WHAT IS FACTORING?  A financing method in which a business owner sells accounts receivable at a discount to a third-party funding source (factor) for immediate cash.

In a typical factoring arrangement, the client (you) makes a sell, delivers the product or service and generates an invoice.  The funding source (factor) buys the rights to collect on that invoice by agreeing to pay you the invoices face value less a discount – typically 2-6%.  The factor usually pays 75-85% of the face value immediately and forwards the remainder (less the discount) when your customer pays.

Because factors extend credit not to their clients but to their clients’ customer, they are more concerned about the customers’ ability to pay than the clients’ financial status.  Factoring is not a loan; it does not create a liability on the balance sheet or encumber assets.  It is the sale of an asset – in this case, the invoice.

WHAT IS PURCHASE ORDER FINANCING?  Short term financing method to allow a corporation to purchase raw materials or finished goods quickly.

Using purchase order financing gives you the ability to fulfill all of your sales orders, even those that exceed your norm in volume or scope.  100% financing of your supplier costs frees up your cash flow for critical business expenses allowing you to deliver bigger orders.

A typical scenario would be that a business has a solid purchase order ready to fulfill, but not the funds to pay its suppliers upfront.  Using a purchase order finance company, the suppliers are paid directly usually via a Letter of Credit.  The business fulfills the order; with proceeds arriving after shipment is received.  The cost is usually 2-4% of the amount advanced per month.  There will be some due diligent fees.

WHAT IS A SUPPLIER GUARANTEE?  Financing program that is a tri-party agreement between the finance company, you and your supplier.

Once the finance company confirms your buyer has received product or services (creation of receivable) the finance company will obligate their firm to pay your supplier directly for any goods or services you have ordered.  At that time, they will verify with you any amounts owed to your supplier and pay them directly.

This financing program offers businesses nationwide a more flexible and less expensive alternative to Purchase Order Financing, while bridging the gap between traditional accounts receivable factoring.

WHAT IS ASSET BASED LENDING?  A commercial asset based loan or line of credit that provides businesses with immediate funds and ongoing cash flow based on a percentage of the value of your company’s assets such as commercial accounts receivable, inventory, business equipment, machinery and recurring revenue contracts.

When you apply for an asset based loan, you pledge the assets to secure the loan.  You still own the assets but if you don’t make good on your payments, the lending institution can seize them.

A typical scenario would be that the Lender assigns your business a revolving line of credit based on a percentage of each of the qualifying asset classes.  The range of advances are up to 90% of eligible accounts receivables, up to 50% of eligible inventory and 60-75% liquidation or 80% of purchase price on equipment.  You may draw on your line of credit whenever needed and pay back to increase availability for future use.  You only pay interest on the funds that you’ve drawn down.  Interest ranges from 12%-28% on average and sometimes it can be higher or lower.  Additional fees will be assessed for due diligence, field exams and audits, if needed.