Dec 28
adminFinancing Accounts, Dont, Financing, Happy, Receivable, Worry
There is a reason why accounts receivable financing is a four thousand year old financing technique: it works. Accounts receivable financing, factoring, and asset based financing all mean the same thing as related to asset based lending- invoices are sold or pledged to a third party, usually a commercial finance company (sometimes a bank) to accelerate cash flow.
In simple terms, the process follows these steps. A business sells and delivers a product or service to another business. The customer receives an invoice. The business requests funding from the financing entity and a percentage of the invoice (usually 80% to 90%) is transferred to the business by the financing entity. The customer pays the invoice directly to the financing entity. The agreed upon fees are deducted and the remainder is rebated to the business by the financing entity.
How does the customer know to pay the financing entity instead of the business they are receiving goods or services from? The legal term is called “notification”. The financing entity informs the customer in writing of the financing agreement and the customer must agree in writing to this arrangement. In general, if the customer refuses to agree in writing to pay the lender instead of the business providing the goods or services, the financing entity will decline to advance funds.
Why? The main security for the financing entity to be repaid is the creditworthiness of the customer paying the invoice. Before funds are advanced to the business there is a second step called “verification”. The finance entity verifies with the customer that the goods have been received or the services were performed satisfactorily. There being no dispute, it is reasonable for the financing entity to assume that the invoice will be paid; therefore funds are advanced. This is a general view of how the accounts receivable financing process works.
Non-notification accounts receivable financing is a type of confidential factoring where the customers are not notified of the business’ financing arrangement with the financing entity. One typical situation involves a business that sells inexpensive items to thousands of customers; the cost of notification and verification is excessive compared to the risk of nonpayment by an individual customer. It simply may not make economic sense for the financing entity to have several employees contacting hundreds of customers for one financing customer’s transactions on a daily basis.
Non-notification factoring may require additional collateral requirements such as real estate; superior credit of the borrowing business may also be required with personal guarantees from the owners. It is more difficult to obtain non-notification factoring than the normal accounts receivable financing with notification and verification provisions.
Some businesses worry that if their customers learn that a commercial financing entity is factoring their receivables it may hurt their relationship with their customer; perhaps they may loose the customer’s business. What is this worry, why does it exist and is it justified?
The MSN Encarta Dictionary defines the word worry as:
“Worry
verb (past and past participle wor•ried, present participle wor•ry•ing, 3rd person present singular wor•ries)Definition: 1. transitive and intransitive verb be or make anxious: to feel anxious about something unpleasant that may have happened or may happen, or make somebody do this
2. transitive verb annoy somebody: to annoy somebody by making insistent demands or complaints
3. transitive verb try to bite animal: to try to wound or kill an animal by biting it
a dog suspected of worrying sheep
4. transitive verb
Same as worry at
5. intransitive verb proceed despite problems: to proceed persistently despite problems or obstacles
6. transitive verb touch something repeatedly: to touch, move, or interfere with something repeatedly
Stop worrying that button or it’ll come off.
noun (plural wor•ries)Definition: 1. anxiousness: a troubled unsettled feeling
2. cause of anxiety: something that causes anxiety or concern
3. period of anxiety: a period spent feeling anxious or concerned…”
The opposite is:
”not to worry used to tell somebody that something is not important and need not be a cause of concern (informal)
Not to worry. We’ll do better next time.
no worries U.K. Australia New Zealand used to say that something is no trouble or is not worth mentioning (informal)”.
Query: if a business is financing their invoices with accounts receivable financing, is this an indication of financial strength or weakness? Query: from the point of view of the customer, if you are buying goods or services from a business that is factoring their receivables, should you be concerned? Query: is there one answer to these questions that fits all situations?
The answer is it’s a paradox. A paradox is a statement, proposition, or situation that seems to be absurd or contradictory, but in fact is or may be true.
Accounts receivable financing is both a sign of weakness with regard to cash flow and a sign of strength with respect to cash flow. It is a weakness because, prior to financing, funds are not available to provide cash flow to pay for materials, salaries, etc. and it is an indication of strength because, subsequent to funding cash is available to facilitate a business’ needs for cash to grow. It is a paradox. When properly structured as a financing tool for growth at a reasonable cost, it is a beneficial solution to cash flow shortages.
If your entire business depended on one supplier, and you were notified that your supplier was factoring their receivables, you might have a justifiable concern. If your only supplier went out of business, your business could be severely compromised. But this is also true whether or not the supplier is utilizing accounts receivable financing. It’s a paradox. This involves matters of perception, ego and character of the personalities in charge of the business and the supplier.
Every day, every month thousands of customers accept millions of dollars of goods and services in contracts that involve notification, verification and the factoring of receivables. For most customers, “notification” of accounts receivable financing is a non-issue: it is merely a change of the name or addresses of the payee on a check. This is a job for a person in the accounts payable department to make a minor clerical change. It is a mainstream business practice.
Bobby McFerrin wrote and performed a song called “Don’t Worry, Be Happy” for the movie “Cocktails” starring Tom Cruise. The song was a number one U.S. pop hit in 1988 and won the Grammy for Best Song of the Year. Here are the lyrics:
”Here is a little song I wrote
You might want to sing it note for note
Don’t worry be happy
In every life we have some trouble
When you worry you make it double
Don’t worry, be happy……
Ain’t got no place to lay your head
Somebody came and took your bed
Don’t worry, be happy
The land lord say your rent is late
He may have to litigate
Don’t worry, be happy
Look at me I am happy
Don’t worry, be happy
Here I give you my phone number
When you worry call me
I make you happy
Don’t worry, be happy
Ain’t got no cash, ain’t got no style
Ain’t got not girl to make you smile
But don’t worry be happy
Cause when you worry
Your face will frown
And that will bring everybody down
So don’t worry, be happy (now)…..
There is this little song I wrote
I hope you learn it note for note
Like good little children
Don’t worry, be happy
Listen to what I say
In your life expect some trouble
But when you worry
You make it double
Don’t worry, be happy……
Don’t worry don’t do it, be happy
Put a smile on your face
Don’t bring everybody down like this
Don’t worry, it will soon past
Whatever it is
Don’t worry, be happy”
The bottom line: “notification” should not be an issue in most situations involving accounts receivable financing; non-notification factoring is another option that is available for businesses concerned with confidentiality that meet minimum credit standards for asset based lending. Bobby McFerrin was right: “Don’t Worry, Be Happy”.
Copyright © 2007 Gregg Financial Services
www.greggfinancialservices.com
Dec 27
adminFinancing Banking, Corporate, Finance, Info, investment
The field of corporate finance deals with the decisions of finance taken by corporations along with the analysis and the tools required for taking such decisions. The principle aim of corporate finance is enhancing the corporate value and at the same time reducing the financial risks of the company. In addition to this, corporate finance also deals in getting the maximum returns on the invested capital of the company. The major concepts of corporate finance are applied to the problems of finance encountered by all type of firms. Corporate finance group deals with medium and large corporate clients and offers complete solutions to meet our clients’ financial requirements. The management of corporate finance attempts to maximize the firm’s value by making investments in the projects that have a positive yield. The finance options for such projects have to be done in a proper manner.
Achieving the goals of corporate finance requires that any corporate investment be financed appropriately. Management must therefore identify the optimal mix of financing-the capital structures that result in maximum value. Management must also attempt to match the financing mix to the asset being financed as closely as possible, in terms of both timing and cash flows. Many factors should be considered like investment objectives, policy frameworks, institutional structure, sources of financing and expenditure framework etc. There are various considerations where shareholders pay tax on dividends, companies may elect to retain earnings, or to perform a stock buyback, in both cases increasing the value of shares outstanding etc. Thus, the goal of corporate finance is the maximization of firm value. In the context of long term, capital investment decisions, firm value is enhanced through appropriately selecting and funding NPV positive investments. These investments, in turn, have implications in terms of cash flow and cost of capital.
Investment banking is one of the most global industries and is hence continuously challenged to respond to new developments and innovation in the global financial markets. It deals with raising capital, trading in securities and managing corporate mergers and acquisitions. Investment banks earn profit from companies and governments by raising money through issuing and selling various securities. There are many investment banks operating in the field of investment banking and finance. Investment banks, or I-banks, issue securities, manage portfolios of financial assets, trade securities, help investors purchase securities, provide financial advice, and support services. Finance areas are responsible for an investment bank’s capital management and risk monitoring. By tracking and analyzing the capital flows of the firm, the Finance division is the principal adviser to senior management on essential areas such as controlling the firm’s global risk exposure and the profitability and structure of the firm’s various businesses.
When raising capital for a firm, an investment bank is acting as an intermediary between investors and the issuer. Capital raised can come from private investors or from pools of capital obtained within the public markets. They also engage in numerous proprietary activities in the financial markets. Investment banks also provide merger and acquisition services, both on the buy and sell side of a deal. The buy side involves identifying and facilitating the acquisition of a target company, while the sell side involves taking a client company to market at auction and identifying and facilitating the sale to a high bidder or acquirer with a strong strategic fit.
New products with higher margins are constantly invented and manufactured by bankers in hopes of winning over clients and developing trading know-how in new markets in the field of investment banking. Product coverage groups focus on financial products, such as mergers and acquisitions, leveraged finance, equity, and high-grade debt. Thus, investment banking and finance can be one of the best options for your investment management and capital structuring.
Dec 26
adminFinancing Companies, Financing, Import, Options
Whether you are starting an import business or have an established importing business, it can be a very profitable venture if you have the right financing to grow your business. Imports are defined as: a good that crosses into a country, across its border, for commercial purposes; a product, which might be a service that is provided to domestic residents by a foreign producer; or a combination of the two.
Starting or running an import business has never been more profitable because of computers, the internet, and the availability of low cost imports from countries such as China and Mexico. These imports may be resold for up to ten times their cost depending on the competition in your field of operations.
It is essential that you have good, honest suppliers plus creditworthy customers with purchase orders for your imports. If you have the right financing, your business can grow exponentially. But how do you finance growth if your own resources or bank lines of credit are not sufficient to take advantage of big opportunities? A combination of purchase order financing, accounts receivable financing with inventory financing may be the solution.
Definitions:
Purchase Order Financing
Purchase Order financing is the assignment of purchase orders to a third party, a commercial finance company, who then assumes the obligation of billing and collecting. Purchase order financing can be used to finance all current and subsequent orders to improve your company’s cash flow. The process works as follows: 1) Your company obtains a purchase order for products to be sold another company; 2) A letter of credit may be issued, based on a finance companies’ credit, to guarantee payment to suppliers or factories producing the goods; 3) The order is shipped, delivered and accepted by your customer; 4) The customer receives an invoice for the goods; 5) The Purchase Order Company pays the supplier/factory; 6) a commercial finance company or Accounts Receivable Finance Company pays the Purchase Order Financing Company after the products are delivered to your customer; 7) The customer pays the commercial finance company for goods received; 
The accounts are settled and the profit is paid to you.
Accounts Receivable Financing
Accounts Receivable Financing is the selling or pledging of your company’s account receivable, at a discount, to a Factor, a Commercial Finance Company or to an Accounts Receivable Financing Company who may assume a risk of loss. You receive a portion, usually 80% to 90% of the face value of your receivables in advance of payment from your customers in return for a fee, or interest, to be paid to the commercial finance company. When the commercial finance company is paid by the customer, the appropriate fees are deducted and the remainder is rebated to you. “Accounts receivable financing” is also called accounts receivable factoring, factoring financial services, invoice factoring and cash flow factoring. The terms are used to convey the same meaning.
Inventory Financing
Inventory financing is a loan secured by the inventory of your business. Inventory finance enables import companies to hold more stock without cash flow strain and to generate more sales. Inventory finance is often part of a Purchase Order and Accounts Receivable Financing commercial finance package.
These three types of financing can enable an import business to increase purchasing capabilities dramatically; you can accept larger orders and grow your business exponentially. You can use your inventory to leverage your purchasing power. You can use your customer’s credit to obtain these three types of financing; and you can use the commercial finance company’s credit to obtain a letter of credit.
The concept of financing your import company with “other people’s money” is part of a safe and sound business plan. Add strong product quality controls, inventory controls, and good accounting to maximize the success of your import company.
Copyright © 2007 Gregg Financial Services
www.greggfinancialservices.com
Dec 21
adminFinancing Business, Choices, Commercial, Estate, Finance, Loan, Mortgage, Real
Even though longer-term business finance techniques might be appropriate for many circumstances, there are some important short-term business loan options that will be less costly in producing improved credit card processing and commercial mortgage results for business owners. Short-term business financing choices can be misunderstood because of a preference by many business owners for long-term commercial real estate loan and commercial loan programs.
Two Important Short-Term Business Finance Options
Two of the most overlooked short-term working capital business loan strategies are short-term commercial mortgage loan programs and business cash advance programs in conjunction with credit card processing. Both of these business finance options are relevant for most business owners but are frequently misunderstood.
Short-term Programs for Commercial Real Estate Investment Financing
A long-term business loan is appropriate for many businesses that own commercial real estate investment property. Business properties should normally be financed with a combination of short-term and long-term business finance funds. When a longer-term commercial mortgage is viable, it is preferable to secure long-term business financing, preferably for 30 years.
However there will be many commercial mortgage loan situations in which longer-term real estate business financing is not appropriate for the business owner. In such circumstances it is important for a business owner to realize that there are viable short-term working capital management options.
When a Short-Term Commercial Mortgage is Appropriate
If a business owner plans to sell or refinance their business within a few years, it is preferable to explore short-term business finance options. The best short-term business loan will have minimal prepayment penalties in comparison to terms commonly included with long-term commercial real estate investment property financing.
The avoidance of business finance prepayment fees and lockout fees fees in some short-term business financing programs is an important benefit of these short-term commercial mortgage approaches. The absence of these potential fees could produce a savings of up to 20% or more if the business property is sold during the period which would have involved lockout fees in a longer-term commercial loan.
Short-Term Commercial Real Estate Investment Property Financing Limitations
There are some trade-offs that need to be understood if a business owner chooses shorter-term business financing even though prepayment fees will usually be avoided with a short-term business loan. When short-term commercial real estate financing is a realistic option, the loan-to-value will usually be no higher than 70%, the commercial mortgage will not be readily available for special purpose business investment properties such as golf courses and the interest rate will frequently be in the range of about 12%.
Best Investing Possibilities for a Short-Term Commercial Mortgage Loan
Warehouse, multi-family, office, mixed-use and retail business properties are the best possibilities for short-term business financing. Business owners should be comfortable with a time period of less than three years for a typical short-term business loan.
Fewer Mortgage Lenders for a Short-Term Commercial Real Estate Loan
There will typically be a very small number of commercial real estate investment property lenders who are effective at implementing the short-term commercial mortgage loan strategy properly. There are also a number of problems to be avoided with a short-term commercial real estate loan, so choosing an appropriate provider is extremely important to any business owner considering a short-term business finance program.
Credit Card Processing and Business Cash Advance Programs
For any business that accepts credit cards as a method of payment, a business cash advance is a critical working capital management tool that is often overlooked. Even thriving businesses frequently need more working capital than they can borrow. One of the least-known business finance strategies for successful businesses is potentially the single best working capital loan strategy for obtaining needed cash for growing their business: the use of a merchant cash advance or business cash advance program.
Primary possibilities to take advantage of this business financing program are service and retail businesses. This credit card processing and credit card financing strategy uses credit card receivables to determine the amount of a merchant cash advance.
Working Capital Management: Credit Card Financing and Credit Card Processing
This business financing technique is called credit card financing or credit card factoring. Some business owners might have used a business finance technique referred to as receivables factoring to sell future receivables at a discount and receive immediate cash.
Many service and retail businesses cannot document business receivables to obtain a business loan. Businesses such as bars and restaurants do not typically have receivables to use for business financing.
What these businesses do have in many cases is documented sales volume and documented credit card sales activity. It is this documented level of sales volume and credit card sales activity that becomes a financial asset to the business and its business finance strategies. Business cash advances from $5,000 to $300,000 can usually be obtained based on a merchant’s sales volume and future credit card sales.
A business financing merchant cash advance must usually be paid back in less than 12 months. For business owners that want to renew the working capital cash advance program, it is typically possible to get more working capital after payback of the initial advance.
Limitations and Problems to Avoid with Credit Card Processing and Merchant Cash Advance Programs
As with any successful business finance strategy, there will typically be only a small number of commercial lenders who are effective at implementing this working capital management strategy properly. There are also a number of problems to be avoided with business cash advance programs, so choosing the appropriate provider of this commercial financing service is extremely important to any business owner considering a credit card financing program.
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