There is a reason why accounts receivable financing is a four thousand year old financing technique: it works. Accounts receivable financing, factoring, and asset based financing all mean the same thing as related to asset based lending- invoices are sold or pledged to a third party, usually a commercial finance company (sometimes a bank) to accelerate cash flow. In simple terms, the process follows these steps. A business sells and delivers a product or service to another business. The customer receives an invoice. The business requests funding from the financing entity and a percentage of the invoice (usually 80% to 90%) is transferred to the business by the financing entity. The customer pays the invoice directly to the financing entity. The agreed upon fees are deducted and the remainder is rebated to the business by the financing entity. How does the customer know to pay the financing entity instead of the business they are receiving goods or services from? The legal term is called "notification". The financing entity informs the customer in writing of the financing agreement and the customer must agree in writing to this arrangement. In general, if the customer refuses to agree in writing to pay the lender instead of the business providing the goods or services, the financing entity will decline to advance funds. Why? The main security for the financing entity to be repaid is the creditworthiness of the customer paying the invoice. Before funds are advanced to the business there is a second step called "verification". The finance entity verifies with the customer that the goods have been received or the services were performed satisfactorily. There being no dispute, it is reasonable for the financing entity to assume that the invoice will be paid; therefore funds are advanced. This is a general view of how the accounts receivable financing process works. Non-notification accounts receivable financing is a type of confidential factoring where the customers are not notified of the business' financing arrangement with the financing entity. One typical situation involves a business that sells inexpensive items to thousands of customers; the cost of notification and verification is excessive compared to the risk of nonpayment by an individual customer. It simply may not make economic sense for the financing entity to have several employees contacting hundreds of customers for one financing customer's transactions on a daily basis. Non-notification factoring may require additional collateral requirements such as real estate; superior credit of the borrowing business may also be required with personal guarantees from the owners. It is more difficult to obtain non-notification factoring than the normal accounts receivable financing with notification and verification provisions. Some businesses worry that if their customers learn that a commercial financing entity is factoring their receivables it may hurt their relationship with their customer; perhaps they may loose the customer's business. What is this worry, why does it exist and is it justified? The MSN Encarta Dictionary defines the word worry as: "Worry verb (past and past participle wororied, present participle wororyoing, 3rd person present singular worories)Definition: 1. transitive and intransitive verb be or make anxious: to feel anxious about something unpleasant that may have happened or may happen, or make somebody do this 2. transitive verb annoy somebody: to annoy somebody by making insistent demands or complaints 3. transitive verb try to bite animal: to try to wound or kill an animal by biting it a dog suspected of worrying sheep 4. transitive verb Same as worry at 5. intransitive verb proceed despite problems: to proceed persistently despite problems or obstacles 6. transitive verb touch something repeatedly: to touch, move, or interfere with something repeatedly Stop worrying that button or it'll come off. noun (plural worories)Definition: 1. anxiousness: a troubled unsettled feeling 2. cause of anxiety: something that causes anxiety or concern 3. period of anxiety: a period spent feeling anxious or concerned..." The opposite is: "not to worry used to tell somebody that something is not important and need not be a cause of concern (informal) Not to worry. We'll do better next time. no worries U.K. Australia New Zealand used to say that something is no trouble or is not worth mentioning (informal)". Query: if a business is financing their invoices with accounts receivable financing, is this an indication of financial strength or weakness? Query: from the point of view of the customer, if you are buying goods or services from a business that is factoring their receivables, should you be concerned? Query: is there one answer to these questions that fits all situations? The answer is it's a paradox. A paradox is a statement, proposition, or situation that seems to be absurd or contradictory, but in fact is or may be true. Accounts receivable financing is both a sign of weakness with regard to cash flow and a sign of strength with respect to cash flow. It is a weakness because, prior to financing, funds are not available to provide cash flow to pay for materials, salaries, etc. and it is an indication of strength because, subsequent to funding cash is available to facilitate a business' needs for cash to grow. It is a paradox. When properly structured as a financing tool for growth at a reasonable cost, it is a beneficial solution to cash flow shortages. If your entire business depended on one supplier, and you were notified that your supplier was factoring their receivables, you might have a justifiable concern. If your only supplier went out of business, your business could be severely compromised. But this is also true whether or not the supplier is utilizing accounts receivable financing. It's a paradox. This involves matters of perception, ego and character of the personalities in charge of the business and the supplier. Every day, every month thousands of customers accept millions of dollars of goods and services in contracts that involve notification, verification and the factoring of receivables. For most customers, "notification" of accounts receivable financing is a non-issue: it is merely a change of the name or addresses of the payee on a check. This is a job for a person in the accounts payable department to make a minor clerical change. It is a mainstream business practice. Bobby McFerrin wrote and performed a song called "Don't Worry, Be Happy" for the movie "Cocktails" starring Tom Cruise. The song was a number one U.S. pop hit in 1988 and won the Grammy for Best Song of the Year. Here are the lyrics: "Here is a little song I wrote You might want to sing it note for note Don't worry be happy In every life we have some trouble When you worry you make it double Don't worry, be happy...... Ain't got no place to lay your head Somebody came and took your bed Don't worry, be happy The land lord say your rent is late He may have to litigate Don't worry, be happy Look at me I am happy Don't worry, be happy Here I give you my phone number When you worry call me I make you happy Don't worry, be happy Ain't got no cash, ain't got no style Ain't got not girl to make you smile But don't worry be happy Cause when you worry Your face will frown And that will bring everybody down So don't worry, be happy (now)..... There is this little song I wrote I hope you learn it note for note Like good little children Don't worry, be happy Listen to what I say In your life expect some trouble But when you worry You make it double Don't worry, be happy...... Don't worry don't do it, be happy Put a smile on your face Don't bring everybody down like this Don't worry, it will soon past Whatever it is Don't worry, be happy" The bottom line: "notification" should not be an issue in most situations involving accounts receivable financing; non-notification factoring is another option that is available for businesses concerned with confidentiality that meet minimum credit standards for asset based lending. Bobby McFerrin was right: "Don't Worry, Be Happy". Many business opportunities come with an associated challenge. For most entrepreneurial businesses, the greatest challenge is financing the business opportunities created by your sales efforts. What are your options if you have a sales opportunity that is clearly too large for your normal scale of operations? Will your bank provide the necessary financing? Is your business a startup, or too new to meet the bank's requirements? Can you tap into a commercial real estate loan or a home equity loan in sufficient time to conclude the transaction? Do you decline the order? Fortunately there is an alternative way to meet this challenge: You can use Purchase Order Financing & Letter of Credit financing to deliver the product and close the sale. What is purchase order financing? Purchase order financing is a specialized method of providing structured working capital and loans that are secured by accounts receivables, inventory, machinery, equipment and/or real estate. This type of funding is excellent for startup companies, refinancing existing loans, financing growth, mergers and acquisitions, management buy-outs and management buy-ins. Purchase order financing is based upon bona fide purchase orders from reputable, creditworthy companies, or government entities. Verification of the validity of the purchase orders is required. The financing is not based on your company's financial strength. It is based on the creditworthiness of your customers, the strength of the commercial finance company funding the transaction, and in most cases a letter of credit. What is a letter of credit? A letter of credit is a letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. If the buyer is unable to make payment for the purchase, the bank is required to cover the full amount of the purchase. In a purchase order financing transaction, the bank relies on the creditworthiness of the commercial finance company in order to issue the letter of credit. The letter of credit "backs up" the purchase order financing to the supplier, or manufacturer. Is purchase order financing appropriate for your sales program? The perfect paradigm is a distributor buying products from a supplier and shipping directly to the purchaser. Importers of finished goods, exporters of finished goods, out-source manufacturers, wholesalers and distributors can effectively use purchase order financing to grow their businesses. Is purchase order financing appropriate for growing your sales orders? Purchase order financing requires you to have management expertise- a proven track record in your particular business. You must have bona fine purchase orders from reputable firms that can be verified. And you must have a repayment plan; often this is from a commercial finance company in the form of accounts receivable or asset-based financing. You should have a gross margin of at least 25% to benefit from purchase order financing. Sellers of services or commodities with low margins, such as lumber or grain, will not qualify. The bottom line decision for purchase order financing: It can take two or more years to develop a profitable business. Banks generally base their lending limits on a business' performance for the past two or three years. Purchase order financing, combined with letters of credit and/or accounts receivable or asset-based financing can give you sufficient funds to cover your operating costs, financing costs and still realize significant profits. If you qualify for purchase order financing, you can grow your business by taking advantage of large purchase orders and eventually qualify for bank financing.
It is generally regarded that getting a good financing deal on an RV today is far easier than it was before. Recreational vehicle financing has been around since there have been RV units to finance but only recently has there been an influx of flexibility in how it was done. Also, in comparison to before, recreational vehicle financing now is far more direct, straightforward, and simpler. However, it would be good to keep in mind that financing an RV purchase is not exactly the same as financing a car. Some would say it is far more similar to financing a boat. There is a prevalent perception that anyone who buys an RV, even with a financing deal, is going to be a person who pays up on time. The overall reliability of people who opt for recreational vehicle financing gives lending companies confidence in allowing for lower interest rates and terms that are not as harsh as those one might find on a car financing agreement. Monthly payments are also more affordable, thanks to that reputation. As such, if a person is considering purchasing an RV, it would be a good idea to take advantage of that reputation, in conjunction with a good credit rating and a clean credit history. The aforementioned combination could easily land a potential buyer an incredible bargain on their RV purchase. Another incredible aspect of recreational vehicle financing would be the average number of years for the payment terms. Typically ranging from 10 to 20 years, an RV financing arrangement is considerably longer than that of a car. Also, very few financing institutions lump the interest rates at the start or end of the payment period, which means that the interest is spread out evenly. What that means for the average buyer is the fact that they need not fear suddenly having their budgets constrained by a sudden increase in the interest they have to pay for their new recreational vehicle. One trait recreational vehicle financing shares with automobile financing would be the emergence of online financing companies. Operating the same way as their automobile counterparts do, RV financing groups are known for being less critical about a person's credit rating and credit history, provided they have not declared bankruptcy or have defaulted on previous loans. Both car and RV lending companies also share the convenience of speed. It is not uncommon for an online RV financing group to be able to determine within a minute whether or not a potential customer would qualify for a financing agreement based on their limitations and terms. Both car and RV financing groups also share another minor convenience in the fact that neither will attempt to push extras such as insurance or an extended service plan on the buyer the way a dealership would. With the ease, speed, and flexibility offered by recreational vehicle financing services on the Internet, it is no wonder that there is a slow but steady growth of people turning to online lenders for their financing needs. While the market for recreational vehicle financing is significantly smaller to the market for automobile financing, it is still substantial enough to warrant a number of websites and companies willing to provide their services to prospective buyers. With the price of real estate currently on the rise, some people might turn to RV units as a cheaper, temporary alternative. Naturally, the aforementioned people will come to realize that turning to an RV financing group is the best way for them to minimize their expenses. Attorneys, law firms, lawyers, beneficiaries or clients usually form lawsuit-financing companies. Lawsuit financing companies can also provide appeal finance, firm finance, custom finance or estate finance. Many lawyers and attorneys create lawsuit financing companies based on their experience and the types of cases they encounter the most. Attorneys and lawyers with expertise in personal injury lawsuits or patent lawsuits help by providing cash advances and support in their fields. Lawsuit financing companies provide many financing options. With a significant monthly fee, a few lawsuit financing companies may help to settle the case faster. Though a large variety of options are available, the plaintiff has to discuss with the attorney which option is best suited to him. The lawsuit financing company and the plaintiff can make an agreement of the amount of share the lawsuit financers would obtain after the settlement or the verdict is known. This is called "flat fee". Apart from the flat fees, the plaintiff has to pay a minimum fee every month, called "recurring fees", to the lawsuit financing company. This recurring fee can be as low as 2.9% in the case of a few lawsuit financing companies, or could be as high as 15% with other companies. It is the financing company's decision as to how much to pay as the cash advance. Lawsuit financing companies pay from $1000 to about a million dollars depending on the case. Every lawsuit financing company would have a team of lawyers to assess the strength of the case. The key is to avoid funding frivolous complaints. Thus the financing companies will scrutinize the complaint and decide the chances of success of the case. Lawsuit financing companies do not term their cash advances as loans but as investments. The applicant has to repay after the verdict. Usually the monetary settlement that is obtained after the settlement by the court is larger than the company's advance. The lawsuit financing company should be paid the principal and the predetermined share of the monetary verdict. Many lawsuit financing companies can be approached through the Internet. Companies like legalcashnow.com, legalfundingnetwork.com and lawsuitcash.com are available on the Internet. Websites like these are flooded with information and instructions regarding lawsuit financing.
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