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Factoring Accounts Receivables
By: Veronica Wallace Vice President
Money was easy … so it seemed
Economic conditions changed and investors and bankers became less risk tolerant.
Credit has become tighter and tighter and tighter
So …What is Alternative Financing?
Spot Factoring: One time, UCC carve out, fast, extra docs
Full Service Factoring: Ongoing, full A/R management, minimum commitments, intercreditor arrangements possible
A/R Financing: lower
cost, daily ledger, prime + on funds borrowed, much like LOC
based on aging report, less expensive, includes inventory and other assets
PO Financing Solutions: LC’s and Vendor Assurance
Asset Based Lending:
When traditional bank financing is unavailable, small businesses need alternative business
financing sources to start or stay in business!
What is Factoring? Is it a new financing Option?
Factoring has been used for centuries. It is one of the oldest forms of financing. Until recently, factoring was primarily used in the garment and textile industries. Today, factoring is a $150 billion/year financial product and is widely used by all types of businesses that extend credit to credit worthy commercial customers.
How does Factoring work?
Bridgeport Capital purchases your accounts receivable converting them into working capital. So instead of you waiting on your customers to pay the invoices, factoring allows you in a timely and efficient manner to convert your accounts receivable into cash, the FUEL that grows your business.
How long does it take to start?
Within 24 hours of receiving the basic company information, we will issue a proposal. If it is accepted by the client, we then conduct our due diligence and complete all documentation. Initial funding typically takes place within several days, after that, funding generally occurs within 24 hours of their invoice submissions.
The Factoring Process
Invoices purchased in two installments, advance and reserve:
Advance --- up to 90% of the funds are delivered within 24 hours of invoice verification
Reserve --- the customer has paid and the balance goes to our client less the discount fee.
Factoring Example Invoice $1, 000.00 Advance - 800.00 Invoice paid 21 days, reserve balance 200.00 Fee (30 days x 2.00%) -20.00 Net reserve paid to client $180.00 Total paid for invoice $980.00 Total discount on sales $20.00
The Upside of a Factoring Transaction
NO debt on client’s books NO loss of equity or control NO balance sheet entry Unlimited availability of funds Accounts receivable encumbered
only, not personal or business assets.
The Upside of a Factoring Transaction
NO required periodic payoff NO high interest rates NO high or numerous administrative
costs NO restricted use of funds Detailed management reports
Factoring vs. Loans
Traditional Lending Strong credit required Multiple/varied
collateral Personal guarantee Cap Strong restrictions Lengthy underwriting May require zero out
Factoring Strong/multiple
debtors A/R only collateral Personal guarantee Unlimited availability No fund-use
restrictions Account open in 5
days Factoring and wire fee No payoff required
How Factoring Strengthens Financials
Before Factoring Accounts receivable
$1,000,000 Cash
$200,000After factoring Accounts receivable $200,000 Cash $1,000,000
Who Needs Alternative Financing?
Pre-Bankable companies: Start ups, inadequate track record, too small
Non-Bankable: tax problems, liens, bankruptcy, weak personal credit
Turnaround: Losses, negative net worth
Rapid Growth companies: in need of funds quickly, not enough supplier credit, temporary needs, great potential
Myth #1: “It Costs Too Much!”
It may be expensive but “compared to what?”
Factoring fees are much like Merchant Fees with a 1.5% to 3% discount
One time discount, daily rate, up front and clearly shown
No credit checking, collections, posting and other A/R functions
Timing is everything. Lost opportunity can be very expensive.
It’s much less expensive than equity financing It’s temporary solution and there should
be an exit plan to a bank Some are able to offset the fees by taking
supplier discounts
Myth # 2: “I will lose customers”
Much more common now and understood
You can be selective with customers
Different levels of Notification are available
Professional business practices always followed
Customers like accuracy and professionalism
A history of successful conversions
Who are our clients? Lightweight Garden Pot
Wholesaler Health Food Distribution Flexible Meat Packaging
Wholesaler Uniform Shoe Distributor Commercial Power Washing Retail Display Staging Flagging Company Trailer Repair Digital Training Programs Auto Body Repair Wholesale Office Furniture Industrial Label Manufacturer School Calendar Software
Manufacturer Mechanical Services for
Buildings Dried Fruit Manufacturer
Mfg and Distribute Hispanic Food Import Export Exotic Wood Perfume Manufacturer and
Distributor Distributor of Italian Food Sauces Stainless Steel Water Bottle
Wholesaler Graphic Arts Producer Ladies Hand Bag Wholesaler Dry Cleaning Uniforms Live Stock Water Recycling Aftermarket Auto Lowering Kits Fabricator Landscaping Wiring Systems Assembly
Who Is NOT Our Client?
Bridgeport Capital does not do these ourselves but we can place them or introduce them to someone who might:
Retail: merchant fee advance, equipment leasing
Medical insurance claims, Legal Fees, Dental Claims
Construction: progress draws, retentions, disputes over change orders or % completed: requires special handling and sub contractor monitoring
Real Estate: introductions can be made if requested
Qualifying them
B2B with clear open account terms like net 30 or 60
Must be able to provide a basic package (financials, agings, tax info, personal info)
Strength of Receivables
Ability to obtain first position on A/R
Clear and up front about taxes (Form 8812)
Who is Bridgeport Capital?
Bridgeport Capital Services is an established invoice factoring company providing their clients customized financial solutions and unparalleled service to meet their client’s business goals whether for short term needs, long term growth or to smooth seasonal business cash flow.
Questions?
