HOW INVOICE FACTORING SOLVES BUSINESS CASH FLOW PROBLEMS
Let us guess. You are an entrepreneur, and in order to increase your sales volume and maintain cordial relations with your customer, you have granted a credit terms 30, 60 or even 90 days. And now, you are struggling to pay employees or buy additional inventory. Or you are about to crack that deal you have been waiting for over a year, and you just don’t have the cash flow in your favor. It gives a new meaning to being ‘a victim of your own success’, doesn’t it?
Let us introduce you to the concept of Invoice Factoring, which helps free your funds from your unpaid invoices and keep your working capital flowing smoothly.
What is Invoice Factoring?
Let us give you an example. Say, you are a B2B business such a wholesaler or manufacture, and you have provided your products or services worth $100,000 to your customer ‘ABC Co.’ with 60 day term to pay;however, you have a major deal coming up and you have to make an upfront payment of around the same amount. Here’s when factoring invoices comes to the rescue.
We, at 1st PMF Bancorp, will purchase your invoice and provide an advance of 70 – 85% on each invoice. So, we will pay you $70,000 – $90,000 upfront, and depending on the nature of the business of ABC Co., the credibility of the company, prior credit history, and the like. After 60 days or the lapse of the credit period you granted ABC Co. to pay their invoice(s), PMF Bancorp will receive the full payment amount from ABC, and then pay the balance to you, after any deductions your customer might make and our fee.
Basically, this process is the selling of invoices at a discounted price to a factoring company like PMF Bancorp, in order to generate cash flow and/or to reduce the risk of bad debt. Invoice factoring is often interchanged with ‘invoice factoring’, ‘invoice discounting’ or ‘accounts receivable factoring/ AR factoring’.
However, there is a small difference between whole turn invoice factoring and accounts receivable factoring line. Factoring typically involves the purchase of all invoices of a particular customer, and applying a base charge to the entire volume of the invoices. Whereas, in the case of accounts receivable factoring line, the bank or lender provides a weekly borrowing base, which will be charged only on the particular invoices advanced by the AR financing.
What is your benefit?
Prima facie, there are the obvious benefits of generating immediate cash flow for your business and also the reduction of risk of bad debt. Your business gets quick access to working capital, which is much needed for not only running your business successfully, but also for expanding your business. Moreover, our customer service team will take complete responsibility of collection of payments, which saves you the trouble of chasing for payments.
Additionally, AR factoring is a much simpler process than traditional funding at a bank. Getting a business loan is not only a tedious process, but also the chances of approval are far less, as compared to an invoice factoring line. If convenience is your priority and simple fee structure for only invoices you are advanced on, then factoring surely is the way to go, even if the cost of factoring is marginally higher as compared to traditional bank financing.
At 1st PMF Bancorp, we ensure with more than 30 years of experience and a s a leading private lender in the US that the process is made simple. Our turn around is fast and efficient, which is within 24 hours in most of the cases.
Will it suit your business?
Factoring is most suitable for B2B businesses in wholesale, distribution, importing, transportation, business services, and more with annual turnover between $1 million to $30 million per year. B2B companies usually have fast growth but have lengthy payment periods, and hence, can benefit greatly from invoice factoring.
However, some B2C companies find it difficult to go for factoring. This is due to the fact that B2C companies might not issue invoices, and payment terms are more often than not, cash on delivery. Such companies will not be able to use PMF Bancorp’s factoring services, but maybe eligible for our Merchant Cash Advance Loan Programs (MCA Loans –more on our website on this).
What will it cost you?
The cost of factoring is a marginal percentage of the amount of invoice, which is usually 1% or 2% of your total invoice (less than a customer’s early payment discount in most cases). Like any other service, more the risk, more the cost. The credit worthiness of the customer plays a major role in determining the cost of factoring. Furthermore, a larger volume of invoices to be factored will reduce cost significantly as well for factoring.
Transparency is the key! We provide you with thorough all-inclusive pricing before we begin that is simple to understand without extra charges popping up, which will allow you to carefully assess your cost before getting involved.
How confidential is your information?
There’s only one word for that – completely! We understand that your business and customer details are of utmost confidence and highest value, and we do not divulge information without your permission.
We provide financing solutions to the businesses of the 21st century. In this fast-paced world, factoring is one of the fastest and most efficient means of generating funds for not only running your current business, but also for expanding your business to greater heights.
With 1st PMF Bancorp, do not let cash crunch become a reason to not let your business grow. Help us, help you to convert your paper money to the real cash!