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Discussion Starter #1
Hello,
Do any of you guys have experience in using invoice factoring in our industry? The cost seems a little high, 1%/10 days, but that means for every $100k/yr if your average time to pay is 40 days, you'd be paying $4k/year. A little expensive, but to receive invoice payments immediately in our industry that really eliminates the need for a huge amount of working capital.

We are growing quite a bit over the last couple of months and this could be beneficial for us.

Thoughts?
 
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What's your borrowing cost at the bank? I'd start by comparing both and going with the least expensive option.

10 day payment makes for good cash flow if you don't finance the jobs your self...
 

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Discussion Starter #3
Well you get paid on the invoice in two days and for every ten days it takes a national to pay you get 1% fee taken off that factoring company keeps.

Its somewhat higher interest but this doesn't use you're credit ad its based on your customers, aka the nationals, credit worthiness
 

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A factoring company will only factor until you get your first charge back.
 
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Discussion Starter #5
Depends on the national. My main customer is not doing guideline work. 120 in chargebacks in four years, and they were my fault.
 

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SwiftRes said:
Hello,
Do any of you guys have experience in using invoice factoring in our industry? The cost seems a little high, 1%/10 days, but that means for every $100k/yr if your average time to pay is 40 days, you'd be paying $4k/year. A little expensive, but to receive invoice payments immediately in our industry that really eliminates the need for a huge amount of working capital.

We are growing quite a bit over the last couple of months and this could be beneficial for us.

Thoughts?
Working in this industry... with chargebacks, no-pays, and short pays... for Nationals... I would be leary of factoring ...especially at the rates they charge. You could get yourself in a hole that would be difficult in getting out of.
 

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Direct Capitol had a factoring division but dropped ALL P&P invoicing due to the "inherent risk of the business model".
 

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Discussion Starter #9
Direct Capitol had a factoring division but dropped ALL P&P invoicing due to the "inherent risk of the business model".
Winston Financial Group didn't have any problem doing it. I explained the issues with chargebacks, and since generally they are only no more than a couple thousand dollars(sure, could be higher) and that makes it only a couple of percentage of total AR that it's not a big deal. They gave me an example of a large clothes wholesaler that sells to retail outlets, and then the retail outlets end up returning a lot of the clothes in which the wholesaler credits back. They compared a chargeback to a retail return.

On a side note, never ended up doing it. Did it the all natural way instead, toughed it out.
 

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Discussion Starter #10
Looking back through my emails, Direct Capital would only do factoring/AR loans on businesses that received credit card transactions, not invoicing.
 

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Looking back through my emails, Direct Capital would only do factoring/AR loans on businesses that received credit card transactions, not invoicing.
They must have gotten more restrictive. If I remember correctly they were bought out a few years ago....
 

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A factoring company will only factor until you get your first charge back.
Direct Capitol had a factoring division but dropped ALL P&P invoicing due to the "inherent risk of the business model".



What did I tell you back in January?
 

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No, I didn't win the 588 mil powerball.
 

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I looked at one company that understands the industry, but they want $20,000 a month in recievables.

I will keep looking, just wasn't sure if someone had experience with one.

I would rather not do it the long and hard way....
 

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Hello,
Do any of you guys have experience in using invoice factoring in our industry? The cost seems a little high, 1%/10 days, but that means for every $100k/yr if your average time to pay is 40 days, you'd be paying $4k/year. A little expensive, but to receive invoice payments immediately in our industry that really eliminates the need for a huge amount of working capital.

We are growing quite a bit over the last couple of months and this could be beneficial for us.

Thoughts?
My experience tells me your on the way out when ya start using loan sharks to operate. Nothing personal...it's all business.
 

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My experience tells me your on the way out when ya start using loan sharks to operate. Nothing personal...it's all business.


That's the beauty of growing slow and growing with CASH. All my equipment is paid for and i cash flow month to month fine. Generally carry 20-30K in receivables. Granted i drive 15 yr old trucks but their not dragging a payment book so they get better mileage LOL!
 

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Discussion Starter #18
My experience tells me your on the way out when ya start using loan sharks to operate. Nothing personal...it's all business.

When you have a month that's $20k-$30k higher than the previous couple months, can be tough if you don't have enough working capital. At least in a business like ours that's 45-60 day receivables.
 

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When you have a month that's $20k-$30k higher than the previous couple months, can be tough if you don't have enough working capital. At least in a business like ours that's 45-60 day receivables.
Have been having this very problem myself. I have alway had enought capital in the past,but past two months I have been doing cleanouts every week and it drains you fast all the extra labor,dump bill(witch keep going up), extra fuel!
 

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The bottom line on factoring is that it can be a useful but expensive way to finance the business. Some things to keep in mind:

The financing is done based on the strength of your invoices. Invoices that are payable by large companies (e.g. the nationals) usually work well. Invoices that are payable by small management companies, or even real estate agents, usually can't be financed.

Also, factors are very strict about paperwork and process. Your invoices, work orders, etc will need to be accurate. Late payments, chargebacks, etc can add to the expense.

Lastly, you also need to make sure you can afford it because the factors fee comes straight from your profits.

If you Google the subject you can find detailed information on it.
 
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