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Is Factoring For You?
The key to knowing if factoring is for you is to not
to look only at the bottom-line factoring fee, but also
to consider how your company may increase it's
profits through factoring. Please review
Your Benefits and
Comparison of Factoring to Traditional Methods links.

Here is additional information on factoring
to help you with your decision.

How are fees and advance rates determined?
It is based on several factors:
The creditworthiness of your clients
Your monthly billing volume
Average invoice size
Average days to payment
Fees can range from 2-5 % of the invoice's face value.
For example if the invoice's value is $1,000; a fee of 3% equals $30.

What is an advance?
The amount of money you receive immediately when
we buy your invoice. The balance is returned to you
when your customer pays the invoice. Advances range from 60-95%
of the invoice's face value. For example if the invoice's value
is $1,000 an advance rate of 80% equals $800. The balance of $200
less the factoring fee is returned to you when your customer pays the invoice
.

Comparing Bank Lending Rates to Factoring?
When compared to bank lending rates, factoring initially
appears to be very expensive. Here are five typical questions/concerns
that are raised by potential factoring clients

  1. Wow! 3 points per month! That's 36 percent year!
    It is tempting to annualize the numbers, but that is
    an "apples and oranges" comparison.Banks loan money at an
    annualized interest rate, 12 percent per year for example.
    We purchase your receivables at a discount. The products are different
    and there are other inconsistencies to this inappropriate comparison

    The bank provides the money only one time, the day that
    you receive the loan; we provide money continuously. As an example,
    consider a bank loan for $100,000 at 12 percent. You receive the
    $100,000 just one time and then pay $1,000 interest per month
    interest and you still owe the $100,000. Or the bank could provide you
    with a line of credit that you use only when you need the money but the
    bank is charging you for that privilege and if you need to increase your
    line you need to go through the qualifying process all over again.

    When you factor $100,000 each month for a year you have
    the use of $1.2 million (12 x $100,000) over the year. Unlike a bank loan
    where you have just $100,000 one time. Assuming a 3 point discount, the fees
    over the year will be 12 x $3,000 or $36,000, which is still 3 percent of $1.2 million.
    And at the end of the year you have no debt!

  2. I'm only making 3% profit, how can I pay you 3 points?
    A company making only 3% net profit can do more business volume as a
    result of factoring, and the larger volume will result in a higher profit
    margin because fixed costs do not increase with volume. The added
    business at a higher marginal profit leads to an increased overall
    profit margin. As the volume increases, the cost of production decreases,
    so that profits increase. Fixed costs i.e., rent, electric, insurance, etc.,
    increase very little or not at all with volume. An increase in business
    will not affect rent. Electric bills may rise slightly. Workers compensation
    insurance may rise slightly. These costs do not increase
    as do direct production costs.

    Let's graphically do the math assuming you can double your sales

    Without Factoring
    Monthly Gross Sales $50,000  
    Cost of Goods Sold $30,000 60% of Gross Sales
    Monthly Gross Profit $20,000 40% of Gross Sales
    Fixed Expenses $10,000  
    Variable Expenses $8,500 17% of Gross sales
    Factoring Fee N/A  
    Total Expenses $18,500 37% of Gross Sales
    Monthly Net Profit $1,500 3% of Gross Sales

    With Factoring
    Monthly Gross Sales $100,000  
    Cost of Goods Sold $60,000 60% of Gross Sales
    Monthly Gross Profit $40,000 40% of Gross Sales
    Fixed Expenses $10,000  
    Variable Expenses $17,000 17% of Gross Sales
    Factoring Fee $3,000 3% Fee
    Total Expenses $30,000 30% of Gross Sales
    Monthly Net Profit $10,000 10% of Gross Sales

  3. But I only get 80% of my money upfront!
    Let's assume an advance rate of 80%. Let's also assume that you
    begin factoring in January. You have factored $100,000, we pay you $80,000
    of that money upfront, with the remaining money making up the fee (3%) of
    $3,000 and the reserve (17%) of $17,000. Now in February, you once again
    factor $100,000 and receive $80,000. However. you also receive your
    January reserve of $17,000(assuming your customer pay in 30 days). So for February,
    you actually receive 97% of your money, instead of 80%.
    In the second month and going forward you are basically
    receiving 97% of your cash flow.


  4. But what if my customers take longer than 30 days to pay?
    You have several options, Assume your client takes 60 days to pay your
    bill your client in the normal fashion and simply allow 30 days
    to go by prior to factoring that invoice. That way you pay the 30 day fee.
    Another way is to factor your faster customers first for the cash you need.

Please complete our form so that we
can help you determine your options.
Click here for the Easy Information On-Line Form
or
Call or email me now for your FREE no obligation
analysis of your cash flow needs.

Call  us at
800 220 9084
Email
Web: Factoring at www.FredCoutts.com

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