1 / 12

Factoring Lines of Credit

Factoring Lines of Credit. Presented by Robyn Barrett Managing Member - FSW Funding. What is Factoring?. Factoring is a line of credit based on your accounts receivable.

lucien
Download Presentation

Factoring Lines of Credit

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Factoring Lines of Credit Presented by Robyn Barrett Managing Member - FSW Funding

  2. What is Factoring? • Factoring is a line of credit based on your accounts receivable. • Advance Rate: A factors will advance between 80-95% of the face amount of an invoice when goods are shipped to your customer. • Fee: The factor charges a fee instead of an interest rate. The typical factoring fee is 1% to 3% a month depending on the credit quality of your customers. • Cash Flow: Factoring can increase your cash flow by 30, 60, or 90 days in an effort to fulfill upcoming orders, stay current on payables, fund payroll, and meet other obligations. • Credit Analysis: Factors spend a lot of time analyzing the credit of your customers since this is the primary source of repayment. Thus, factors can be your credit department.

  3. Why Choose Factoring? • Factors underwrite the line of credit based on the future of your business and the financial strength of your customers. Underwriting future sales equates to a larger line of credit. • Factoring lines of credit can be approved and funded in as little as 5 business days. • Factors can accommodate companies with customer concentrations, rapid growth, tax issues and limited time in business.

  4. Factor versus Bank: What is the difference? • Loan Underwriting: Factors underwrite the future. Banks underwrite the past. • Credit Facility: Factors can often offer larger lines of credit and more availability. • Loan Approval: Factors can approve the line of credit and any subsequent changes in a matter of hours or days. • Credit Analysis: Factors can assist in the credit approval of new customers as well as managing some or all of the accounts receivable function. This can equate to reduced or re-allocated headcount for a company and better vetting of prospects.

  5. Cash Flow Problem: Losing Money Current lender had asked Company Ato find new financing due to losses. Pros • Company Ahad operated for over 30 years. • The customer base consisted of strong military subcontractors located throughout the US. • The owner was a US Veteran who was obtaining Federal Contracts. • Invoices would pay on average of 52 days. Cons • Company A had losses in excess of $1M and negative equity of $1.2M • Over 71% of accounts payable was in excess of 90 days. • Company A had 75% concentration with 1 customer.

  6. Solution: Factoring • Current lender had ceased funding and the company was in need a quick solution. • Factor was able to provide a $1.5M line of credit within 2 weeks. • Company Afactored for one year and significantly paid down vendors and was able to be profitable. • The improved financial state allowed the owner to sell the business for a sizeable profit.

  7. Cash Flow Problem: Rapid Growth Company Bhad no financing in place and was experiencing extensive growth. Pros • Customer base was very strong Fortune 500 businesses. • Owner was very sales driven thus increasing business by over 50% year to year. • High gross margins. Cons • Company Bhad no financial statements that could be considered useful or verifiable. • High rates of return on products, in some cases in excess of 30%. • Very seasonal, majority of business is between September-November. • Some customers require terms of N60-N90.

  8. Solution: Factoring • The cash flow provided by factoring current and new invoices, enabled Company B to pay suppliers within terms in order to fulfill upcoming large orders for holiday season. • By keeping current with suppliers and having excellent relationships with customers, Company Bexpects continued growth throughout this year and beyond.

  9. Cash Flow Problem: Customer Concentration Company C, A start-up, was fortunate to gain a very large customer immediately but did not have the cash flow to fulfill the orders. Pros • The large customer was very strong multi-billion dollar company. • Products sold on high margin with virtually no return rights. • Owner had strong character and several years in the industry. Cons • Customer was located in Canada and sold on Net 90 terms. • Company Chad no operating history to review. • Primary customer made up over 90% of all sales.

  10. Solution: Factoring • Factoring the invoices with longer payment terms created enough cash flow so Company C could stay current with all suppliers. • Company C was able to grow the business with domestic customers who paid in Net 30 and not factor those invoices to save money on fees. • By utilizing factoring, Company C was able to operate for two years showing profitability and able to get a $1M line of credit from a bank.

  11. Conclusion • Alternative to banks: Factoring is a great option if you are not “bankable”. This doesn’t mean your business is bankrupt. It means the bank can’t underwrite a loan for your company at this time. • Flexibility: Factors can offer flexibility – no long term contracts, no monthly minimums, no hidden fees. • More access to cash:Factoring will allow your line of credit to grow as sales grow. Thus, you can go after larger contracts or orders without fear. • Credit Analysis: Factoring can help you evaluate the credit of prospects and ongoing customers.

  12. Robyn Barrett FSW Funding robyn@fswfunding.com 602-535-5984

More Related