Ozarks Capital Funding

We get inquiries all the time from business owners concerned about the cash flow of their companies.  Many of them have limited knowledge about invoice factoring and we do our best to educate them.  We thoroughly explain the process of becoming a factoring client and assess their situation to determine if they a good candidate for this type of financing.  If they appear to qualify, we send out an accounts receivable factoring application and ask for copies of a few other documents such as their articles of incorporation, past two years financial statements, and a current aging report.  Then we wait.

Surprisingly, we don’t receive a large share of completed applications.  If the business is struggling with cash flow, and it has been demonstrated that factoring enhances cash flow, why won’t many owners or financial managers take the next step?

Unfortunately, fear of the unknown is one the main reasons.  Even though we’ve gone through step by step and explained how factoring companies operate, many of them are not comfortable because it differs from traditional bank financing.  Despite the fact that a majority of those that call are not eligible for a bank loan, they ultimately decide to “ride it out”.  This can be costly in several ways.

Another reason is the cost.  As we’ve expressed many times before,  factoring is not cheap financing, but it is critical for the decision-maker to analyze the costs and benefits.  If the company has a healthy profit margin of 15% or greater and can increase market share and profits by factoring invoices, it should be strongly considered.

We’ve produced a new invoice factoring video that has been placed on youtube and will be distributed on other areas of the internet.  Go to : 
www.youtube.com/watch?v=p4fQeWPSD54

We are proud of how it turned out and kudos are in order for the Producer, James Gerhold of Mediavelocity.  James is a real pro who has won several Addy awards in the Springfield, Missouri market.   Check out his site:  www.mediavelocity.com and view his excellent works.

Special thanks to Sarah Bargo, who did a great job with the spot.

Need a free, no-obligation factoring quote?  Call us at (417) 560-4420.

Most factoring contracts last twelve months.  When taking on a new client, many factoring companies want to maximize their reserve and set a high fee structure.  This is because of the uncertainty a new client brings to the table, especially if they operate in an industry that has been struggling.

Normally, the factoring contract renews automatically after the one year term unless either party terminates the relationship in writing at least 30 days in advance.

In the event the client decides to renew the contract and the invoice factoring relationship has gone well (few bad debts and timely payments), he or she should consider contacting the factoring company to negotiate better terms.  A higher advance rate or a lower fee structure (or both) could be worked out with the factor.

Get a free, no-obligation factoring quote with your online application.

Despite the fact that invoice factoring volume continues to grow each year, many business owners who desparately need working capital are unaware of this alternative form of financing.

Factoring is the sale of a company’s business to business accounts receivable at a discount for immediate cash.  Note that the services rendered or products sold must be to creditworthy business customers, not to individuals.

Important accounts receivable factoring terms:

Advance rate: The amount of cash the factoring company gives the client, expressed as a percentage of the invoice totals.  Advance rates are typically between 70% and 85%, depending on several factors such as the overall credit standing of the customers and the type of industry the client is in.

Factor: The factor is the funding source for factoring transactions.  Most of these companies are only involved with factoring and similar services such as purchase order funding.

Reserve: This represents the total amount of the invoices factored less the amount advanced by the factoring company.   The reserve is remitted back to the client upon collection of the invoices less the factoring fee.

Letter of Intent: After the factoring company has received the application and other documents from the proposed customer and it appears that they can work with this client, a letter of intent is issued.  The LOI specifies the proposed terms of the relationship, subject to due diligence.

UCC filing: The only collateral for a factoring relationship is the business receivables, so the factoring company files what is called a blanket UCC filing to protect its interests.   When they make a UCC filing, they have a lien against the company’s receivables in the event of bankruptcy.

Factoring fee: This is the cost to the client for the service and is usually expressed as a percentage of the receivables factored per 30 days.  The fee can be anywhere from 2% to 4.5%, depending on the perceived risk of the account.

Due diligence: When a company applies for factoring, the funding source performs an investigation to:  (1) determine if there are liens on the  receivables in question, (2) validate the information contained in the application, and (3) check the credit of the client’s customers.

Subordination agreement: As stated above, the factor must have a “first position” on the receivables.  In other words, they have the right to receive proceeds from the receivables in the event of default as a result of a blanket lien on the A/R.  When another entity already has a lien on the receivables, the factor will require the bank, taxing authority or individual to release the encumbrance.  The legal document that accomplishes the lien release is called a subordination agreement

Debtor notification: At the inception of the factoring relationship, the factor sends a letter to each business customer of the client.  The letter explains that the company has entered into an agreement to manage the company’s accounts receivables and that future payments are to be made to a new address.  The debtor sends payments to a lock box that is controlled by the factoring company.

Spot factoring: Most factoring contracts require a minimum amount of factoring volume per month from the client.  But there are other niche factors that allow the client to factor invoices only when needed.  This type of funding is called spot factoring.

These terms are important to understand before entering into an agreement with a factoring company.  The contract, which is typically for a year in length, should be thoroughly studied before signing on the dotted line.

Get a free, no-obligation factoring quote by filling out our easy online application.

During these difficult financial times, many companies have suffered through tight cash flow.  One way they deal with the situation is by stringing out their accounts payable.  This in turn negatively effects the working capital position of the vendor.  They will then either make late payments to their suppliers or cut down their production.

Properly managing the credit you extend to customers is an integral part of your company’s financial health.

Here are some tips for managing the credit you’ve offered your customers:

• Always have your customer sign both a credit application and a contract
• Confirm the legal status of your customer, i.e. corporation, partnership, sole proprietor, etc
• Make sure the contract includes a personal guarantee
• Bill your customers frequently and regularly, and do not let their accounts age without action
• When a customer gets behind in their payments, be polite, yet firm when you talk to them. Identify why the customer is having a problem paying
• don’t let your accounts age too long without referring them to your lawyer

Get a free, no-obligation invoice factoring quote by completing our easy online application

Many of the larger healthcarel factoring companies that fund physician groups, hospitals, clinics and other providers require at least $100,000 in collectible receivables per month.  As anyone in the healthcare industry knows, it doesn’t take long to rack up that level of billings for an average sized provider.  But what about the small, one person practice?  How can they benefit from the instant infusion of working capital that medical or dental invoice factoring has to offer?

Ozarks Capital Funding focuses on factoring services for the lower volume medical and dental practices.  We will work with those providers that generate collections from third party payers (insurance companies and governmental agencies like Medicare) of at least $30,000 per month.

Each situation is different, but the advance rate  is between 70% to 85% of the expected net collectible receivables.  The monthly factoring fee will likely be between 2.75% and 3.25%, depending on collections history and length of time in business.

Get a free, no-obligation medical or dental invoice factoring quote by filling out our easy online application.

The simple definition of invoice factoring is “the sale of a company’s accounts receivable from creditworthy customers for immediate cash“.    The key word here is creditworthy.  Factoring companies must feel confident that the receivables will be paid in a timely manner by the client’s customers consistently.

Because of the intense competition in the factoring industry, some factors have strayed from the concept of proper credit decision making.  This can eventually have a detrimental impact not only on the client, but will weaken the portfolio as a whole.   Other clients who are dependent on funding their working capital needs may be adversely effected by the liberal credit decisions made by the factoring company.  Not only that, but a substantial loss because of these loose policies may cause the factoring company to go out of business.

As a client, try to understand why most responsible factoring companies use conservative credit policies to guide their actions.   Customers who consistently pay their bills late will likely not be “factorable”.

Get a free, no-obligation quote by filling out our quick onine application.

We hope you have a wonderful Christmas and a happy New Year.  While this has been a trying year for many, we should all feel fortunate that we live in a great country with boundless opportunities.  We hope you use this holiday season to count your blessings and spend quality time with those loved ones that mean the most to you.

The successful set-up of an international factoring relationship is not an easy task and is usually performed by factoring companies that specialize in those types of transactions.   These kinds of deals require an enhanced set of underwriting guidelines, knowledge of the documentation involved, extensive follow up on transactions, and even an understanding of the how business is conducted in the country.

In addition to these difficulties of this type of invoice factoring,  a fairly large minimum monthly invoice amount must be factored.  Invoice companies who choose to participate in international deals typically require a minimum of $500k per month in factorable volume.  This large minimum is imposed because of the barriers referred to above.

It should also be understood that not all countries will qualify for accounts receivable  factoring.  Countries like Iran, Cuba, Venezuala,  and other nations that are contrary to a free market economy will not qualify.

We’re nearly at the end of another year.  They go by so fast!  Now it’s time for business planning in 2010.  As the eoconomy is starting to somewhat stabilize, many companies are anticipating growth once again.

Where is the working capital going to come from to propel your company to the next level?  The credit markets are still very tight, despite all the attempts to motivate banks to lend money.  Invoice factoring is a great alternative to traditional bank loans for a variety of reasons:

• Accounts receivable factoring provides capital that is limited only by your pool of receivables
• Your company or personal credit history is not a factor in determining qualification
• No personal guarantees required
• Factoring companies provide other services like credit screening and expert collections
• Factoring is not a loan, so it doesn’t adversely effect your balance sheet

Many business owners have been demoralized the past year and half because of the economy.  It’s time to come alive and maximize the potential of your business.  Invoice factoring can play a major role in that development.

Get a free, no-obligation quote by filing out our easy online application.