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Comparison of Invoice Factoring to Traditional Funding

Factoring

Leasing

Going Public

Venture Capital

Bank Loan

Private Investor

Gov't Programs

Simple Application Yes No No No No Varies No Requires Personal Guarantees No Possibly No No Yes No Possibly Days to fund 3 to 10 15 to 30 120 to 270 90 to 180 60 to 180 15 to 90 60 to 180 Approval based on prospect's credit No Yes Yes Yes Yes Yes Yes Funding tied to sales Yes No No No No No No Give up equity No No Yes Yes No Yes No Give up control No No Possibly Yes No Possibly Possibly Limited to asset value No Yes No No Yes Possibly Yes Requires profitability No Usually Yes Usually Yes Usually Usually On-going monitoring No No Yes Yes Yes Yes Yes Reduce overhead Yes No No No No No No

Factoring

Leasing

Going Public

Venture Capital

Bank Loan

Private Investor

Gov't Programs

But Isn't Factoring Expensive?

Assess the Costs By Looking at the Benefits Too often potential clients will begin the invoice factoring decision by looking at factoring discounts (percentages) on an annualized basis, like a car loan or a mortgage. They take the 4% they are quoted, annualize it (multiply by 12) and respond with "you are going to charge me 48% interest!" At first that may seem like a factual, pertinent statement. However, we deal in short-term funding, our average invoice pays in 42 days. When they respond that it is still "48% interest" we ask them to look at the 2% they offer for quick payment. That 2% discount is for payment in 10 days. In a year there are thirty-six 10-day periods--------using the annualized percentage parallel, "that's 72% interest! Are they paying 72% for quick payment? No, and factors don't earn 48% for funding, either. Why? Because invoice factoring is short-term paper. To compare it to a long-term note is like comparing apples to oranges. In the end, the decision to factor always comes down to a business decision. If this money is going to cost 4%, can you take the money generated by factoring and earn more than 4%? after all, nobody factors just to have the money in their checking account. Most businesess must weigh the costs of invoice factoring against the costs of not doing it. Most often the decision is between factoring and putting up with cash flow problems. If you are missing out on sales opportunities because of a lack of cash flow, be sure to consider that lost revenue when weighing the costs of factoring. Consider what increases in profits you can achieve with additional cash flow. For example, in your current situation, without invoice factoring, you have gross revenues of $100,000 a month. Your cost of goods is 65% resulting in gross profits of $35,000. Subtract overhead at 32% ($32,000) and you are left with a net profit of $3,000. Now, consider what additional cash flow would enable you to do, such as take additional discounts for volume purchases, increase your sales and advertising effort, or add a second shift. By invoice factoring the first $100,000 in receivables, we can project a doubling of revenue to $200,000 with a consistent 65% cost of goods (although this may actually come down depending on if you can receive discounts for paying in cash). This puts your gross profit at $70,000. Subtract overhead of $44,000 (which is more, but never double) and the cost of factoring----$6,000----and you are looking at a net profit of $20,000. So how expensive is invoice factoring? In this instance, which is more than typical than not, the decision not to factor would have cost you $20,000 in missed opportunity for one month. So how expensive is factoring? To accurately figure your profit margin with invoice factoring, you must take into consideration the full spectrum of services offered. This is especially true if you are comparing factoring to borrowing then you are probably on sound ground. If you are looking to use the proceeds of factoring to pay overhead, to clean up bad debts, to pay past due cost-of -goods invoices, then you need to look carefully at what you are doing. Will this increase your chances of growing and expanding? It is rare that companies decide not to factor because they could not afford to. As a matter of fact, in most cases, companies decide to factor because they can't afford not to.

Are they paying 72% for quick payment? No, and factors don't earn 48% for funding, either.

Note: A written promise to pay a named amount to a particular company or business by a certain date.

Most often the decision is between factoring and putting up with cash flow problems.

Consider what increases in profits you can achieve with additional cash flow.

Typical Income Statement

Gross Sales

- Cost of Goods

Gross Profit

Gross Profit

- Expenses(Variable & Fixed)

Net Profit

Income Statement without Invoice Factoring

Annual Revenue: $_________ Cost of Goods: $________ Gross Profit: = $_______ Expenses: Fixed: -- $_______ Variable: -- $_______ Net Profit: = $_______

Income Statement with Factoring

Annual Revenue: $_________ Cost of Goods: $________ Gross Profit: = $_______ Expenses: Fixed: -- $_______ Variable: -- $_______ Factor's Fee: -- $_______ Net Profit: = $_______

Analysis Sumary

Please complete our form so that we can help you determine your options. Click here for the Invoice Factoring Information Form or Call or email me now for your FREE no obligation analysis of your cash flow needs. Web: www.FredCoutts.com Trade Financing International Factoring Business Loan Purchase Order Financing

Net Profit After Factoring: --$________ Net Profit Before Factoring: --$________ Additional Profit: = $________ Percentage Increase: __________%

Factoring

Factoring History

Your Benefits!

How Invoice Factoring works

Construction Factoring

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