Invoice factoring is a service provided by alternative financing companies that involves selling your outstanding invoices in exchange for cash, notably known as factoring. The factoring company or “factor” purchases an outstanding invoice, and advances a percentage of that invoice. Additionally, the factoring company will handle payment collection of the invoices directly with your customers. Invoice factoring services provide many benefits for a business, but there are qualification requirements to keep in mind when applying for invoice factoring.
One of the most important requirements for invoice factoring is fully and accurately completing an application. Factors typically request invoicing volumes and other personal information. The more detailed information you provide, the more accurate and seamless the beginning steps will be. The industry of the applying company, along with the type of customers invoiced, will help a factoring company determine whether to move forward with the transaction or not.
Unlike a traditional bank loan, a business’s credit is not a major factor for approval. Instead, they consider the credit risk of the clients they invoice. The main reason for this – the clients will pay the factoring company directly, and do not want to risk nonpayment. It would be in a business’s best interest to consider which customers have solid credit, reputable relationships, and honor debts to get approved.
Factors tend to be more interested in your client’s credit worthiness than yours.
An accounts receivable aging report lists out any unpaid invoices, notes, and credit memos. This is an important document required for factoring. Factors will typically use this document to track what outstanding invoices you have, how much is owed, and when they will receive payment. This report may also be referred to as a schedule or schedule of accounts receivable.
One obvious – yet extremely important requirement for qualification is having invoices to factor. Without any unpaid invoices, you will not be approved for factoring services.
Without invoices to factor, you will not be able to factor.
A factoring company will also require a government-issued tax identification number (in some cases your business utilizes an individual’s social security number). They will use this number to verify your organization’s tax status, along with verifying if your business has any outstanding lien(s).
Many factors may not transfer money to a personal bank account. They tend to wire money to business-only accounts or ACH (Automated Clearing House) transfers. Simply put, if you would like to receive funding from a factor, you will need to have a business bank account.
Factoring companies want to ensure the organization they will potentially work with is financially healthy and sound. To do this, your organization may be requested to illustrate financial reports. These include, but not limited to: Profit & Loss or Income Statement, a Balance Sheet, Aging reports (A.R. & A.P), and bank/deposit account statements. The more readily available these documents are, the most swift and efficient the application process is for your business.
Once a factoring company receives your application, they will tell you what other information they need from you. It is helpful to be prepared for their requirements – the earlier you send the factoring company all documentation, the sooner you can get paid!
Invoice factoring has numerous benefits and can help you grow your business with extra cash in hand. At CapFlow Funding Group, we provide instant liquidity with limited paperwork required.
Alternative financing is funding provided for businesses outside of traditional bank loans. Alternative lenders offer a range of financing products with flexible requirements. Traditional bank loans tend to be a lengthy and difficult process to qualify for. Fortunately, there are other opportunities available for businesses with some alternative financing strategies.
Invoice factoring is an alternative financing process where a business sells their invoices to a factoring company. In exchange for selling their invoices, the factoring company advances a large percentage of the money owed to the business. They also directly manage payment with your customers. Once the invoice has been completely paid off, the factoring company will send you the remaining balance, minus a small factoring fee for their service.
Invoice factoring provides businesses with immediate, ongoing cash flow. This will allow businesses to meet their short-term financing needs instead of having to wait 30-90 days to receive payment on invoices. Furthermore, credit score, collateral and loan history are not a major factor in getting approved for factoring. This makes receiving funding much faster and more flexible.
Crowdfunding is another alternative source of funding that allows for businesses to raise money from investors. Through the use of social media and crowdfunding websites business owners have the potential to meet investors and raise funding. This strategy allows businesses to raise money without resulting to venture capital investors. However, if the funding goal is not met, any finance that has been pledged will be returned to the investors.
With crowdfunding, businesses rely on marketplaces to provide funding for their operations.
With a merchant cash advance, an alternative finance company provides businesses with a lump sum upfront, which is then repaid with a percentage of the business’s sales. This option is best for small businesses that need immediate capital. A traditional MCA is structured where the provider deducts a daily or weekly percentage of your debit and credit card sales until the advance has been fully repaid. This funding can be provided within 24 hours and repayments can be adjusted according to how your business is performing.
Another type of alternative financing strategy is revenue-based financing. Revenue-based financing is a loan that a business pays back with a part of their future revenue. This strategy helps businesses successfully raise the capital needed without sacrificing their equity or any collateral. It also does not involve interest payments – repayment is a predetermined amount plus a flat fee. Monthly payments increase or decrease to match the natural fluctuations of a business, meaning you will not be burdened by payments you cannot afford.
Benefits of revenue-based financing include it being cheaper and more flexible than other funding options, your business will retain more ownership and control of your business, there are no personal guarantees, payments are flexible, you may have a faster funding timeline, and more.
A consistent cash flow is essential to sustain any costs, cost increases and overhead expenses for any type of food manufacturing business. The food and beverage industry know all too well the issues that can be faced with managing cash flow when it comes to day-to-day operations. One of the most common problems that is faced every day by food and beverage companies is having unpaid invoices, with long duration payment terms. Resolutions to this issue, such as invoice factoring, are crucial to understand to keep your business on track and growing.
Invoice factoring for your food and beverage company allows you to have consistent working capital. All while waiting for invoices to be paid. To summarize what invoice factoring is: You invoice your customer, and you then sell those invoices to a factoring company. Factors typically advance between 70-90% of the total invoice value, giving you access to your working capital within days. You remain in control of your business and customers; the difference is that your customer simply makes payments to the factoring company instead.
Get working capital faster to cover expenses.
Food and beverage companies can struggle to maintain a solid cash flow. You try to meet demands, cover operating costs, payroll deadlines and more. Fortunately, factoring can be beneficial for resolving this issue. Not only can factoring your invoices allow you to comfortably stay on track, but it can also help grow your business. Having your capital readily available for you on demand in exchange for selling an invoice, can allow you to invest more in your food and beverage business. You can use that working capital to market and advertise your business or invest in additional inventory. Furthermore, it can be used for purchasing more technology, better equipment, higher quality products and more. All these examples can take your company to the next level without having to wait for invoice payments.
Essentially, any type of food and beverage company should consider looking into invoice factoring. Whether you are working with seafood, meat, dairy, fruits, and vegetables, etc., it can benefit your business in different ways. Having that cash in your hand gives you the opportunity to focus on working on your business and bringing more food to the market. Nevertheless, make sure to do all the research necessary. This will help you determine whether invoice factoring is right for your business. Furthermore, what to be aware of when choosing a factor.
The retail industry has been hit hard by the recent COVID pandemic, with many stores shutting their doors for good. Retailers have seen market forces previously unseen, leading to months of closures and shifts in consumer behavior patterns. While this epidemic is undoubtedly hurting many businesses, it does provide opportunities for those who are able to see through the chaos.
Some retailers may be feeling vulnerable because of the current economic climate and the fact that in some locations, the number of new COVID cases has begun to spike. However, for those businesses that have survived the first wave of the COVID pandemic, it is important that they take steps to align their business operations to meet customer demand in a new way. Here are some retail store recovery tips that can help you re-emerge from the cloud of COVID and have a successful retail comeback.
Like it or not, there’s no denying that Amazon is a shining example of how to succeed in the shifting retail landscape. They invested heavily to ramp their distribution networks during the quarantines and social distancing resulting from COVID. Not only did this help them ride out the storm but it also helped them to secure a favorable position with consumers. Many of the consumers who shopped Amazon out of necessity continue to do so for the convenience of shopping from home and having packages delivered to their front door. All those hours spent running from store to store can now be spent doing more enjoyable activities or just relaxing.
As a small business owner, you are probably wondering how you could possibly compete with the retail giant. Mimic them – of course, but not on such a grand scale. We are not suggesting that you go out and buy a fleet of delivery vans with your company name emblazoned on them. However, you need to find a way to make it easier for the customers you served before the pandemic to return to doing business with you. Provide consumers with the ability to order online or over the phone and offer shipping, curbside pick up, or delivery. While you may not be in the position to offer a 2-hour delivery window like Instacart or Amazon’s next-day delivery, rethinking how you meet customer demand is one of the best retail store recovery tips.
Don’t look forward to things getting back to normal. Despite the overuse of the term, this is the new normal. The pandemic has impacted every aspect of our lives. Remote work and social distancing have caused shopping behaviors to change. With sweat pants and comfortable footwear now the new “work from home” attire, department store shopping has seen a decline while grocery stores have experienced a significant surge. Because consumers are spending more time at home, their needs have changed.
In addition to making the shopping experience more convenient, retailers also need to adjust the type of goods they are offering. That’s not to say that a clothing retailer should start selling groceries. However, it may be time to rethink the type of clothing you’re offering. If you sell dressier clothing such as professional or evening attire, you may want to introduce a more casual line. Research trends in your industry and adjust your offerings accordingly.
When it comes to retail store recovery tips, you will need to rethink your sales forecasting, at least for the foreseeable future. Retailers are now faced with a dynamic and unpredictable market. Sales forecasts based on last year’s data will not be accurate because COVID changed consumers’ habits and buying preferences. Traditional models may serve as an appropriate benchmark for some things but shouldn’t be relied on to forecast future sales. Industry trends, as well as consumers’ spending habits, will provide more insight when developing a sales forecast.
We get it. Knowing what you should do to meet the evolving customer demand is only half the battle. The other half is having enough capital to implement the necessary changes. Unfortunately, traditional business loans were difficult to get before COVID. Now it can be almost impossible.
If your business needs an influx of capital to keep your business moving forward, alternative financing options can be a great choice. At CapFlow Funding Group, our team of professionals will evaluate your business’s unique situation and help you determine which funding option would best suit the company’s needs. We service many different industries with a variety of different funding needs. In addition to merchant cash advances and invoice factoring, we work with trusted partners to provide additional merchant funding options. Contact us today!
It’s a common mistake for first-time business owners. They assume because they’re just getting started and their business is small, separating personal and business finances isn’t really necessary. Not separating the two can lead to financial complications and confusion. Here are the primary reasons separating personal and business finances is important.
No one wants a visit from the IRS but, if it should happen, you want it to go as smoothly as possible. Separating personal and business finances will make the audit process less painful. Clearly differentiating between the two will make it easier for your accountant. It may also help you avoid an audit in the first place.
With no clear division of your personal and business finances, your personal assets could be at risk. Should someone file a lawsuit against your business, you could find yourself personally liable for any damages. Separating personal and business finances can also offer protection if you fall behind on business debts or your business fails. Vendors looking to get paid may take legal action. If your personal and business finances are commingled, unpaid debt or bankruptcy will put your personal assets and finances at risk.
It’s important for a business to be able to establish lines of credit with vendors or be able to obtain a loan if necessary. Not separating personal and business finances can make this difficult if not impossible. If both are mingled together, it will be hard for a lender to evaluate your cash flow, revenue, and other pertinent factors to make a determination. In most cases, this will cause a vendor or lender to pass on providing the credit or funding you need.
Now that you realize how important it is, you may be wondering about the best way to separate your personal and business finances. Here are steps you can take to divide them and avoid any confusion or complications.
An EIN (Employer Identification Number) is kind of like a social security number for your business. Once you apply, the IRS will issue the nine-digit number to be used for filing your business and payroll taxes. It will also be beneficial when completing some of the other steps necessary when separating personal and business finances.
Now that you have an EIN, you can move forward with establishing a business entity. Some small business owners prefer to be a sole proprietorship. However, establishing your business as an LLC (limited liability company) or a corporation will clearly identify your business as a separate entity. This will enable you to file separate personal and business tax returns and help to protect your personal assets.
Another important step in separating your personal and business finances is to open a separate bank account for each. You should also get a business credit card. Both of these will provide a clear paper trail of business income and expenditures. It will allow your business to establish credit and be helpful when applying for any type of business funding.
It’s important to establish a regular schedule for paying yourself, just as if you were working for someone else. Just randomly pulling money out of your business bank account whenever you need it can blur the line between personal and business finances.
It’s important to keep your personal and business receipts separate. Not only will this make bookkeeping easier but in the case of an audit, you want there to be no confusion between personal and business finances.
Although applying for alternative business financing is much easier than applying for a typical bank loan, separating personal and business finances will help ensure the process moves along quickly and efficiently.
If your business needs an immediate, short-term influx of capital to keep your business moving forward, CapFlow Funding Group may be able to help. Our team of professionals will evaluate your unique situation and help you determine which funding option would best suit your company’s needs. We service many different industries with a variety of different funding needs. In addition to invoice factoring and merchant cash advances, we work with trusted partners to provide additional merchant funding options. Contact us today!
Although they are often confused, business liquidity and working capital are two different but equally important financial factors for business success. As a business owner, it is important that you have a clear understanding of each and how to manage them. While veteran business owners may have a handle on this, improper cash flow management is what gets many entrepreneurs in trouble. Let’s start by defining working capital and business liquidity.
Working capital is defined as current assets minus current liabilities. If your business currently has $250,000 in assets and $175,000 in liabilities, your working capital is $75,000. In addition to cash, current assets include accounts receivable, inventory, and any short-term investments. Current liabilities include accounts payable, short-term loans, and other accrued expenses such as payroll or interest.
Business liquidity is directly related to your current assets and the ability to quickly turn them into cash. These are considered liquid assets. Liquidity allows you to pay current liabilities when they come due. Not only is it necessary for a business to continue daily operations but to promote growth.
When a business has enough cash or liquid assets to pay all of its current liabilities, it has positive working capital. How much working capital is needed varies from business to business. The ideal amount of positive working capital will cover current liabilities with enough excess to invest in business growth. Negative working capital is when your cash and liquid assets aren’t sufficient. Liabilities become past due and the business’s ability to sustain itself falters.
To improve your business liquidity, you must first take steps to increase your working capital. There are a few different ways to do this.
This simply means you need to get your customers to pay you quicker. You can encourage this by offering a small discount for early payment. You should also evaluate your invoicing process. Customers should be invoiced immediately upon receiving goods or services. Even waiting a few days before sending out invoices means it will be that much longer before getting paid. You can also reduce the amount of past-due receivables by conducting thorough credit checks and levying late fees. You can sell invoices to a factoring provider and get funds already owed to you before the payment is due. This is known as invoice factoring and is a great way to convert outstanding invoices into cash.
When was the last time you evaluated your business operations? If your business is running inefficiently, it’s costing you money and decreasing your working capital. By streamlining business operations, you can reduce payroll expenses. You need to take a long hard look at your long-term assets. These are typically business equipment or investments that aren’t vital and could be sold.
Even if you are effectively maintaining a high level of working capital and business liquidity, that doesn’t mean your business will never experience a gap in cash flow. When that happens, you’ll want to secure funding as quickly and efficiently as possible. A great way to do this is to establish a relationship with a lender and apply for funding before the need is urgent. It’s like using a credit card not because you don’t have the cash, but because you want to build your credit. With an established relationship backed by a strong payment history, you will have no trouble securing funding when you need it most.
As previously mentioned, the health of your working capital has a direct impact on your liquidity. By taking the necessary steps to improve your working capital, increased liquidity will almost certainly follow. It can help to delay the payment of liabilities until they are due and wait to invest any of your working capital in business growth until you can do it comfortably.
Maintaining your working capital and business liquidity is crucial, however, most businesses will experience a gap in cash flow at some point. When this happens, the CapFlow Funding Group can help. We specialize in invoice factoring and can help you determine if it is the right option for your business. We are dedicated to helping our clients find the best funding solution and can also connect our clients to options such as purchase order financing, inventory funding, and merchant cash advances. We service many different industries with a variety of funding needs. Contact us today or apply online. Get the cash you need to keep your business moving forward.
Effective working capital management is at the crux of every successful business strategy. Without enough capital, not only will a business have to pass on growth opportunities but they could end up struggling just to cover daily operations. Consistently maintaining positive working capital can be the difference between success and failure – especially during an economic downturn. However, even when the economy and business are good, working capital management is vital to keep your business moving forward.
Simply put, positive working capital is what a business has left of their current assets once their current liabilities have been satisfied. Proper working capital management provides important benefits.
Maintaining a high level of working capital ensures that a business has sufficient cash flow. This will allow them to not only cover the expense of their daily operations but also to take advantage of unexpected opportunities or handle unanticipated expenses.
Improved liquidity gives the business the ability to prevent disruptions to its daily operations. Fewer disruptions increase production which in turn, keeps the business operating at a high level of efficiency.
The accounts receivable and accounts payable departments of a business play a key role in maintaining sufficient working capital. Encouraging the timely payment of receivables can prevent a gap in cash flow. This will provide the ability to satisfy accounts payable early, receive any early payment discounts, and avoid late payment fees.
Although surviving the economic downturn caused by the recent pandemic was tough, it opened many business owners’ eyes to the need for improved working capital management. Not only will it make things easier when business is good but having sufficient working capital when the unexpected strikes will make the road to recovery easier. Here are some tips to ensure your business is maintaining sufficient working capital.
Maintaining the proper inventory level is vital in preserving your working capital. However, achieving the ideal inventory level can be reminiscent of Goldilocks’ visit to the home of the three bears. Keeping too much inventory on hand will ensure you can meet customer demand in a timely manner. It can also tie up your working capital, reducing your liquidity. Too little inventory can result in the failure to meet customer demand, causing your customers to seek out your competitors. Analyzing previous sales and creating future sales projections will help you determine the proper amount of inventory to purchase to meet customer demand and preserve working capital.
During the height of the pandemic, you may have been more flexible with your accounts receivable. Now is the time to require your customers to return to your original payment terms. You should also evaluate those terms. Can you shorten the time between invoicing and the payment due date and still retain your customers? Or offer a slight discount for early payment? This could significantly decrease the possibility of a gap in your cash flow and improve your working capital management.
Tightening up your receivables process and improving your cash flow will allow you to pay your vendors faster. On-time and early payment can strengthen vendor relationships and result in receiving better deals, payment terms, and discounts.
Even with the proper working capital management, a business may still occasionally find itself in need of some additional capital. CapFlow Funding Group may be able to help. If your business needs an immediate, short-term influx of capital to keep your business moving forward, alternative merchant funding options can be a great solution.
At CapFlow Funding Group, our team of professionals will evaluate your unique situation and help you determine which funding option would best suit your company’s needs. We service many different industries with a variety of different funding needs. In addition to merchant cash advances and invoice factoring, we work with trusted partners to provide additional merchant funding options. Contact us today!
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