music royalty funding

Developing a Strategic Funding Plan for Your Small Business

13:14 25 November in Blog

Every business requires cash to remain fully operational. This is a must, regardless of the size of the business. While most business owners have strategic plans in place for business expansion, marketing, and hiring talent, few of them have a well-thought out plan for obtaining the capital necessary to keep the doors open.

Business Failure and Cash Flow Management

There are numerous studies that indicate the percentages of businesses which fail during the first five years of operation due to a lack of financing. Undercapitalization can be problematic; you are unable to fulfill large customer orders, face difficulties hiring new staff members, and may be unable to pay your overhead costs. This does not have to be the case; having a plan in place to ensure your business finances remain healthy begins with a plan.

Developing a Strategic Plan

As a business owner, you have a general idea of what times of year you may have cash flow problems. This may be because you have already been in business a year or two, or simply because, as a startup owner, you have carefully evaluated the market and understand seasonality. Based on this information, you must make decisions about your financing to ensure your business continues to grow and thrive. This means developing a strong financial plan.

Identifying Realistic Goals

One of the first things you will have to consider is what goals you want to set. This part of your overall plan should include your plans for growing your business; this means you need to decide how many, and how large, your new clients will be, and whether you need new staff members to accommodate new customers.

Once you have identified your goals for growth, you should decide how you intend to finance the growth. Remember, new customers are a great addition to any business, but you must be able to fulfill their needs. This typically requires an influx of cash which means you will need to decide as to how to get access to cash.

Options that are available to small, and medium sized business owners are somewhat limited, and what you do not want is to have a lender dictating how you can utilize the funds you borrow. For some businesses, borrowing money can be challenging; particularly if you are facing a cash crisis, or a growth spurt.

Understanding Your Funding Options

Many businesses turn to traditional bank financing. This can create additional problems for your business because you are taking on debt. Debt tends to weaken your balance sheet, and you are now facing new monthly payments to repay that debt. This could exacerbate your cash flow problems. Additionally, if you need an immediate cash influx to meet the needs of a new customer, you could run out of time before the loan is approved.

Some entrepreneurs feel their best option is investing their own cash into the business. While this is an admirable position, this could put your personal financial status at risk; if you are unable to generate sufficient income to extract that investment from your business, you could face financial difficulties at home.

These are some of the reasons why more companies, particularly a company that is still growing, new to the market, or is facing seasonal slowdowns often turn to factoring for the cash they need to keep their business operational. There are a couple of different options available to companies when they elect to use their accounts receivable to secure the funding they need.

Advantages of Factoring

One of the best reasons to use your existing accounts receivable to obtain the cash you need is you do not incur any additional debt. Basically, you are getting an advance on money that is already owed to you. For some businesses, factoring their purchase orders may be a good option as well; this allows you to meet the needs of a new, or existing client without borrowing money and going into debt. Both invoice and purchase order factoring allow a business owner a great deal of flexibility. Some of the benefits include:

  • Nearly immediate cash – factoring is faster than a bank loan; typically you can get the cash you need within a few business days.
  • Terms to customers – you do not have to run a cash only business to have the capital you need. You can offer your customers extended credit terms.
  • Accept larger orders – when you are facing an internal cash crush, you may not be able to take on larger customers and fulfill their needs; with factoring, you have the cash you need.
  • Growth and competition – factoring allows you to grow your business and be competitive in your field.

Factoring should be a part of your strategic plan to both grow your business and have the capital you need to expand your business. Capstone Capital Group is here to help businesses who are ready to learn about the various ways they can finance their business needs. For more information on Capstone, please call us at (212) 755-3636 to speak with a representative today.

Woman-Owned Construction Firm Single Invoice Factoring Case Study

07:10 22 November in Case Studies

This client is a woman-owned construction firm operating in New York, NYC and the Tri-State areas. Back when the client came to Capstone in 2012, they were suffering from the negative effects to their business and customers caused by Hurricane Sandy. Without sufficient cash flow, the client would not be able to sustain operations while the recovery process commenced.

Single invoice factoring would be their fastest solution to generate immediate cash flow.

Background

Local woman-owned construction firm operating since 2008.

  • Full-service construction firm with clients in the hospital, nursing home, religious, education, and commercial sectors
  • Current Project: Major renovation of a mental health hospital operated by New York-Presbyterian Hospital
  • Since 2012, the company has factored over 90 invoices ranging from $2,000 to $175,000
  • Total funding has been $2.8 million

Company Challenges

Originally the Client needed to eliminate deficits in their cash flow caused by delays in customer payments. Many of their customers were negatively impacted due to Hurricane Sandy and were struggling during the recovery process. The Client would have a newly abundant amount of construction work caused by the destruction however they did not have access to sufficient capital in order to bid on the projects. In an effort to sustain operations and also have the ability to bid on the new construction work the company sought out Capstone’s assistance for their funding program.

Capstone’s Solution

  • Provided a Single Invoice Factoring Facility to inject the working capital required while providing flexibility
  • Helped the Client acquire better discounts with vendors

Progress and Future Outlook

  • Cash flow constraints have been drastically eased and the Client has benefited from being able to focus on the growth of the company
  • The Client has maintained a long term spot factoring relationship and has chosen Capstone as the preferred funding source
  • The Client received the necessary funding to fuel their rapid growth

 

Woman-Owned Construction Firm Single Invoice Factoring

Why Staffing Agencies Should Know About Factoring

09:13 14 November in Blog

Staffing agencies need working capital to meet their weekly payroll obligations. In many cases, there is a gap between billing their clients, and paying the workers who are sent to job sites. Staffing agencies have obligations to those workers assigned to outside employers, but this is not where the expenses end. Office expenses including equipment, marketing, and internal employees also require resources.

Working on the Bottom Line

We all understand cash flow is necessary to ensure any business thrives. Staffing agencies have a unique business model — businesses contract with staffing agencies to provide a labor pool for a specific period of time — unlike any other business. When a staffing agency signs a contract with a business, they typically have an agreement to pay invoices 30 to 90 days after an employee has filled their vacancy. This is problematic since it impacts a staffing agencies ability to fulfill their financial obligations. This leaves staffing agencies with few options:

  • Pay staff members late
  • Pay rent, utilities, and other payments late
  • Pay temp workers late, partially, or only after the employer has paid
  • Curtail your marketing (no money for staff to seek new clients)
  • Take out a loan

These options are frightening; paying staff or employees late means you are going to have issues retaining some of your best staff, and temporary workers. Paying your invoices late could mean you are accruing late fees and penalties. Lack of funds for marketing means you are not growing your business; and finally, taking a loan out is complicated; most temp agencies do not have sufficient capital, assets, or credit scores to support a traditional loan.

Why Factoring Makes Sense

Imagine being able to tap a portion of the money owed to you before your customer pays their bill. This would allow a staffing agency to pay their bills on time, increase the potential for employee retention, and not have to go into debt to meet their financial obligations. This is a win-win for everyone involved; employees are paid on time, your marketing efforts are funded to keep your business growing, and your non-employee obligations are paid without worrying about costly late fees.

Type of Factoring

Staffing agencies have a couple of options for factoring their invoices. How a staffing agency elects to use factoring is largely dependent on how challenging their cash flow is. The first method, involves emergency cash to meet your current This is known as spot factoring and allows you to select one, or more invoices and “redeem” them for a specific amount of cash based on the amount of the invoices. This method allows you to meet your immediate obligations and can be effective if you are facing a one-time issue.

Spot factoring has many benefits; first, it is generally less expensive than a short-term loan, a staffing agency gets access to capital quickly, and because there is no long-term obligation, you can factor an invoice any time you need a quick influx of cash.

For a long-term solution to cash flow issues, many staffing agencies opt to factor most, or all invoices. This process is often easier since a staffing agency can then turn over the invoice at the time it is issued and get nearly immediate access to cash. There are two methods that may be used for this type of factoring; discount factoring and collection factoring. Let’s examine how these types of factoring work:

  • Discount factoring – discount factoring occurs when you sell a block of invoices to a factoring company. The company then provides you an advance against those invoices, which are used as collateral. Once the invoice is paid by your client, the factor then deducts their fees, and the balance is remitted to your company. Typically, this method works well for start-ups, or for those companies with ongoing cash flow needs.
  • Collection factoring – when an established company, with positive net worth and profitable operations needs cash, they may opt for collection factoring. This type of factoring is done in two parts. First, the factoring company takes over the collection of your invoices; they basically assume any risk that might be associated with a customer not paying their bills. The factoring company charges a commission for accepting this risk.

Staffing agencies must spend a lot of time cultivating new clients, and attracting new talent to meet the needs of those clients. Worrying about having the necessary cash flow to meet day-to-day obligations is challenging. Contact Capstone Capital Group at 347-410-9894 or email them at [email protected] to find out what type of financing solution would work best for your staffing agency.

Brokers & Lenders

Understanding the difference between brokers and lenders

10:30 07 November in Broker Resources, Business Funding

Oftentimes, when a business owner is seeking financing, they do not understand the difference between dealing with brokers and lenders. There are advantages, and disadvantages to working with each; however, one must understand how each functions to understand what type of deal they will be getting in the end.

Dealing with financial brokers

When you are dealing with a broker for a financing deal, there are some benefits. The broker can review your proposal, and then try to match your needs up with the right lender. This often means the broker will contact numerous lenders on your behalf; while this may seem like a good approach, it could be problematic if the broker is not familiar with the various loan programs offered. Sometimes working with a broker means significant delays in getting the financing you need.

Dealing with lenders

When you deal with a direct lender, you are dealing with the decision-maker. This is good news on one hand but may cause you additional problems. If you deal directly with a lender, you are limited to the programs offered by that lender. In other words, if you go to a company who only factors invoices, you may not be able to obtain a line of credit, or other financing vehicles. This can be problematic if you need various sources of capital.

Understanding financial broker fees

When you are searching for financing through a broker, it is important to understand how they are paid for their services. In some instances, the broker will receive a one-time finder’s fee; in other cases, an ongoing commission. There may also be instances where you pay a higher interest rate because you went through a financial broker instead of going directly to the lender. Make sure before you agree to have a broker work on your behalf, you understand how they are paid, and what their fee will cost you immediately, and over time.

Benefits of working with brokers

Even if you are paying a finder’s fee, or a commission, there are some valid reasons to consider working with a broker who handles business financing. By working with a broker, you will have access to numerous loan programs; a well-trained broker will review your needs, discuss your options with you and then match your unique needs to the right lender. They can also facilitate the paperwork, help with the application process, and answer questions as they arise.

Relationships matter with financing

For those business owners who have an existing relationship with a financial broker, you should maintain that relationship. While many lenders discourage such relationships, at Capstone Capital Group, we encourage them. We know that when your broker comes to us for financing options for your business, they are looking out for your interests. We take pride in offering those brokers who are interested in doing business with Capstone a wide range of training materials so they understand our products better. We believe in building relationships; and nurturing existing relationships.

Finding the right brokers and lenders

The most important thing you can do for yourself, and to ensure your business continues to grow is find the right brokers and lenders to work with. Well-established businesses, with excellent cash-flow and a record of success often can go to their commercial bank and get whatever products they need. However, small, and medium-sized businesses face unique challenges: they need different types of financing, they may not have reliable cash flow.

Business owners need solutions that work for them; this means working with a financial partner who is willing to take the time to review their business model, review their current finances, and understand their future goals. If you are currently working with a broker, or a lender who does not seem to ask the right questions, or continues to try to fit you into a “one-size-fits-all” loan, you may be working with the wrong person.

If you are small or mid-sized business owner seeking a relationship to help your business secure the financing you need, contact Capstone Capital Group today. We are a private financing company who works tirelessly to find funding solutions for our clients. Brokers, who are interested in working with a lender who puts the interest of their clients first should also contact us. We offer innovative solutions to a wide range of financing challenges for small and midsized businesses; call us today and see how we can help.

Business Financial Plan

How to Write a Simple Business Financial Plan

10:30 31 October in Business Funding

One of the most important documents you should have is a business financial plan. A carefully crafted, well-thought out plan can help you determine your current, and future cash needs. In addition, most businesses will be unable to borrow money, factor contracts, or establish lines of credit unless they can provide a financial plan to their lender.

What Information to Include in a Financial Plan

Your financial plan is not only necessary, and helpful for potential lenders or investors, but it can also be an invaluable tool for you to determine what steps to take in your business. The ideal financial plan will have multiple sections including:

  1. Current Financial Status– business assets, cash on hand, outstanding debts, and outstanding accounts receivable should be carefully recorded. Once you have completed recording all items, you should create a balance sheet showing your current financial status. SCORE (Service Corps of Retired Executives) has a template designed for small businesses, but may be used for a business of any size.
  2. Prior Financial Statements– unless this is your first full year in business, your financial plan should also include your prior years’ financials. In most cases, a completed tax return will suffice, but it is also a good idea to have the complete breakdown of the monthly income and expenses available for review if requested.
  3. Projected Financial Analysis – it is important to project your income, expenses, and earnings out past the date you are seeking financing. In most cases, a three-year projection is sufficient; although in most cases, business owners are encouraged to look ahead five years. Ideally, your financial projections should contain the following:
Sales
Cost/ Goods Sold (COGS)
Gross Profit
Operating Expenses
Salary (Office & Overhead)
Payroll (taxes etc.)
Outside Services
Supplies (off and operation)
Repairs/ Maintenance
Advertising
Car, Delivery and Travel
Accounting and Legal
Rent & Related Costs
Telephone
Utilities
Insurance
Taxes (real estate etc.)
Interest
Depreciation
Other expense (specify)
Total Expenses
Net Profit Before Taxes
Income Taxes
Net Operating Income

Always keep your projections realistic; a lender will ask you the basis of your projections and you should always be prepared to explain why you have chosen the numbers you did. Remember, things like fixed costs of rent, insurance, and real estate taxes may increase over time; take this into consideration when preparing your projections. This section should be based on your current income, expenses, etc. Do not include any projections that would include funds borrowed.

  1. Develop a Cash-Flow Statement – using your financial analysis as a starting point, you will also need to develop a cash flow statement. This should cover the same period as your financial analysis but contains additional information. When preparing these statements, you should take into consideration the amount of money you are planning to borrow, changes in staffing, and any new investments you plan to make in equipment, or inventory. If you are planning on pursuing new contracts, any projects you anticipate will be successful should be carefully recorded as well.
  2. Breakeven Analysis – hopefully before you seek financing, your business is already profitable. However, if it is not, you should develop a breakeven analysis after you have developed the other parts of your financial plan. This is important; a lender will want to be assured their investment will bring your business towards profitability.

Financial Plans: Not Just Valuable For Lenders

When creating a financial plan, it is important to keep in mind, it is not only useful for lenders. Business owners can, and should review their financial plans from time to time to determine if they are on track with projections, or if they need to readjust their projections. Looking at where your business finances were in the past, and what you anticipate doing in the future can help you achieve realistic goals, and help you set new goals for your business. Business owners who set realistic goals, and have ideas for meeting those goals, are more likely to find long-term success.

Financial plans for your business need not be complex; however, they should provide actual data.

Secured Business Line of Credit

How to Get a Secured Business Line of Credit

10:30 24 October in Business Funding

A Secured Business line of credit can provide you with capital, but, more importantly, they provide flexibility. Unlike a traditional loan, when you use a line of credit, you are in control of how the funds are spent. In addition, lines of credit typically carry a lower interest rate than credit cards, offer low monthly payments, and can be used repeatedly as you make payments. This makes them an ideal funding option for many companies. However, for some, a lack of credit history, weak credit, or other factors may mean the only option available is a secured line of credit.

When business lines of credit are helpful

If you are doing business in construction trades, service industry or you are a wholesaler, a line of credit can make the difference between winning and losing a contract. Many times, you will need immediate cash to bid on a contract; you cannot do this if you have limited cash flow – a line of credit could give you that option.

A line of credit can also help you through temporary cash flow issues. You may have cash coming within a couple of weeks but need immediate capital to purchase a piece of equipment, make payroll, or purchase materials. Since a line of credit is renewable, you can spend it multiple times as long as you are making your payments, you have readily available cash for any purpose. Unlike closed end loans, you have complete control over how you utilize a line of credit. In many cases, a closed-end loan would result in the lender putting restrictions on how the funds may be used.

Benefits of a line of credit

In addition to being helpful to allow you to fund immediate needs, and address temporary cash flow problems, there are other benefits of a line of credit including:

  • Flexible payment terms
  • Access to cash on demand
  • Building business credit
  • Flexibility in using funds
  • Lower interest rates than credit cards
  • Improvement of cash flow
  • Control of cash
  • Separation of business and personal credit

As you can see, the benefits are significant and can help you ensure your business continues to thrive in a competitive marketplace.

Obtaining a line of credit

When you are unable to secure a standard loan, or your credit does not warrant an unsecured line of credit, you still may have options. Secured business line of credit are available for those  who may not have established business credit; depending on the lender, you can use various assets for security including equipment, real estate, and in some cases, future income through offering liens on invoices, or purchase orders.

Why a secured line of credit?

Keep in mind, secured lines of credit have numerous benefits; for instance, you may only be required to make interest only payments for periods of time. You may also borrow between 50 and 80 percent of eligible assets; this means more cash on hand to grow your business. There is far less risk when using a secured line of credit; while you are building your credit using this funding option, you are also not going to have to worry about what happens if something goes wrong and you cannot make a payment. This flexibility alone is often enough to warrant considering a secured line of credit. We understand you want maximum flexibilty; in some instances, this is not available with unsecured lines, or with more traditional funding methods.

Capstone Capital Group: Understanding your financing options

Capstone Capital Group, LLC, offers business owners numerous ways to access capital they need for their business. Whether you need to have cash on hand to meet immediate need such as payroll, or you need access to a line of credit to help you bid on an attractive contract, we can help. Contact one of our service representatives today, and discuss the various options we can offer your business. We will take the time to review your immediate, and future needs and find the right solution to those needs.

We help small and mid-sized businesses get the financing they need to ensure their business remains financially stable, and to help spur business growth. We can discuss the various ways Capstone can help. Contact us today, whether you are considering a secured line of credit, or other financing options for your business. See what a difference working with a solutions-oriented lender can make for your business.

Factoring Company

Avoid These Four Mistakes When Choosing A Factoring Company

10:30 17 October in Business Funding

Factoring is one of the financing methods you can use to get the working capital to grow your business. However, like any other type of financing, it is important that you avoid some of the common errors made when you are selecting the company you will work with. Remember, while the process of factoring may be the same, there are some things you should avoid while choosing a factoring company.

Working with a company who does not understand your business

One of the most important things you should verify is whether the factoring company understands your business. Keep in mind, many times, you need more than simply invoice factoring; if you need additional services, finding the right company is more important. Take the time to discuss not only the field you serve, but also discuss your business model with the factoring company. Remember, the right company may be able to offer you additional services. Find a factoring company that does not take a one-size-fits-all approach; it could be important later. Do not hesitate to ask a factoring company for references; most companies will not hesitate to provide you with the names and contact information of satisfied clients.

Ignoring the fine print in your factoring contract

While you may be tempted to accept an offer from the company that offers you the lowest fee, remember, you could be surprised by hidden fees. Review the contract completely and determine exactly what the company is offering, and what you are being charged for their services. You should also be wary of a company who asks for a long-term contract; remember, if you are tied to a long-term contract and the financial situation in your company changes, you could be tied to a contract that you no longer need, or want. Read the fine print; having an understanding of what you are agreeing to is imperative when you are working with any type of financing.

Not discussing customer service aspects of collection

When you enter a factoring relationship, you will be turning a portion, or all your accounts payable collections to the factoring company. You want to ensure your customers are treated with professional courtesy; remember, you could lose business if the factoring company staff members who are handling collection activities are not well-trained. Make sure the factoring company has well-trained staff; staff who uses best practices for collection, and customer service matters. This makes a difference.

Not understanding the terms of the contract

Once you have signed a contract with a factoring company, you are obligated to take certain actions. For example, you are required to ensure your customers are sending their payments to the factoring company, if you fail to do this, you could incur additional fees, or face other penalties. Additionally, you want to make sure you are forwarding the proper paperwork to the factoring company; if you are factoring invoices, do not send a purchase order and if you are factoring purchase orders, do not send invoices. Discuss all your obligations under your contract with your service representative so you fully understand what you have agreed to; this will prevent problems later.

Capstone Capital Group Has the Right Solution

We offer a broad range of products designed to suit your specific needs. Whether you need spot factoring of invoices, purchase order factoring, or lines of credit, Capstone has a solution designed to meet your needs. Because we offer such a broad range of products, we also work with a broad range of clients. We will take the time to ask you about your client base, your current payment schedules, and what your cash needs are going forward. Once we understand your specific needs, we will create a customized solution designed to provide you with the financial products that best suit your needs. We have also helped customers who need logistics assistance; and other customized services.

While you are looking for financing, contact Capstone Capital Group. Let us review your business, determine what products work best to meet your needs, and help you avoid many of the problems our clients have indicated they have had to overcome when working with other financing companies. We are happy to meet with you, review your invoices, and show how our products are superior. We also have a dedicated, well-trained team of customer service representatives; you will never have to be concerned about damaging your important customer relations – we believe the better your relationship with your clients, the better our relationship will be over time.

The Role of the Financial Industry in Rebuilding After Hurricane Harvey

11:00 12 October in News

Some of the leading scientists have estimated the cost of Hurricane Harvey’s trek through Texas could result in some $160 billion in damage. Homes, businesses and ports suffered serious damage; the rebuilding process could take months, and in some cases, could take years.

Many Firms Offering Donations

While many financial, and payment firms have currently stepped up and offered donations to the Red Cross, offered to match donations made by employees, and other efforts. Many payment processors have provided free equipment to businesses to enable them to take payments, reduced fees on donations, and taken other steps to help.  Banks and credit unions have also received some guidance to consider waiving bank fees, increasing ATM withdrawal limits, and more. But there may be more the financial community can, and should do to help business owners get back on their feet.

Relief For Home and Property Owners

As many readers recall, during the financial crisis, homeowners were unable to make mortgage payments in light of increasing interest rates, and slipping home values. Imagine being told you need to continue making your mortgage payment while your home is a cesspool of water, mold, or has no roof. To enable homeowners an opportunity to file insurance claims, get back to work, and rebuild their homes, the major mortgage insurance providers including FNMA, VA and the FHA have stepped up their efforts to help homeowners and property owners. There are various forms of relief available depending on the lender’s willingness to help including temporary foreclosure relief, payment deferments and credit maintenance assistance. These temporary measures may be sufficient for most Texas property owners to claim their insurance and begin the difficult process of rebuilding, or rehabilitating their homes.

Business Lenders and Their Role

Lenders who focus on small, medium or large businesses also have a role to play in rebuilding in Texas after Hurricane Harvey. Businesses that were devastated need time to rebuild, get their businesses back on track, and increase their inventory. Businesses in Texas have a lot of work to do from discarding damaged inventory, making structural repairs, and in some cases, helping their employees get back on their feet.

Businesses with loans may be asking for forbearance on payments, seeking additional lines of credit to fund needed repairs, and need money to rebuild their inventory. Many offices, and factories suffered extensive damage; there have been some companies that have offered temporary office space to help these businesses get back to work.

Some of the options lenders can offer include:

  • Modified credit requirements – since many businesses are unable to provide documentation on income, lenders may wish to consider lessening the requirements for obtaining new credit. Businesses can likely get prior years’ tax returns to show their income, but chances are high their documentation for the last 12 months will have been lost.
  • Renegotiation of terms – since businesses will take some time to rebuild and return to full operation, lenders may wish to consider renegotiating loan terms to allow missed payments during the rebuilding period. This type of assistance can make the difference as to whether a business can return to full operation.
  • Expedited processing – the loan process can be time-consuming and one luxury many business owners to not have is time. Money is needed to meet the demands of repairs, help ensure employees, many of whom are rebuilding their lives, are paid on time and that replacement equipment can be purchased as needed. Time is of the essence and lenders who can process loans quickly can help business owners get back on their feet faster.

Options for Business Owners

Businesses may see an increased demand for materials, products and services over the next several months as other businesses return to normal operations. However, this means more businesses than ever are going to need access to capital; it is often difficult to meet the demand of clients unless a business has immediate access to cash; it is necessary for every aspect of your business. You are going to need cash to pay employees, obtain raw materials, pay for shipping, etc. This is where Capstone Capital Group may be able to offer assistance to businesses in Texas, and those in Florida who are now facing the same type of devastation Texas faced a few weeks back. We provide a range of products designed to meet the needs of nearly any type of business including trade financing, invoice factoring, construction financing and factoring, etc.

During this period of rebuilding, Texas contractors will be assisting in the rebuilding of retail stores, office buildings, warehouses and more. We have specific programs designed to help contractors and sub-contractors get the cash they need in a short period of time. We offer fast approvals, we understand the challenges many businesses are facing during this period of rebuilding and we can help customize a solution that works to meet your needs.

If you are business owners, or a contractor in Texas, or any other area devastated by weather-related disasters and you need quick access to capital, contact Capstone Capital Group today and let us see if we can help you get back on a sound financial footing.

 

Factoring Decision

When Factoring is the Right Decision

14:20 05 September in Blog, Business Funding

Some business owners are uncomfortable about the idea of factoring their invoices; however, they are more uncomfortable about taking on debt. This means when a company is facing a cash flow problem, wants to hire additional staff members, or needs material to fulfill a large order, they may not know where to turn. One of the first things to do is identify the problem, determine what you need, and then find a solution.

Problem: Short-Term Cash Flow Problems

Immediate business expenses, such as rent, utilities, and payroll cannot be ignored. Let’s face it, if you are unable to pay your employees, you stand a chance of closing your doors; most people are not willing to wait until you get paid to get their paycheck. Your options are limited; you need a way to get immediate cash to meet your obligations.

Your solutions include borrowing money from your local bank, taking a cash advance against your credit cards, or factoring your invoices. Borrowing money from your bank, unless you have an existing line of credit, is time consuming and will likely not occur fast enough to assist you. Credit card advances are seldom a good idea; you will pay high upfront costs for the privilege, and the overall interest rate could be as high as 25 percent. This means factoring is likely your best option and here is why:

  • You can use spot factoring – business owners need not turn over all their accounts receivable for immediate cash needs. Instead, you have the option to factor only sufficient invoices to meet your immediate needs.
  • Timely cash disbursement – generally, receiving cash against your invoices occurs within a few business days. This can be very helpful if you need to have cash. Unlike a bank loan, once you have signed the proper documents, and have your invoices approved, you will have the cash you need to meet your obligations. Since factoring does not involve a bank loan, your company does not incur any additional debt.
  • Cost effective solution – unlike credit cards where you pay a fee to access cash, or loans where you may have to pay application, and other fees, factoring is a cost-effective solution. You can collect on your accounts receivable before they are due, and you pay a fee to the factor. Businesses of all sizes, and in all industries, have used this method of getting working capital when they are facing short-term cash flow problems.

Problem: Long-Term cash Flow Issues

Spot factoring is the ideal solution when your cash flow issues are temporary. However, some businesses have ongoing issues maintaining a sufficient cash balance to meet their obligations. In these cases, options are more limited; options include bank lines of credit, reducing the terms you offer customers, or factoring your accounts receivable. It is important to understand the pros and cons of each option.

While bank lines of credit can be helpful, you will have to accept the fact your company will be in debt. To compound this, chances are, if you seem to be facing regular cash flow issues, it may be very expensive, and potentially impossible to get a loan, or line of credit. Banks typically look for a strong balance sheet, excellent cash flow, and a proven track record. This means if you have a start-up, you may not have the option.

Reducing your customer terms is risky; if your customer base is accustomed to a 30, 60, or 90-day period to pay invoices, and you cut the time in half, or begin a cash-only process, you could negatively impact your bottom line. This means, over the long-term, your cash flow will be worse, not better.

Using accounts receivable factoring, can provide you the long-term solution you need. In effect, you reach an agreement with the factor, and they take over the collection of your accounts receivable. There is an added benefit to this as well; since you do not have to worry about collections, you can focus your efforts on building your business. Rather than having a staff member dealing with collections, you can use their talents elsewhere; this can provide numerous benefits for your business.

Nearly every business will face a cash-flow problem at some time; particularly in the early stages. Some businesses need short-term cash solutions because of seasonal business swings, or because they have just landed a significant contract. Think about the possibilities; and if you think that factoring may be the right decision to help you meet your cash-flow needs, contact Capstone Capital Group by phone at 347-410-9697 or by email at [email protected] and see how we can help you find unique funding solutions.

Telling Customers about Factoring

Explaining Your Decision to Use Factoring to Customers  

10:22 22 August in Blog, Business Funding

Once you have decided to use factoring for your cash-flow needs, one of the most important things you will have to do is communicate with your customers. Once you have turned over your invoices to a factoring company, your customers will receive a document called a Notice of Assignment indicating you have turned over the collection of their invoices to the factor.

It is important to ensure you have addressed this prior to this notification being received; and ensure that your customers questions are answered. Some of the common concerns your customers may have include:

Will this impact the quality of service and products I receive?

It is important to let your customers know that outside of invoicing, your relationship will not change. You will still be providing the highest level of quality products and services. Remember, customers want to be assured their business is not impacted by your decision. The more you can do to assure customers that most things will not change, the more likely they are to be comfortable.

Is your financial status in question?

Make sure your customers understand that your decision to factor is designed to improve your finances. Improved cash flow means more access to materials, ability to hire new staff for upscaling, and ability to pay your bills on time. Remind them that factoring is not a loan, that you are not taking on additional debt, and discuss the benefit of not having to track down payments; factoring allows you to continue offering the same terms they currently enjoy, versus cash and carry.

What changes does this make to my billing?

Your customers should be aware they will get their invoices from the factoring company, and they should remit payment to the address on the invoices. Explain to them the factoring company is merely taking over the function of accounts receivable management; this will help put them at ease. Customers will still contact you directly for new products, or services.

Offering Understanding of Factoring Benefits

Chances are, if you are a small, or medium-sized business involved in an industry unfamiliar with factoring, you may be asked about the benefits of factoring. There are some simple ways to educate your customers about these benefits including:

  • Ability to grow business— because you do not have to worry about waiting 30 to 90 days to receive payment, you are able to go after additional contracts and still offer payment terms to customers.
  • Regular cash flow— because you do not have to wait for payment from customers, you have cash when you need it. This means your suppliers are being paid, your employees are being paid, and you can meet your obligations without going into debt.
  • Freeing internal resources— when an external company is handling your accounts receivable, your internal staff is freed up to handle other tasks. This may include customer service, marketing, or help with research and development. This is a bonus; freeing up internal resources also means lower overhead; you need not hire additional staff members to handle tasks.

After Factoring Begins

Once you have addressed the initial concerns of your clients, it is important to let them know how payments will be made going forward. Ask if there are any documents they require from you to ensure the process goes smoothly. Address any concerns about changes in due dates, or other concerns they may have. Should any questions arise you are unable to answer, contact your account manager at the factoring company.

Keep in mind, you will still be in contact with your customers for many issues, including new orders, service needs, etc. Make sure they understand ahead of time, that billing issues, payment issues, or any issue related to payment or invoices should be directed to the factoring company.

Should You Change Methods

Just as is the case when you start factoring, if you should decide to end your relationship with a factoring company, it is important you speak with your customers. Any change in how they receive, question, or pay their invoices must be communicated to your customers.

Factoring your invoices can result in new growth, and a more stable cash flow you’re your business. If you have questions about factoring, or how it can work for your company, we encourage you to contact Capstone Capital Group today at (212) 755-3636. We are here to help you grow your business to its full potential.

 

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