Improving Cash Flow With Invoice Factoring And Purchase Order Financing

Improving Cash Flow With Invoice Factoring And Purchase Order Financing



Managing cash flow can be a​ challenge for many businesses. But creative funding options like invoice factoring and purchase order (PO) financing can make the job much easier.

These financial solutions offer convenient, cost-effective and immediate access to​ working capital. Invoice factoring and purchase order financing are suitable for companies in​ just about any industry. They can provide financial support to​ expand, manage business surges or​ even meet day-to-day operating expenses. And they're ideal if​ your company is​ newer and can't obtain a​ loan.

The Ins and Outs of​ Invoice Factoring

Invoice factoring is​ easy to​ set up and terminate. to​ qualify, you should have no existing primary liens or​ claims on your accounts receivable. And you must have creditworthy clients who pay their invoices promptly and in​ full.

When factoring customer invoices, you can receive quick cash advances often within 24 hours. Your cash advance is​ based on the overall value of​ the invoices you provide as​ collateral. Typically, you can get 80 percent of​ the invoice value upfront and the remaining value after your client pays the invoice minus a​ three to​ five percent factoring fee.

Your customers pay the factoring company directly. And the factoring company takes responsibility including any loss for the collection of​ their debts. It's important to​ note that invoice factoring is​ not a​ loan, so there are no repayments to​ make. You are simply using the good credit of​ your clients to​ release your own assets to​ be put back in​ your own business.

Historically speaking, factoring is​ a​ well-established form of​ business financing that produces cash payments at​ the time of​ shipping, delivery and invoicing. Its origin has been traced to​ the days of​ the Roman Empire or​ even earlier, but the U.S. factoring industry dates back only about 200 years to​ the early nineteenth century. Factoring companies, known as​ factors, evolved from U.S. selling agents for European textile mills. Currently, about 70 percent of​ the volume of​ traditional factors is​ still in​ textiles, apparel and related industries that highly value credit guarantees, according to​ the Commercial Finance Association.

Invoice factoring can provide the working capital your business needs to​ handle new projects, fill large orders and pay creditors on time or​ even early. in​ essence, factoring can keep your cash flow running smoothly while your business grows. This can enable you to​ stop worrying about finances, and concentrate on productivity and how to​ profitably expand your business. Factoring also can help you avoid wasting time tracking down accounts receivable or​ handling bad debts.

Here are some other important factors (no pun intended) about invoice factoring:
- There is​ no application or​ set up fee.

- You choose which accounts to​ finance.

- Invoices eligible up to​ 30 days from the date of​ invoice.

- There is​ no a​ minimum funding requirement or​ requirement to​ factor all invoices.

- The funds wired directly into your bank account.

- Customers send their checks directly to​ our lockbox.

Cashing in​ on Purchase Order Financing

PO financing can provide quick cash flow reserves for manufacturers, importers, exporters and distributors. This type of​ short-term funding is​ used to​ finance the purchase or​ manufacture of​ specific goods that have been presold by the client to​ its credit worthy end customer. Funding involves issuing letters of​ credit or​ providing funds that allow companies to​ secure the inventory they need to​ fulfill customer orders.

With PO financing, working capital financing is​ protected by a​ security interest in​ existing purchase orders and the proceeds of​ the purchase orders. Normally, the security interest is​ perfected by the lender taking possession of​ the inventory or​ raw materials.

PO financing can pay for the cost of​ your goods directly to​ your supplier, freeing up cash for other critical business expenses. This can help your company ensure timely deliveries to​ customers, grow without increased bank debt or​ selling equity, and increase market share. to​ qualify for PO Financing, you must provide financial information about your company, information about your buyer and supplier, and buyer and supplier invoices.

PO financing is​ available for finished and non-finished goods, although finished goods are generally easier to​ finance. Finished goods involve transactions where the goods go directly from your supplier to​ your buyer. You never touch them or​ take direct possession.

Non-Finished Goods are when you, the seller, take possession of​ the goods either in​ a​ raw state (such as​ yarn to​ make blue jeans) or​ a​ semi-finished state (partially sewn blue jeans). in​ either case, you must take possession of​ the product.

Purchase order financing can help solve a​ variety of​ cash flow dilemmas. Here's a​ prime example: Your suppliers want you to​ pay cash on deliver (C.O.D.) and your buyers want to​ pay you net 30 to​ 60 days. You have no cash flow during manufacturing, while the goods are in​ transit, and until your invoices are paid.

PO financing may be right for your company if...

- You need additional working capital.

- You lack expertise to​ handle the financing.

- You need a​ quick response to​ an​ immediate sales need.

- You don't want to​ incur additional credit risk, be it​ foreign or​ domestic.

- You want your buyers and sellers to​ not know each other.

- You want the opportunity to​ make additional profit.

Purchase orders can be used for U.S. and foreign buyers and suppliers. Consider this scenario involving a​ U.S. supplier and U.S. buyer: You're an​ apparel manufacturer. You've been in​ business for six years and have a​ good profit and loss statement and balance sheet. You just received a​ large order and are maxed out on credit from your suppliers. Your sales price to​ your buyer is​ $100,000 and your total cost to​ produce the goods is​ $75,000. Your gross margin is​ 25 percent. The financing company will purchase the goods for you from your supplier, give you 45 days to​ produce the goods, charge you a​ 5-percent purchase order fee ($5000, 5 percent of​ $100,000) and factor your receivables.




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