses orcollateral monitoring fees incurred with factoring unlike with an ABL facility.

Also with the ABL facility the $5MM isn't really available.Usually a company can borrow up to 75% at a time but not the whole amount. Pluswith an ABL facility the debtor is encumbered with financial covenants that canjeopardize the availability of funds. This has resulted in banks unexpectedlyrestricting access to funds which has hurt many businesses. Therefore it is nextto impossible to increase the line or even know if the line will exist frommonth to month. With factoring there are no financial covenants and companiescan increase a $5MM line to $50MM with no problem.

There are banking professionals who believe that guaranteeing acompany will not lose money from incurring bad debt isn't tangible. But in thiseconomy AmeriFactorsbelieves it's the key to any small business staying fiscally healthy. Hundredsof prospective client companies have lost tens of thousands of dollars becausethey've provided product or services to companies who can't pay. An ABLfacility does not protect a company from this type of loss.

AmeriFactorshas learned that on average about 2% to 4% of small business revenue, forprospective clients, is lost yearly due to invoices that aren't paid. Thelosses could be prevented with the professional credit checks, collectionpolicies and follow-up that AmeriFactors provides.

Therefore, if the ABL facility interest rate covered not only themoney loaned, but full accounts receivable management, credit check andcollection services, the ability to increase the $5MM line when needed and decreasethe interest rate, no possibility of the line being reduced or funds denied,provide for no restrictive financial covenants, and guarantee that no bad debtwould be incurred; then ABL would trump Factoringwithout a doubt.

TheBottom Line: In good or bad economic times, you will increase your cash flowand profit margin by financingyour accounts receivable with the best company in the industry - AmeriFactors!Call us today at 1.800.884.FUND or click here for a FREE Quote.

Help with Cash Flow

2011-12-21T07:41:00.000-08:00

Companies Seek $240 Million Dollars and Factor Accounts!

AmeriFactors Financial Group commits over $240 million dollars towards funding invoices for new small business clients who are now on the road to financial stability and prosperity. Here's a look at a sampling of industry deals AmeriFactors is providing.

Maintenance Services: $13 Million
Light Bulb Manufacturing: $12 Million
Defense Contracting: $10 Million
Engineering Services: $10 Million
Energy Supply Company: $8 Million
Construction: $5.8 Million
Product Wholesalers: $5.3 Million
Steel MFG: $2.4 Million
Freight: $2.1 Million
Cleaning Services: $2 Million
Banking Consulting Services: $1.6 Million
Door Repair: $1.2 Million

AmeriFactors will payup to 98% of your business-to-business accounts receivable PLUS credit protectyour invoices. So if your customers can’t or won’t pay then AmeriFactors will!That’s called factoring andthat’s why AmeriFactors is the best.

Unlike other financing factors, AmeriFactors is a small businessfunding company and not a broker. We factor accounts and help with cash flow.The accounts receivable financing we provide is from our own capital plus abank line of credit we’ve had since 2001. AmeriFactors provides an expertfactoring service. We factor accounts receivable for all our clients who areserviced by us. When you factor account receivables with AmeriFactors they arenever sold to others. Guaranteed!

The Bottom Line: In good or bad economic times, you will increase your cash flow and profit margin by financing your accounts receivable with the best company in the industry - AmeriFactors! Call us today at 1.800.884.FUND or click here for a FREE Quote.

CHOOSING A FACTORING COMPANY

2011-10-19T12:59:00.000-07:00

Leverage,Liquidity, Cash Flow and Payroll; these are terms that cause many to cringe intoday’s economic turmoil. Given the completeabsence of business lending and zero access for capital growth, even the mostcredit worthy companies are being hampered. The real question is how can acompany truly overcome the hurdle of cash flow constraints to meet their fullpotential?

Theanswer is simple; Accounts Receivable Financing also known as Factoring.

WhileFactoring may seem like the new fad to some, in fact it has been helpingcompanies succeed since the dawn of civilization. Factoring hasn’t changed toomuch, but it has gotten better. Today’s Factoring companies not only improve cashflow by providing advances of 80% or more against current receivables, givingyou access to cash that would typically be locked up for 30-60 days, they alsoprovide expert credit advice and monitoring. Expert credit monitoring coupledwith a non-recourse service (credit insurance for your customers) means you caneliminate all future bad debt. Let your Factoring company worry about thecredit stability of your customers while you focus on the business of doingbusiness.

Wherewould your company be today if you could operate unhampered by cash flowconstraints brought on by delayed customer payments or lack of access to‘traditional’ funds?

“Butwait”, you say. “This all sounds great,but where’s the catch.”

You’rewise to be cautiously optimistic. As with any other industry, there are thegood, the bad and the others. Know whatyou’re getting into; read your agreement thoroughly and ask questions. Don’t beafraid to ask for references. A good Factoringcompany, with the experience to back their promises, will be able to provideyou with names of other clients who can help you understand the process.

“I heard it’s too expensive.” – Not true, factoring increases revenue and cashflow while loans can do just the opposite. Factoring is about selling yourreceivables, not borrowing money or going into debt. With factoring there is nodebt because there is no loan.

Thebiggest drawback to a loan is the bank owns the management process of yourbusiness and will probably never increase your credit to accommodate salesgrowth. Therefor with a loan you can never expand your business to accommodategrowth and higher revenue. You become stagnant financially.

In factmost banks are cutting credit lines with no explanations or warnings. Evenworse, most banks are now limiting the access to credit lines to 75%. Plus toadd insult to injury, the bank will then punish you with a fine for notborrowing the whole amount.

Thisdoesn’t seem like a healthy financial situation for any business. With a loan youcan never run your business as you would like, you can never grow yourbusiness, you can never give yourself or employees a raise and you’re almost guaranteedto experience flat sales.

Factoring accounts receivable provides an immediate source of cash flow for your company.You can use the cash to provide working capital, meet payroll, pay taxes,replenish inventory, increase advertising, purchase equipment, improve yourcredit rating, and cover any business expense.

Rememberto, your factoring firm should be assuming your daily accounts receivable managementactivities, thus freeing up your time (or that of your office staff). How much is your time worth to you? Could you increase sales if you had more timeto focus on marketing? Don’t worry ifyou grow too fast, there’s a product for that- FACTORING.

“Whatwill my customers think?”

Yourcustomers will respect and think you’re smart. You’ll be demonstrating that youcan operate the company without going into debt and that you’re making a choice not to go into debt.

“Doyou talk to my customers?”

The factoringcompany will want to communicate with your customer on your behalf. Often this is to confirm balances owed to youor to follow up on outstanding invoices. It is important that you contact your customers and let them know toexpect a call. This will ease any confusionthey may have. In addition bear in mind,your factoring firm does this for a living. As such, they are very good atmaking the transition a smooth process for you and your customers. You shouldask for references who will give you a true idea of how the process works andwhat you can expect from your customers’ response.

“How can I be certain that my customers will be treatedwell?

The last thing a factoring firm wants is for you to lose a customer. Factoringfirms are not collection agencies and will never harass your customers formoney. Maintaining your customers’ goodwill and confidence are of the utmostimportance.

“What information will a Factoring company need from mycompany to begin the accounts receivable funding process?”

Along with a simple application, the Factoring company will require yourcompany’s most recent accounts receivable and accounts payable aging reports,Articles of Incorporation or DBA filing, a master customer list, copy of yourID (i.e. driving license or passport) and a sample invoice with samplesupporting documentation (i.e. Proof of Delivery, Order, Contract etc.).

To increaseyour cash flow and start factoring your accounts receivable please callAmeriFactors today at 1-800-884-FUND (3863). AmeriFactors – Funding Business is our Business!

Clients Taking Longer to Pay?

2011-07-26T05:45:00.000-07:00

A guide to improving cash flow in a tight credit market.

Tightened standards on commercial loans and lines of credit in recent years have made everyone a little wary, especially business owners. As the credit markets continue to dry up and business financing becomes harder to obtain, customers are requesting extended payment terms on invoices, or in extreme cases, ignoring payment terms and paying on their own schedule. This can put a business owner in a tight situation when operational expenses need to be paid in a timely manner. Employees need to be paid, rent needs to be paid, supplies need to be purchased, and the list goes on. If a business wants to expand, owners face even more difficulty. This is where factoring, a solution to improve cash flow and support a growing business, comes in.

- What is factoring?

Simply stated, factoring is the sale of a company’s receivables. It occurs when a business-to-business company sells its invoices for a small fee to an accounts receivable funding company, also known as a factor, and receives immediate payment. Factoring is also known as accounts receivable funding, receivables factoring and debtor funding.

By nature, in general business activity, the payment of revenues and expenses do not usually occur at the same time. Factoring helps increase cash flow by decreasing (or in some cases, eliminating) the wait time for an invoice to be paid. With factoring, as services are performed or a product is sold, a company can sell its invoices and receive immediate payment for these transactions. The funds inject capital into the business and allow it to grow by increasing its ability to conduct and take on business, and therefore increasing its revenue too.

Typically, funds made available through factoring are used to cover operational expenses such as payroll, rent and to purchase inventory. Many business owners that work with a factor claim that factoring not only helps keep their business running and growing, but also gives them peace of mind by allowing them to collect their profits immediately.

- Who are the parties involved in factoring?

There are three parties involved in factoring:

Factor – The factor is the company that funds invoices for as much as 99 percent of their face value. The factoring fee is determined by the amount of total invoices to be funded, plus the credit worthiness of the client’s customers. The American Factoring Association estimates there are currently up to 350 factoring companies in the U.S. and a market of approximately $180 billion in revenues being factored.

Client/Seller – The client or seller is the business-to-business company that sells its invoices to be factored. After entering into an agreement with the factor, the client no longer needs to be burdened with managing their accounts receivable. The client simply submits invoices to the factor, receives upfront funding – plus backend payment – and continues to conduct business as usual.

Debtor/Customer – The debtor is the company to which the invoices are billed. When a client begins factoring, the debtor is notified of the sale of the receivable, and the factor sends the invoice to the debtor. Most factoring companies work to make the transition from traditional billing to working with a factor as seamless as possible for both the client and debtor.

- Factoring process?

The factoring process begins with a simple application that can oftentimes be completed quickly online. Once the client’s application is approved, the client presents an invoice for a product or service they have already or will soon deliver, to their customer. The factor then buys the invoice from the client. The purchase amount, often considered an advance, is a large percentage of the invoice value that is paid to the client upon submission of the invoice to the factor. The advance can be paid in as little as four hours, allowing the client to increase cash flow immediately.

The factor then collects on the invoice from the debtor and holds the remaining total invoice amount, less the advance, until payment by the debtor is complete. Finally, the factor submits the reserve to the client, minus a predetermined fee, which the factor retains. The fees charged by factors can vary widely, typically in the range of 1 percent to 10 percent, depending on how quickly the invoice is paid.

There are two types of factoring:

Recourse Factoring – With a recourse factoring agreement, the client/seller remains responsible for the invoices if the debtor does not pay the factor. Typically required to be paid within 90 days, the risk associated with the invoice remains with the seller. If a debtor defaults on an invoice, the factor will collect the advance back from the client.

Non-Recourse Factoring – With non-recourse factoring, the factor assumes the credit risk associated with the purchased invoices. Because this type of factoring is riskier for the factor, fees are traditionally higher than with recourse factoring. Generally fewer factors are offering the option of non-recourse factoring.

- What is factoring used for?
Business-to-business companies of all sizes and types utilize the benefits of factoring to:

Stay out of debt and end reliance on bank loans and lines of credit
Improve cash flow to grow the company, keep current with accounts payable, including taking advantage of vendor discounts, and cover operational expenses, even when customers are requesting extended payment terms
Cut credit exposure by not overextending finances
Enhance income statement and balance sheet
Eliminate all future bad debt
Eliminate the need for time and resources spent on collections

Although many companies turn to factoring when faced with the situations above, many others see factoring as a viable alternative to borrowing money and as a smart general business decision to stay out of debt.

For example, an Orlando-based medical courier service recently turned to AmeriFactors, a national factoring company, because it had run out of funding options with its bank. Due to the nature of its business, the courier company didn’t have assets to leverage, but it did have the opportunity to take on a new client. In order to accept the new client, the company’s owner needed to know that he could pay his couriers weekly, even though the new customer could take up to 60 days to pay its invoices. The owner learned about factoring from a friend and contacted AmeriFactors. He was approved within days, and after working with AmeriFactors for just three months, has been able to take on three additional contracts and increase gross sales by 8 percent.

- Is factoring right for my business?

Most businesses that invoice other businesses on a net 30, 60 or 90 day invoice schedule will benefit from factoring. While many industries are able to factor, the factoring process has proven to work especially well within a variety of business-to- business industries including:

Exporters/Importers
Manufacturers/Wholesalers/Retailers/Distributors/Warehousing
Advertising/Marketing/Consulting/Printing/Publishing
Agriculture/Food Service
Apparel/Garment/Textile/Fabrication
Property Management/Property Maintenance/Security/HVAC, Oil & Gas Services
Contractors/Building Services
Staffing/Medical Staffing
Recruiting/Training/Education
IT/Technology
Energy/Utilities/Engineering/Environmental
Transportation/Freight/Logistics/Courier/Auto Services
Office Supply/Equipment Supply/Equipment Service

In short, any company that typically issues large invoices to another business, which takes a month or longer to ultimately make payment, is an ideal candidate for factoring.

- Why Factoring is an Alternative to a Small Business Loan or Line of Credit?

It’s not a loan. You don’t owe the money back.

Factoring is not a loan, so a business doesn’t owe the money to anyone. It is the purchase of a financial asset. This being said, when a client participates in factoring, they do not have to worry about an outstanding balance.

Emphasis is placed on your customer’s financial history.
With factoring, the emphasis is placed on the debtor’s credit and ability to pay its invoices, verses the client’s credit or ability to pay. While bank loans place a value on the organization’s credit worthiness and assets such as real estate, capital, inventory and accounts receivables, factoring is focused more on the debtor.

It’s simple and fast.

Because factoring is based on the debtor’s history, it doesn’t require complicated and time consuming paperwork on the client’s part. In fact, many businesses can be approved on the same day they apply and can receive cash in as little as 24 hours.

The growth possibilities are endless.

Because factoring is based on the client’s customers’ ability to pay, companies can continue to take multiple customer orders without the risk of overextending their finances. With a small business loan or line of credit, an organization may be forced to delay taking on new business to apply for an increase. Factoring works in parallel with your business, and as your business grows, so does the client’s access to those funds.

- About AmeriFactors

For more than 22 years, AmeriFactors has been a proponent of small to medium-sized businesses, supporting their cash flow needs and growth through accounts receivable funding. Also known as factoring, AmeriFactors buys invoices, on a non-recourse basis, from business-to-business companies to provide them with the cash they need to operate their business. Guided by Founder & President Kevin Gowen, AmeriFactors was built on the belief that all businesses, from small to large, regardless of industry, should have the right to grow and prosper without relying on banks and credit cards. Therefore, AmeriFactors works to provide the most expedient, reliable and fee competitive factoring services to clients nationwide to help them run their businesses and realize their dreams. For more information on factoring, visit AmeriFactors.com or call 800.884.FUND.