Arizona Factoring Companies. How To Choose The Right Company For Your...

More Receivable Financing information
There are many situations where receivable funding can help a business meet its cash flow needs. It provides a continuing source of operating capital without incurring debt, which can result in growth opportunities that dramatically increase the bottom line.

Virtually any business can benefit from factoringas part of its overall operating philosophy.
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Every good businessperson must understand the concept and benefits of factoring in order to operate as profitably as possible. The following chart can help you understand the differences between factoring and other sources of funding.

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This was the beginning of a very important trend in U.S. capital markets. Both lenders and investors realized that sometimes an investor is better off in terms of risk if he buys a pool of loans than if he lends money directly to the company that booked the loans.

Nowadays, investors invest directly in all kinds of grouped assets: mortgages, student loans, car loans, credit card receivables, leases, even franchise dues or insurance premiums. They do this by buying ABS, notes or bonds issued by a special purpose company, the sole function of which is to hold the receivables which are the assets that back the securities. ABS have become so much a part of our financial markets that, in 1993, more ABS were issued than corporate bonds. in terms of risk if he buys a pool of loans than if he lends money directly to the company that booked the loans.

These special purpose companies are hybrids: like banks and finance companies in the sense that they are interested only in earning interest on a financial transaction, and like factors in that they purchase receivables.

To understand how ABS came about and operate, we must look back more than 20 years to when the government decided to make residential housing affordable by making investments in mortgages attractive to investors, thereby increasing the availability of mortgage financing. The government guaranteed these loans, provided they met certain requirements. This allowed for the creation of pools of "conforming" mortgages that ultimately were guaranteed by the government. They became very attractive collateral for investors. These accounts receivables financing investment instruments are commonly known as GNMAs (Ginnymaes), FNMAs (Fanniemaes), and other more esoteric, less recognizable names.

Collateral is another name for a borrower's bankable assets. It is what the lender can expect to draw upon in the event of the borrower's default. Naturally, collateral does not reflect dollar-for-dollar the value of the assets on the company's accounting records. Rather, various levels of discount, known as "advance rates," are applied.

Accounts receivable, for example, are applied a 70% to 85% advance rate in determining how much the bank will lend against them. Inventories have a rate of 30% to 65%, which usually excludes work in process unless tied to a particular customer order.

For equipment and real estate, the value is based upon an appraisal. Eenders will advance 70% to 80% of equipment's orderly liquidation value, and 50% to 80% of the appraised value of real estate. For equipment in use, 25% of original cost is a rule of thumb.

Together, assets valued at these advance rates comprise the pool of collateral upon which the bank lends. Conventional lenders expect their loans to be fully collateralized.

The second criterion is cash flow. Adequate cash flow must not only be expected in the future but also historically proven. Companies with cash flows that vary from positive to negative from month to month will have a difficult time obtaining conventional financing.

Lenders compare cash flow with debt service. Debt service includes the amount of interest expense plus the repayment of principal on term debt. Cash flow is operating profit before interest minus income taxes. The formula assumes that depreciation approximately equates to the need to purchase new equipment. If not, actual anticipated purchases may be substituted for deprecation.

The expected minimum ratio of cash flow to debt service ranges from 1:1 to 1.5:1, depending on the lender's perceived risk. This means that for every dollar of interest and principal repayment, the business must generate an equal or greater amount of cash after tax.

Finally, capital is an essential ingredient. Capital is the equity of the company, which includes amounts initially funded by stockholders plus cumulative earnings of the company from inception, minus dividends distributed. Debt that is explicitly subordinated to the bank's is included with equity or capital rather than debt.

Lenders compare capital with a company's total indebtedness. The relationship is expressed as the ratio of debt to equity. Total debt divided by equity or capital must be in the maximum range of between 2:1 and 4:1. At a 2:1 debt to equity ratio, $1 must be equity for every $2 borrowed from banks or vendors. Companies that fall short are considered undercapitalized.

Fortunately, there are alternatives to the conventional criteria.

Asset based arrangements

Businesses that have operated for many years often have built up substantial collateral, such as owned real estate. These businesses may be unable to satisfy the cash flow requirements of conventional lenders. Or, if the business was recently acquired, it may be short on capital. In these situations, asset based lenders are an excellent option.

Asset based lenders take higher risks because of their focus on collateral. In return, their interest rates are somewhat higher than those of conventional cash flow lenders.

They also monitor loans much more closely and require frequent collateral reporting. Their advance rates generally follow those outlined for conventional lenders.

Why Businesses Choose Us
Again and Again
for their Receivable Financing
Factoring Company
Same Day Funding
.

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and account receivable factoring
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Advance Rates that Exceed
   Industry Norms by 20%
   We offer cash advance rates up to 97%
   The typical maximum in the invoice factoring    industry is 80%.
   We can offer you higher advances because
   of our unique financing capabilities

Flexible Contracts-
   We provide you with contracts
   that meet your cash flow needs,not ours.
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   Unlike the others, we do not make
   you sign long-term contracts and we don't
   charge you fees when you are inactive.

Invoice Processing
   Not only can we offer you the most
   advanced technolgy but we also maintain
   the old-fashioned systems because
   every client has different needs.

   Unlike the Others, our objective here
   is not to force you to conform to us,
   but to get you the cash you need
   in the quickest and most
   efficient manner.

Please contact us today
   and our seasoned invoice factoring
   specialists will help you
   get the cash you need TODAY

1-800-986-1854

Email Us
or complete the
On-Line Invoice Factoring Request Form