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When The Bank Says "No"
By: Cassandra Ingraham
Factoring has been practiced for centuries. The Romans sold promissory notes at
a discount as did the Phoenicians. The word “factor” comes from Latin, the
language of Rome. It means “to do” or “to make.” The Pilgrim’s journeys to
America were financed by advances from a Factor who provided the funds to pay
for the journey. The Pilgrims repaid the money with earnings from America.
Factoring to this day is an extremely common business practice in Europe whereas
many American business men have never heard of it.
Factoring is the selling of your accounts receivable for cash versus waiting
30-60 or 90 days to be paid by your customer. When you provide a Factoring
company with copies of your invoices, the Factoring Company uses your invoices
to make a loan to your company. It is a simple process and can be automated
after the first transaction. Credit is not an issue when providing Accounts
Receivable Loans or Financing. The Financial Companies looks at the credit
history of the vendor not yours! This is exceptional good for small to medium
size business that have been in business for less then two years.
My first experience with Factoring came when one of my Tax clients ending up
with a sizable Tax liability one year. He ran a small Trucking company and had
very few tax problems in the pass. However, because of a sudden burst in growth
he was doing 2 to 3 times more business in the last half of the year. Because he
did not have sufficient tax write offs, his tax liability really hit hard. He
was actually having serious cash flow problems because of unplanned growth!
We talked about the situation, his taxes were completed and because he had
rented a couple of trucks to keep up with the work load, we were able to use the
rental cost as a write off. But there was still the self-employment tax and
there was no doubt he had an increase in business income.
I didn’t say anything, but I was concerned about his payment for the Tax
preparation. I knew he was having cash flow problems and the tax bill did not
help. Then he told me about the $30,000 worth of Invoices. Because the invoices
had not been paid they were not included in his income for that year so I had no
idea that he had invoices in that amount. In fact the invoices where scattered
over his desk.
I went on the Internet and started to research “invoices”. I had never really
understood Factoring before that time, but I had heard of it. We did not have to
Factor my client’s Invoices because he called the company he worked with,
explained the situation and they paid him 50% of the Invoice immediately and the
balance shortly after.
I had already researched “Factoring” or Accounts Receivable Financing and being
a Tax person I was always looking for ways to help my clients pay their taxes as
soon as possible, especially if they owed employee taxes.
I put an ad online and within days a CPA called. He had a client who imported
culinary products from overseas. They needed to factor a fairly large invoice. I
called one of the Factoring Companies explained the situation. The Factoring
Company arranged for his company to do a Purchase Order from his supplier
overseas. Once the Purchase Order was in place, we factored the Invoice. The
client received over 90% of the Invoice amount within days. He then went on to
repeat the deal 3 or 4 more times!
Purchase Order Funding is slightly harder to get then Accounts Receivable
Financing, however, Purchase Order Funding is very helpful for Business who
makes large purchases and resells to a third party.
About the Author:
Cassandra Ingraham operates an Online Tax Resolution and Bookkeeping Service.
The small Tax Service specializes in Invoice Lines of Credit up to $10 Million
per Invoice. Government, City, State and Corporate Invoices welcomed. More
information at: http://www.taxeswilltravel.com
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