Purchase order financing is sometimes used by companies when they are having cash flow problems. When they are unable to come up with the money to pay for materials from their own cash stores, working with a company that can aid them in doing so is extremely helpful and sometimes necessary so that they are able to meet any contractual obligations they have with a customer.

PO factoring can be a crucial component in a company’s success. This may be especially true if they are having financial problems. Many businesses in this situation are hesitant about taking on new customers and may have difficulties servicing the ones that they have. This is because often times it requires money to do so. If they don’t have it and are not able to receive a loan, they will find them selves in a perilous position, unable to make money they might desperately need. Fortunately, purchase order financing gives them an out.

The process works like this. After determining that a company has an iron clad contract with a customer, a Factor will pay for the materials that business needs to fulfill their order. The materials are then shipped to the company, where they are used to produce whatever product they are contracted to. After they complete, deliver and are paid for it, they share a portion of the proceeds with the Factor. This allows the business to get what they need in order to service their customer. The Factor benefits because they are paid for their services.

This sort of arrangement can be especially beneficial for large companies. This is because companies of this size often have orders that are very big and thus costly. If they are unable to put up the money necessary to pay for the materials they need to satisfy an order, they lose business and revenue. Rather then use the cash they have on hand, working with an experienced factoring company makes good, financial sense. Monies that would go toward purchasing materials could be spent on other aspects of a business, including marketing, fixed costs and debt.

Large companies, especially manufacturing ones, looking to save money, may want to look into purchase order financing. It allows them to obtain all of the materials they need to provide goods to their customers without using any of their own money. This can be quite beneficial. It ensures that they will be able to service current and future clients, without spending any of their own capital. PO factoring is one of the only ways to accomplish this without taking on new debt.

Invoice financing is not a brand new concept. However, it has been receiving much more attention and interest lately, largely because traditional commercial financing options are waning. For example, it has become increasingly difficult to receive a bank loan.

Invoice financing is much less expensive then other commercial finance options. Bank loans can be costly when considering the amount of interest typically charged. Even more costly, are credit cards, which can quickly cause a company to rack up a mountain of debt that may be incredibly difficult to repay. This is a threat, especially so, to small businesses who may utilize credit cards to make ends meet. Invoice financing is a very good way for a company to receive an advance on their invoices.

A Factor is a company that purchase invoices or receivables at a discounted rate. This allows companies to receive upfront monies for invoices that may not be due until 90 days. As stated before, waiting this amount of time to be paid can be problematic. In some cases, it may make it difficult for a business to meet their financial obligations. It can also stymie the growth of a company because they may not be able to purchase advertising or hire a marketing specialist who might be able to help them grow their business.

The average price that a factor will pay for invoices is about 70 to 90 % of their full value. These monies are given to the company right away and can be accessed is as little as 24 hours and generally no longer then 7 days. A company can use this cash for whatever they want. There are no restrictions.

After the factor has paid for the invoices, they will then collect them and return the money to company that originally sold them. This will not include their fees and any money they already paid for the invoices. Invoice financing is an excellent option for companies that are unable to wait the standard 30 to 90 days to receive payment for work they have already completed for their clients. As long as their customers have good credit histories, it is possible to receive an advance on those outstanding invoices regardless of their own personal credit history or the amount of time they have been in business. This makes it a good option for those with average-to-poor credit or who have just opened their doors.

Invoice funding is a good option for companies looking to immediately infuse cash into their coffers. Many companies, in a variety of industries, are eligible. If they have credit worthy customers who owe them money, they may qualify for this type of commercial financing. Factors are the businesses that make invoice financing possible. They purchase the outstanding invoices of companies looking to sell them for fast cash. The holders of these invoices, those persons who owe money for work or goods already provided to them, must have good credit. This is a bit unique because in most cases, it is the business that needs to be credit worthy if they are to receive financing. Invoice factoring turns the traditional requirements on their heads.

It doesn’t typically matter how long a company has been in business or even how good their credit score is. If they have outstanding invoices owned by persons (or companies) with good credit, they can sell those for cash, to a Factor.

Factors purchase invoices for less then what they are worth. They generally offer a rate that is about 10% to 30% cheaper then the full-value of the invoice. For example, an outstanding invoice worth $100,000 might be purchased for between $70,000 and $90,000. The exact amount might be dependent on a number of things, including when the invoice is due. One that is due in 30 days might command a higher price then one due in 90 days. The credit worthiness of the clients and the going rate of the industry will also impact the final offer.

After the invoices are purchased, the Factor then collects on them. All of the previously agreed upon terms of payment remain the same and all monies are now sent to the Factor. Once they receive them, they are returned to the company that originally owed them. The only money which is kept is the pre-arranged fees for the Factor’s services and the money already paid for the invoices.

As one can see, invoice funding can be an excellent way for businesses to quickly generate capital. It allows them to raise money regardless of their experience and credit worthiness. If they have companies with good credit history, who owe them money, they are able to use them to secure a cash advance. Instead of waiting 30-90 days, the typical amount of time it takes for a company to receive payments for invoices, they are able to access a good portion of the amount owed to them in a mater or days.

If a company has customers with good to excellent credit that owe them money, they can utilize this working relationship and any outstanding invoices to their financial advantage. This is a very clever financing option because it utilizes the work that a company has already done (and money owed) to generate capital right away. It is not necessary for companies to wait months for monies owed to them. Instead, they can receive it in a matter of days.

Invoice funding is extremely creative and very beneficial for the companies that utilize it. A great percentage of business that bill their customers via invoices will quality. They only need to find a Factor to work with. Factors are companies in search of quality invoices. They purchase them at discounted rates, collect them and then return all monies, minus their fees and any funds that went toward the original purchase of the invoice, to the company they bought them from.

Invoices are generally purchased for about 70% to 90% of their total value. While a company may originally take a hit financially, there are a number of noted benefits. Instead of waiting 30 to 90 days, which is standard for invoice payments, they can receive money within in a matter of days.

For some companies, waiting up to three months to receive owed to them for work they have already done is simply not an option. They may be cash poor, making it difficult, if not impossible, to cover their fixed expenses, pay employees, fund jobs and advertise for future business. Companies in this sort of predicament may be willing to initially accept a discounted rate for their invoices in exchange for fast cash. Also, because they will eventually receive the remaining portion of the invoice, it really isn’t a huge deal.

As stated above, even though the initial purchase price of the invoice is less then its full value, companies will receive the remaining amount after the Factor has collected all of the invoices. They will then pay back all of the money they have collected, minus the agreed upon fees arranged between them and the company they bought the invoices from. They will also withhold the 70% to 90% they already paid for the invoice.

Another option, which is closely related to invoice funding, is PO funding (purchase order financing). The latter involves a Factor purchasing the materials that a company needs to fulfill a contracted order. After the company has received the materials, manufactured the product, sold it and is paid, they share a portion of the profits with the Factor. Both are excellent options and generate what is needed so that a company can continue to stay in business or meet their obligations.

Companies that bill their companies (via receivables or invoices) often have to wait between one and three months before they are paid, for jobs they have already completed. Money has already been invested in these jobs in the form of materials and personnel. The problems is that a company is not able to recoup these costs for some time because the invoice their clients. This can cause financial problems. A business may begin to experience cash flow problems. If these problems become severe enough and executives can not find a way to infuse capital into the business, they may be forced to shut the company’s doors. That is, of course, if they are unable to find a suitable method to generate cash. Receivables financing is one option.

When a company utilizes account receivables financing, they are essentially selling their outstanding invoices for immediate cash. Instead of waiting 30 to 90 days for their clients to pay their bills, they will be able to generate capital in a matter of days, sometimes as little as 24 hours. Factors are companies that purchase quality receivables. If a company has clients with excellent or even very good credit, chances are that they will be able to find a Factor wiling to buy them. They are uniformly purchased at a discounted rate, typically 10% to 30% less then what they are worth. The remainder of the invoices’ value will be received by the company that sold them, after the Factor collects them.

After the Factor purchases the invoices, all outstanding payments are made to them. The original payment arrangements will remain the same. After the invoices have been paid, all monies go back to the company that originally owned them, that is except for the Factor’s fees and any money that already went toward the purchase of the invoices.

While accounts receivables financing isn’t for every company, it is a great option for many. Businesses that invoice their clients but can’t afford to wait 30 to 90 days to receive payment may find that this sort of commercial financing is exactly what they need to keep their doors open or to invest in their growth. It allows them to do both without taking on risky debt or jumping through hoops to generate the necessary capital.

Most businesses will require some form of external capital in order to survive or grow. In many cases, this would include the use of a bank loan. Bank loans have traditionally been fairly difficult to secure. This is even truer today. The poor economy has made it nearly impossible for many companies to qualify for a loan. However, the need for money hasn’t diminished. Instead, there are more companies then ever, unsure about their futures because they are finding it difficult to come up with the capital necessary to keep them selves operating. This is not a reason for hopelessness. In many cases, just creative financing. Invoice factoring is a great alternative that many businesses either don’t know about or haven’t tried.

A company interested in factoring invoices will find that the process is fairly simple. It includes them selling their outstanding invoices (or receivables) at a discounted rate to a Factor, who will usually purchase them for between 70% and 90% of their full value. The credit history of a company’s clients will have a lot to do with how much a Factor is willing to pay. The Factor’s own financial standing and access to funds will also influence the price they offer. After they purchase the invoices, all clients will be instructed to send their payments to the Factor. They will act as a collection agency of sorts, accepting payments, even writing and calling customers if necessary.

After all of the invoices have been collected, the Factor will return all monies to the company that originally owned them. Dependent upon the arrangement, they might also return the money as it comes in. The exact amount returned will not include the Factor’s fees or the money already paid to the company during the initial purchase of the invoices.

Factoring invoices is a very good option for businesses interested in creative, commercial financing. For most companies, bank loans are no longer an option. Banks are simply refusing to loan businesses and individuals, for that matter money. This of course is not uniformly true. There are some people and companies able to qualify for bank loans, but has become extremely tough to do so and those without A-1 credit, will have a very hard time. Fortunately, there are still ways for businesses to secure much needed funds. Invoice factoring is one of them.

Accounts receivables funding is actually pretty simple. A company with outstanding invoices will sell them to a Factor who will purchase them for a little less then they are worth. Typically, the going rate is between 70% and 90%. A company that has customers with high credit scores is able to secure higher rates. After the Factor purchases the invoices, the business’ customers will pay the factor the money they owe on their outstanding invoices. Once they collect the invoices, they then return these monies to the company they originally purchased them from. They will however, subtract all fees owed to them and the amount of money they already paid for the invoices. There are several advantages to this. They include the ability to generate cash fast, to avoid taking on new debt and to leverage the credit worthiness of ones customer to create capital.

Fast Cash: Small business funding allows companies to generate capital extremely fast. It is possible to secure a substantial amount of money in only 24 hours. This is much less time then a traditional lending process would require.

Avoidance of Debt: There is no need to get bogged down with risky debt when a business can utilize receivables funding instead. These days it is much more difficult to get a loan anyway. Many companies that have applied to receive a loan have been turned down.

Bad Credit? No Problem!: Companies are able to leverage the credit worthiness of their customers to receive money. Many businesses with bad credit are not able to qualify for a loan. These companies have always been forced to come up with alternative options. With accounts receivables financing, it doesn’t matter what a business’ credit score is as long as their customers are credit worthy.

Account receivables funding is a viable source of funding for many businesses. It allows them to generate capital extremely fast, avoid debt and receive monies even if they have bad credit or are a new business.

While the economic recovery is still tentative — and credit remains tight — small-business owners could help themselves in 2010 by monitoring the macroeconomic picture. Already, members of the Board of Governors and the presidents of the Federal Reserve Banks, have projected that the U.S. economy will expand between 2.5% and 3.5% this year. Meanwhile, the unemployment rate is expected to fall to between 9.3% and 9.7% from November’s rate of 10%, and economists from Morgan Stanley expect that a more sustainable recovery will sink in, as the financial markets improve, risky assets continue to fetch higher prices, and bank lending improves.

In the absence of your own economist or strategic planning office, what indicators should you keep an eye on? Here are five that often matter most to small firms.

Real Personal Consumption Expenditures
Also known as consumption, this indicator, which tracks the inflation-adjusted price changes in consumer goods and services, accounts for 70% of the country’s gross domestic product — that is, the basic measure of a country’s overall output. Basically, this indicator will shed light on whether consumers are spending and how much. “When the public is hording money, small businesses are going to feel that more than anyone,” says Moutray.

Big companies can often lean on hefty credit lines to get them through rough patches, while many smaller firms don’t have the same luxury.

Consumer Confidence
Similar to consumption, consumer confidence and consumer sentiment figures attempt to gauge consumer attitudes toward the economy. The more confident consumers are about the economy and their own financial pictures, the more likely they are to spend. “What we’re telling our clients is, closely follow the economic indicators, which can point to a recovery in demand trends,” says Bonnie Riggs, an analyst for the market research firm NPD Group. “When consumer confidence moves in a positive direction, they’ll see [business] traffic pick up.”

Check the Index of Consumer Sentiment, which is tabulated by the University of Michigan’s Institute for Social Research. Also, look to the Consumer Confidence Index, which is released by the Conference Board, a research firm in New York.

Producer Price Index
Businesses that make products will want to pay close attention to the Producer Price Index, which measures prices at the producer level, before they get passed on to consumers. This indicator speaks directly to how much businesses pay for their materials. When this indicator rises, most businesses will want to raise prices to keep up with higher costs. However, boosting one’s prices during a downturn may be counterproductive, as consumers are looking for savings. In this scenario, a business’s profit margins tend to get squeezed, says Moutray. By tracking the price changes within the production pipeline, however, businesses can anticipate possible inflationary pressures and make changes accordingly, he says.

U.S. Dollar
Another inflation gauge is the value of the U.S. dollar. When the greenback falls against other currencies, U.S. exports look more attractive to some foreign buyers. However, within the U.S. it may take more dollars to purchase the same materials — effectively, causing producer prices to rise.

To track whether or not this is happening, look to commodities prices. The price of gold, for example, often increases when the value of the dollar slides, says Moutray. A good resource for checking the price of gold futures is the Comex division of the New York Mercantile Exchange. Also, check how the dollar performs against a basket of trade-weighted major currencies, the U.S. Dollar Index Futures.

Unemployment Rate
Though it’s a lagging indicator, the unemployment rate, currently at 10%, can be useful for business-planning purposes, says Riggs. For example, because unemployed workers tend to skip eating breakfast out, morning sales have dampened at many restaurants. However, if the jobs picture suddenly improves, that could lead to an uptick in demand for breakfast and cause business owners to ramp up production and potentially hire more staff.

To get an even clearer sense of the labor market, however, Josh Lerner, an investment banking professor at Harvard Business School’s Arthur Rock Center for Entrepreneurship, suggests looking at the local unemployment rate. “We’re in a period where there is tremendous heterogeneity across regions of the country, and, as such, using a one-size-fits-all measure isn’t as helpful as local figures.”

Article written by DIANA RANSOM
Write to Diana Ransom at dransom@smartmoney.com

At a town-hall meeting in New Hampshire, President Obama outlined his plan to increase hiring in small businesses by granting local banks $30 billion in loans.

Naming job creation as his priority for 2010, President Barack Obama pitched his $30 billion loan program proposal Tuesday to help small businesses grow their companies through increased hiring.

In Nashua, New Hampshire, Obama said he hopes to take money repaid by Wall Street banks as part of the $700 billion bank bailout known as TARP to create the Small Business Lending Fund, which would provide capitol to community banks to spur economic growth on Main Street.

“These are the small, local banks that work most closely with our small businesses – that provide them their first loan, and watch them grow through good times and bad,” he told a crowd of more than 1,500 at a Nashua North high school.

Citing a now-familiar statistic, Obama noted that small businesses have created roughly 65 percent of all new jobs over the past 15 years. The new loan program could, by loosening credit, help to create thousands of jobs, the president said. And jobs will be Washington’s number one focus in 2010, Obama promised.
To encourage hiring, the president supports a tax credit that will encourage companies to hire workers, to pay competitive wages, and to expand facilities such as manufacturing plants. The administration also supports cutting the capital gains tax on small business investment.
Speaking in small-town New Hampshire, which has felt the economic pain of the deepest recession since the Great Depression, Obama stressed that the worst times are behind country. “Many good, hard-working people who met their responsibilities are now struggling because folks on Wall Street and in Washington didn’t meet theirs,” he said.

Obama bookended the speech by mentioning ARC Energy, a Nashua-based LED light manufacturer; the president toured the company’s facilities earlier in the day, scoping out a machine that grows sapphire crystals. “The technology they’ve created is the only of its kind in the world,” Obama said. “They’re this little business in a condo out on Amherst Street, and they have the potential to revolutionize an industry.”
The president’s small business speech comes one day after announcing a $3.8 trillion fiscal blueprint for 2011. The budget calls for an additional $100 billion in spending to bring down unemployment and boost the economy. At the same time, Obama said he plans to reduce the federal deficit, to eliminate 120 government programs, and to cap spending over the next three years.

Already, the program has drawn criticism from restive members of Congress — a fact the president conceded in his speech. “Because there’s no magic wand that will make economic problems that were years in the making disappear overnight, it’s easy for politicians to exploit the anger and anguish folks are feeling right now,” Obama said.

1. Don’t let your accounts receivable get out of control. First of all, it is vital to have an organized accounts receivable department. You need to know who owes you what, and you need to know who is making payments. You also need to make provisions for following up on invoices that owe you money. An efficient workflow needs to be maintained so that you are receiving payments in a timely manner for your goods and services.

2. Maintain a good relationship with your financing partner. This is another essential point. Your financing partner – whether it is a bank, an investor or a factor – helps you get the cash you need to keep your business going. You need a solid, professional relationship with your financing partner to ensure that you can get the money you need, when you need it. Cash flow is vital, and you need to make sure you have incoming capital.

3. Don’t cut your advertising budget short. Many businesses make the mistake of cutting the advertising budget first thing. This is a mistake. The old adage “you need to spend money to make money” is most true of advertising. In order to sell products, and to reach your target market, you need to pay for advertising outreach. Of course, just throwing money into any advertising is inefficient. Instead, you need to have a coordinated plan. You need to figure out how you can best reach your target audience, and use your money efficiently so you get the most bang for your buck. Before you start advertising, do a little research and take the time to develop a coordinated plan of action.

4. Stay current with the latest technologies in your industry. Technological advances are always being made. Your industry is always growing, changing and seeing new things. If there are technologies that make things more efficient, or that provide the latest in industry needs, you need to make sure you are keeping up. This will help you lower costs in the long run, and it will show investors and customers alike that you are up-to-date and that you are aware of what is going on in the industry.

5. Treat your employees with respect and professionalism. Your employees represent you. Employees that are treated with respect and professionalism are more likely to be happy and work better. They will also say good things about your company and how it is managed. This is important. There are few things that can damage a business reputation like an employee that has a legitimate complaint about he or she has been treated by the management. Having employees that work hard and do so efficiently can help you manage costs better, and will keep your company in good shape. They are also more willing to go the extra mile when it is needed if you treat them well.

6. Network in your community with other business owners. Networking is important. It is a good way to forge relationships. Also, networking can provide you with the ability to find good partners for your business ventures. You can also find new clients through networking, as well as find suppliers that can help you come to a more equitable arrangement. Being involved and visible in the community also has other advantages. People are more likely to do business with people they know, so getting to know people can bring you more business.

7. Make every business deal a win-win for all involved. If you want a reputation as good business person, you need to deal fairly with others. If you take advantage of other businesses in your dealings, eventually no one will want to associate or do business with you. This can cause you to lose business. Additionally, customers and clients may hear that you are not a pleasant person to do business with, and take their patronage elsewhere. You want to cultivate good feelings. You do not have to let others get the better of you, but you should not strive to get the better of others. Look for solutions that provide an equitable arrangement for all involved.

If you take care to follow sound practices and work at building your business in a practical, organized and fair manner, you will find business success.