Minority Contracts: How they work and getting funding

09:08 01 July in Blog, Business Funding

The federal government awards more contracts than nearly any other business in the United States. As part of a commitment to providing help to small businesses, the government commits to offering slightly more than 20 percent of all contracts to small business owners, including women-owned and minority owned businesses. Before obtaining a contract however, a business must apply for minority-owned business status.

What is a minority owned business?

These are business entities which have received certification as a minority-owned business. According to Minority and Women Business Enterprises (MWBE) a business may be certified if they are:

A minority-owned business is a for-profit enterprise, regardless of size, physically located in the United States or its trust territories, which is owned, operated and controlled by minority group members. “Minority group members” are United States citizens who are Women, Asian, Black, Hispanic and Native American.

Obtaining minority contracts

During 2017, 9.8 percent of all government contracts were awarded to minority-owned businesses. This means if a business meets the minority requirements of a contract, they have the right to bid on that contract. The bid process is done through a government process. Depending on various factors, the department in need of services may file an Invitation for Bid (IFB), Request for Proposals (RFP), or Request for Quotes (RFQ). Typically, the business would respond to these requests online.

The other steps include bid submission, oral presentations, and finally a contract may be awarded. The challenges are just beginning of course because finding the necessary capital could be a challenge if a small business has cash flow issues. Having the capital to fulfill the terms of the contract is important because not only do you have to abide by the contract terms, but failure to do so could mean you are unable to secure future contracts from the government, or from other companies who have committed to working with the minority company owner’s community.

Cash-flow issues plague many businesses

One of the most important things you should remember is that your business is not unique if you are experiencing cash-flow issues. Businesses of all sizes, particularly small and mid-sized businesses, face these challenges on a regular basis. While being awarded a contract is very exciting, the fact is that your local bank or a venture capital company may be hesitant to provide capital for you to get started working on fulfilling the contract, this can be problematic for numerous reasons. Facts are facts, we often need money to make money.

This is when Capstone Capital Group can step in and help you get the capital you need to get started on the contract today. We have helped minority business owners who manage small or medium sized businesses secure the capital they need using innovative techniques designed specifically to meet their needs. We will assess your current contract, and help you determine what type of funding will best meet your needs. Whether you need to secure a working capital loan, or determine that factoring is your best option, you can feel confident that we will work with you to get you the necessary capital.

Whether your contract is with another company who elects to work with you because of your minority status, or you have been awarded and are now working on a government contract, talk to one of our professional representatives today about our diverse funding programs. Let us work with you and design a program that meets your needs and helps your business continue to thrive in this competitive marketplace. You can reach us by telephone at (212) 755-3636 or email [email protected].

Capstone Capital Group Promotion Announcements

12:46 14 June in Blog, Press Release

NEW YORK, NY, June 13, 2018 /24-7PressRelease/ — Capstone Capital Group, LLC announced the promotion of three employees this week. Those employees are Thomas J. Ingrassia who was promoted from Corporate Finance Manager to Vice President of Due Diligence and Underwriting, David B. Culotta earning a promotion from Senior Associate to Corporate Finance Manager and Jessica Grille who was promoted from Due Diligence Analyst to Senior Analyst.

Mr. Ingrassia joined Capstone in 2008 and is currently the Vice President of Underwriting and Due Diligence. His primary responsibilities include the management and review of due diligence materials submitted by prospective clients, the underwriting of new accounts into Capstone, purchase order and factoring account management and internal risk management. In addition, Mr. Ingrassia works with investors to provide information about financing opportunities with Capstone, develops advanced financial models for both internal and external applications on an ad-hoc basis as well as manages the internal information technology infrastructure and databases. Prior to joining Capstone Mr. Ingrassia managed the Prime Brokerage Operations team for Goldman Sachs Group Inc which had employees in New York City, Salt Lake City and Bangalore, India. During his tenure he executed trades and managed collateral positions for all of the hedge fund client’s accounts with the firm throughout the financial crisis. Mr. Ingrassia received a Bachelor of Science degree in Mathematics from Syracuse University and a Master of Business Administration degree in Finance and International Management from Fordham University.

Mr. Culotta has been with Capstone since 2010, most recently serving as a Sr. Associate. Mr. Culotta’s current responsibilities include operations management, business development, policy and procedure oversight, due diligence and risk management, client relationship management, marketing, and employee recruitment. Mr. Culotta serves on Capstone’s Credit Committee and specialize in financial modeling, financial statement analysis and preparation, credit & collections, operations analysis, and digital marketing. Mr. Culotta has held various managerial roles and has more than 14 years’ experience in the accounting industry including public and private sector as well as in the finance and banking industries. He graduated from Canisius College with his Bachelor of Science Degree in Accounting and is currently pursuing his Certified Managerial Accountant (CMA) certification.

In her current role, Ms. Grille is responsible for credit analysis, credit approval, due diligence analysis for clients, client relationship management, and social media marketing. Prior to joining Capstone last year, Ms. Grille was busy with her studies at Pace University. Ms. Grille earned the Cum Laude designation upon graduation after earning her Bachelor of Business Administration in Finance with a Minor in Economics. While at Pace, Ms. Grille also participated in the Pforzheimer Honors College after submitting thesis on Bitcoin, Blockchain, and the Future of Cryptocurrencies. Ms. Grille intends to continue her education by pursuing her Master of Business Administration.

Capstone is a private finance company committed to assisting clients with cash flow issues. We understand every business has unique financial needs and we do our best to provide specific solutions to fit those needs. Some of our products include Purchase Order (PO) Financing, Factoring Services, and International Trade Financing. We work with businesses offering services and products with an emphasis on those who bill their customer through “process billing” type contracts, typical for those in the construction trade, publishing, service businesses, suppliers to government agencies, staffing companies., as well as wholesalers. Each of our divisions handles a different aspect of business with one goal in mind: to help our clients remain competitive and growing by ensuring they have access to the capital they need.

Understanding Borrowing Against Accounts Receivables

09:00 16 May in Blog, Business Funding

Small and medium-sized businesses often face temporary cash flow problems, especially if they don’t understand borrowing against accounts receivables. The difference in time between issuing an invoice and getting paid for that invoice is often between 30 and 90 days. This delay in receiving payment can result in a business facing challenges purchasing new material for products, meeting payroll obligations, or meeting monthly expenses such as utilities or rent.

In these cases, meeting cash flow requirements is a necessity and businesses often turn to accounts receivable financing as an option. Some business owners avoid this type of financing because they do not understand what it means or how it works.

Accounts Receivable Factoring

There are two separate options a business owner can use to borrow money against their accounts receivable.

One is to work with a factoring company who takes control of your receivables. Using this method, a company delivers products, sends clients their invoices and the factoring company advances the company a portion of their invoices. The client in turn pays the invoice to the factoring company and once payment is received, the factoring company pays the business the balance of the invoice less their fees.

In most cases, this type of factoring involves a long-term contract between the factoring company and the business.

Spot Accounts Receivable Financing

Another common way to get cash against accounts receivable is known as spot factoring. This method of borrowing against accounts receivables is used when a business needs an immediate infusion of cash for any purpose.

For example, a business may have taken on a new contract and needs cash to purchase materials to fulfill that contract. Instead of borrowing money from the bank, the business owner decides to factor one or more of their client’s invoices.

The advantage of this type of financing is the company does not have to have a long-term contract, they get to decide which accounts receivables to factor, and they get the cash they need, typically within a few business days.

Impact on Balance Sheet

One of the reasons a business owner may opt to borrow against their accounts receivable rather than taking out a loan is the impact on their balance sheet.

When a company factors their invoices, they get an infusion of cash which shows as a positive on their balance sheet, and they do not take on any new debt.

The other advantage of accounts receivable financing is a company typically does not have to sacrifice partial ownership of their company to get much-needed capital as they may have to with other types of financing.

Borrowing Against Accounts Receivables Advantages Over Traditional Borrowing

One advantage a company will find when they opt to borrow against accounts receivables is the time it takes to access funds. A traditional factoring situation means a company often has access to cash within a few days of submitting their invoices to the factoring company. With a traditional loan, borrowers can wait weeks, and in some cases, months before getting approval for a loan.

For most company owners, the other advantage of factoring over typical bank loans is restrictions on how funds are used. When a company applies for a bank loan, the bank may place limits on how the funds may be used which can tie the hands of a business owner. You know best what you need funds for and when you borrow money against your accounts receivable, the factoring company typically does not place restrictions on how the funds you receive are used.

Capstone Capital Groups offers a range of accounts receivable financing options for small and medium-size business owners. Contact us today by email at [email protected] or call us at (212) 755-3636 and let us see how we can help you better manage your cash flow by helping you borrow against your accounts receivable.

Understanding Invoice Lending and How it Works

01:32 09 May in Blog, Business Funding

When you have a need for cash, and you prefer to not borrow money, one option is to get a cash advance on your invoices. Invoice lending, more commonly referred to as factoring, is used by small and medium-sized businesses to help meet their cash flow needs.

How Invoice Lending Works

Invoice lending allows you to provide product to your customers on credit. Once the product has been delivered and the customer has been billed, you can submit the invoice to a factoring company and get cash based on the face value of the invoice.

This method of financing allows you to offer credit terms to your customers, get the cash you need before the 30, 60, or 90-day terms you have offered your customers and turn over the collection of the invoice to the factoring company.

Another advantage of invoice lending is that you typically can determine which invoices you want to factor. Whether you wish to consider factoring a single client, or a specific group of clients, most invoice factoring companies offer that flexibility.

Time to Obtain Funds

One of the most common reasons why a company would use invoice lending is the time between submitting invoices and obtaining funds. In most cases, you can submit an invoice and receive cash within a few business days. This can be helpful to a small or medium-sized business owner who needs immediate cash to make payroll or pay monthly bills.

Unlike a bank loan, or lines of credit which can take weeks to get approved, business owners can get a nearly immediate advance on their accounts receivable. Once your invoice has been approved by the factoring company, you will get a percentage of the face value of your invoice.

Collections of Balance Due on Invoices

When you borrow money against an invoice, you are no longer responsible for collecting the payment for the invoice. The factoring company who made the cash advance will follow up on collections. Once your customer has paid the invoice in full, the balance of the invoice, less the factoring fee will be released to you. Typically, payments will be redirected to a lockbox controlled by the factoring company.

What Type of Companies are Eligible?

One of the many challenges businesses face is having sufficient funding for their day-to-day operations. While banks, and other traditional lenders tend to focus on businesses who have been around for a while, with regular cash flow, a factoring company is often willing to accept more risk. This is because they are loaning you money based on a specific asset, namely your invoices.

Because of how factoring companies work, more businesses are typically eligible for this type of lending. Subcontractors including electricians, staffing agencies, architects and more can benefit from invoice lending. Other types of businesses that often use invoice lending to maintain a steady cash flow include manufacturers, contractors, and suppliers.

Improvement in Cash Flow

Some business owners are faced with seasonal swings in business revenue. This can often result in them being unable to take on new contracts because they do not have the cash flow needed to fund materials for a new customer. Invoice lending can help business owners who are facing a temporary cash flow problem meet their obligations and take on new contracts.

If you are concerned about the cash flow outlook for your business, contact Capstone Capital Group by email at [email protected] or by phone at 347-410-9697. We are a private finance company offering numerous solutions to help small and medium-sized businesses meet their cash flow needs.

Understanding the Typical Types of Factoring

09:13 04 May in Blog, Business Funding

Factoring is a financing arrangement that is typically used by small and medium-sized businesses to help them maintain a steady cash flow. As every business owner understands, cash flow is important to ensure the successful, continuous operation of their business. This is why it’s important to know the different types of factoring.

In general, factoring means a company is turning over their invoices to a third party in return for receiving a portion of those invoices in cash within a few business days. Primarily, there are two types of factoring, recourse factoring and non-recourse factoring.

What is Recourse Factoring?

As a business owner, you are assuming a certain risk when you extend credit to a customer. Typically, the more reliable a client, the more favorable the terms you are offering. Some businesses even offer a discount if a client pays more rapidly. This type of factoring is called recourse factoring.

In fact, it is common for a company to issue an invoice with two separate terms such as offering a 5 percent discount if paid in 15 days and a 90-day net pricing. This means the client has 90 days to pay the invoice in full. Should the client not pay their bill in full at this time, the company would then begin collection activities which may involve refusing to ship additional product, having their accounts receivable department call the company about payment and in some cases, adding on a fee for late payment.

When customers refuse to pay, the business may turn over the collection activity to a collection agent or attorney.

However, if the business has opted to finance the invoice with a factoring company, they no longer must be concerned about collecting payment for the invoice.

The factoring company takes over the risk associated with the invoice, and the client is indebted to them. Om return, your business receives a portion of the face value of the invoice and the balance is held by the factoring company until the company pays the invoice. If the company fails to pay the invoice, the factoring company may ask you to substitute another invoice of similar value in its place.

This is known as recourse factoring.

What is Non-Recourse Factoring?

In some instances when a company borrows money, they are putting up assets such as equipment, real estate, or equity in the business. This allows the lender to seize, and in some instances, liquidate the asset to make themselves whole.

If the agreement between the borrower and lender calls for “no recourse” it means the lender has no option to turn to the business owner for any shortfall between what the company owed the lender, and what the liquidated assets provided.

In the case of non-recourse factoring, however, there is a slightly different meaning. When you deliver product to a customer, you do so under the belief the company will still be in business when the invoice comes due in 30, 60 or 90 days.

However, if you have factored that invoice, the factoring company is assuming that risk since they have given you a portion of the face value of the invoice up front. Should the company go out of business, and you have a non-recourse contract with the factoring company, the company will absorb that loss without any financial repercussions falling on your company. Non-recourse factoring typically only protects you and your business in the event your customer closes their doors before they pay their invoice.

If you are considering entering into any type of factoring contract, it is important to determine what your liability is should other problems occur with your customer. If the contract is non-recourse, talk to the factor to determine how they define non-recourse factoring.

At Capstone Capital Group, we work with small and medium-sized businesses to help them solve their cash flow problems. Contact us today and let’s discuss your needs and discuss your options for recourse, or non-recourse factoring.

An Overview of Factoring Agreements

09:00 01 May in Blog, Business Funding

Factoring agreements are designed to ensure a company who is using their accounts receivable as collateral, and the company who is accepting them as collateral, have a mutual understanding of their obligations. Like any other contract, factoring agreements are legal documents and are binding on all parties. Depending on the depth of your agreement with a factoring company, you will find the following information:

Sales of Receivables

This section of the agreement will include information on what agreement you have with the factoring company pertaining to what receivables will be included in the agreement. You should pay attention to this section, so you understand what you are agreeing to. For example, if you have agreed to only certain invoices, you do not want this section to be a “blanket” sales of accounts.

Credit Approvals and Withdrawals

This part of the contract will state what the company expects from you in terms of documentation to support an invoice. The factoring company may also have specific requirements you must meet if you want to change the terms offered to a company you are factoring invoices for.

Invoicing Assignments

This section of your contract will specify how you are to deal with payment for invoices you have assigned to the factor. Language must be included on the invoice issued to the client indicating they are to make payment to a lockbox controlled by the factor.

Fees and Commissions

There may be one or more sections of the contract that explain what fees and commissions are due to the factor. Before signing any factoring agreement, make sure you understand all the fees and commissions involved.

Advance Information

Your contract should specify how much the factor will advance against invoices. There may be different amounts for specific customers’ credit levels, and there may also be a maximum you may be allowed to have outstanding at any given time. This portion of your agreement should be reviewed carefully to ensure you understand the limits of the advance the factor is granting.

Warranties and Representations

You will be required to acknowledge that your company is duly authorized to do business, that you are solvent enough to enter into an agreement, and the invoices you are factoring are legitimately owed debts to your company. The factoring company will make similar warranties about their solvency and authorization to enter into a contract with you.

Defaults and Termination of Agreement

This section of the contract deals with when a contract may be terminated, what events could result in your being in default of your contract, and what notices are required to inform the factor of your intent to terminate the contract. This is typically done only when a long-term contract is necessary and may not be included in spot factoring contracts.

Security Interest in Receivables

The contract will spell out the factoring companies interest in your receivables. This section of the contract will prohibit you from factoring the same receivables with another company or using the same receivables as a security interest in any other type of loan arrangement.

Conclusion of Factoring Agreements

Whenever a company has decided to borrow against invoices, there will be a contract involved. Your contract will be unique to the agreement you reach with the factor including what the term of the contract is, what fees are paid, and what will occur should your client default on an invoice. Be sure you understand the terms and conditions you are agreeing to.

If you are considering working with a factoring company to help improve your cash flow, contact Capstone Capital Group today. You can reach us by filling out our online contact form, by calling us at 347-410-9894, or by email at [email protected]

Understanding Non Recourse Factoring

12:21 16 April in Blog, Business Funding

Like any type of financing, accounts receivable factoring is a risk taken by the factoring company. In most cases, accounts receivable factoring is based on the creditworthiness of the underlying customer. Therefore, a factoring company does not provide financing for invoices that are made to an individual customer, instead they provide funding against invoices made to other companies, or to government entities. This is why we need to understand non recourse factoring.

Collection Activities and B2B Transactions

Typically, when businesses are completing transactions, they offer terms that may give a company up to 90 days to make payment.

In some instances, they offer discounts if an invoice is paid sooner. In the case where a company has opted to factor their accounts receivable, they turn the risk, and collection activities over to the factoring company. However, what happens when the customer does not pay their invoice?

If a company is managing their own accounts receivable, they may put forward demand notices, and hold the company responsible for paying the invoice with certain late charges which are normally laid out in their contract. Many contracts also have a recourse clause which may hold the company owners accountable personally for unpaid bills.

If payments are not made as agreed, you would typically stop doing business with the company until the invoice was paid in full. Chances are, you would likely require a deposit or full payment before doing additional business with the company. This is known as full recourse.

Meaning of Non Recourse Factoring

But, what happens if you are working with a factor and they have offered to factor your receivables with no recourse?

First, it is important to understand what no recourse means. In most factoring contracts, no recourse usually means that the factoring company will not seek payment from you under certain conditions.

The typical condition is the insolvency of the customer that occurs during the time of the factoring period.

For example, if you have issued an invoice that is due in 90 days, and a factoring company has advanced you cash against that invoice, the company would have to go out of business during the 90 day period between issuing the invoice and having the payment due.

What Non Recourse Factoring Does Not Cover

Even if your factoring company has agreed to factor your receivables without recourse, there are certain exclusions which you should be aware of. For example, in most cases, factoring advances will not be considered without recourse if:

  • There is a dispute over an invoice – if you have issued an invoice and your customer disputes the invoice, chances are, the factoring company will not allow you to walk away from the debt you incurred because of factoring.
  • You deliver products to non-paying customers – if you have a customer who has been consistently late paying invoices and you are still delivering product to them, you are increasing their outstanding amount owed, meaning the factoring company is at even more risk of losing money. Most of the time, you will be held responsible for these invoices.
  • You owe the company money – if you have a reciprocal arrangement with a company you do business with, and the company credits amounts you owe them against amounts they owe you, the factoring company may not grant you the ability to factor those invoices without recourse.

When entering into a factoring contract, it is important to understand the terms you are agreeing to abide by.

We make sure our contracts are easy to understand and you understand whether you are accepting funding against your receivables with or without recourse.

Capstone is a private finance company offering various solutions to businesses to provide them with more consistent cash flow.

Contact us today to request funding or to speak with one of our representatives to learn more about how Capstone can help your business grow and flourish.

Small business financing and invoice factoring | capstone

Understanding the Costs of Factoring

23:04 14 March in Blog

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Factoring your invoices is a great way to improve your cash flow. The ability to obtain immediate cash, instead of waiting 30 or 60 days for a customer to pay an invoice can help you grow your business faster, negotiate better terms with your suppliers, and make sure you are able to meet usual business expenses. For business owners, the cost of factoring must play a role in their decision-making process.

Customer Creditworthiness

One of the primary considerations a factoring company will review before determining the amount to advance you, as well as the interest rate you will pay is the creditworthiness of your customers. Keep in mind, since you are factoring the invoices you issue, the type of business they are in, as well as the strength of the customer are key factors.

Size and Term of Contract

Many factoring companies will require you to sign a long-term contract for factoring services. In many cases, the company may insist you factor all invoices to get a better rate. This is often a hurdle for companies who do not want to turn over their entire accounts receivable base to a third-party. There may also be hidden fees which makes the cost higher than originally disclosed.

Typical Costs Associated with Factoring

Generally, you will be able to get 65 to 80 percent of the value of your invoices issued to you within a few business days of the factoring company receiving the invoice. Factoring in these cases can cost between four percent and seven percent of the face value of the invoice. In some cases, if the customer takes longer to pay than anticipated, you could be facing additional fees.

In addition, many companies charge set-up fees and if you work through a broker, you could be paying a brokerage fee as high as three percent. It is important to review the terms of your contract before beginning the process. If you are interested in one-time invoice factoring, long-term invoice factoring, or temporary factoring, these could all play a role in the fees you will have to pay.

Recourse or Non-Recourse Business Factoring

It is important to keep in mind that if you are working with a company that does not require recourse in the event an invoice is not paid, you may be paying a premium for this. When an invoice is paid later than it should be, you could also be charged a premium for the “late” days.

When you are considering factoring invoices, the best thing you can do is work with a company with a proven track record in your field of expertise. Some companies charge more for areas of business they are unfamiliar with, or they avoid businesses they feel are too risky. You should always work with a factoring company offering flexibility in terms as well, the more innovative, the more likely you are to find a true partner.

At Capstone Capital Group, we take pride in offering a variety of programs to meet the needs of customers. We offer innovative solutions to your financing needs. We never tie you into a long-term contract and we always work hard to find a solution that best meets your needs. Whether you are looking for help factoring invoices for one customer, or for all your customers, we can help. Contact our offices today at  347-410-9697 or by Email at: [email protected]. You can also fill out our online form for easy approval for your factoring.

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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.

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.

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