The document discusses the history and benefits of invoice factoring. It explains that factoring dates back thousands of years as a way for merchants and traders to access cash from future payments. More recently, factoring has grown in popularity as businesses struggle with tight cash flow and slow customer payments. The document outlines how factoring works, describing the key participants - the payee who sells invoices, the buyer or factor who purchases invoices, and the payor or customer. Factoring provides immediate cash flow to businesses by allowing them to sell outstanding invoices to a factor at a discounted rate.
This document provides information on how factoring works as a financing tool for businesses. It discusses the history of factoring dating back thousands of years, and how factoring has evolved over time. It then provides details on how factoring transactions work, including defining the key participants (payee, buyer, payor), the advance and reserve payments, discount fees, and benefits for both the client and factoring company. The document concludes with two case studies demonstrating how factoring can provide immediate working capital to businesses in need.
Macy's Inc. is the largest department store operator in the US with an 18% market share. The department store industry is declining due to competition from online retailers, supercenters, and discount stores. However, Macy's has been able to grow its market share and profitability compared to competitors through strategic acquisitions and focusing on an omnichannel customer experience. Macy's acquired the luxury beauty retailer Bluemercury and formed a joint venture in China to expand into new markets. While the overall industry declines, Macy's strategic focus on technology, acquisitions, and the customer experience have positioned it for continued strength relative to its competitors in the challenging department store industry.
Pitch Deck To Raise Funding From Mezzanine Debt PowerPoint Presentation SlidesSlideTeam
This complete presentation has PPT slides on wide range of topics highlighting the core areas of your business needs. It has professionally designed templates with relevant visuals and subject driven content. This presentation deck has total of fourty one slides. Get access to the customizable templates. Our designers have created editable templates for your convenience. You can edit the colour, text and font size as per your need. You can add or delete the content if required. You are just a click to away to have this ready-made presentation. Click the download button now. https://bit.ly/3aqxL7G
The document summarizes the career experience of a graphic designer, including roles at various design agencies and companies over 13 years. Some key responsibilities included creating branding, signage, and point-of-sale designs; setting jobs up for production; operating printing and cutting machinery; and managing projects from initial consultation through to final delivery. The designer also independently freelanced for a variety of clients in the southwest of England.
The document is a company profile for Alpha Systems Pvt. Ltd., which provides payroll outsourcing services. Some key points:
- Alpha Systems handles all aspects of payroll management for clients, including salary calculations, tax deductions, and maintaining employee records.
- Payroll outsourcing provides benefits to organizations like reduced costs, ensuring compliance with employment laws, and allowing them to focus on their core business.
- Alpha Systems has been providing payroll outsourcing in Pakistan since 1999 and claims to offer cost savings and high quality services to clients.
Supply Chain Metrics That Matter: A Closer Look at the Cash-To-Cash Cycle (20...Lora Cecere
Executive Overview
When it comes to metrics that matter, the cash-to-cash cycle is one of the top metrics cited by supply chain professionals. It is among the best financial metrics to provide a comprehensive picture of a company’s supply chain and the management of working capital.
The supply chain is a complex system. Successful management requires both orchestration and balance. To drive supply chain excellence, companies are required to balance four competing priorities: growth, profitability, cycle management and complexity. Several popular metrics, including the cash-to-cash cycle, for a variety of industries are presented in table 1.
This document discusses different forms of business ownership and types of businesses. It describes sole proprietorships, partnerships, corporations, cooperatives and franchises. It also discusses international structures like joint ventures, international franchises, strategic alliances, mergers, offshoring, and multinational corporations. The document provides details on key aspects of each type of business structure.
612
Chapter
Statement of
Cash Flows
After studying this chapter, you should be
able to:
1 Indicate the usefulness of the statement
of cash flows.
2 Distinguish among operating, investing,
and financing activities.
3 Prepare a statement of cash flows using
the indirect method.
4 Analyze the statement of cash flows.
S T U D Y O B J E C T I V E S
Feature Story
The Navigator✓
13
GOT CASH?
In today’s environment, companies must be ready to respond to changes
quickly in order to survive and thrive. They need to produce new products
and expand into new markets continually. To do this takes cash—lots and
lots of cash. Keeping lots of cash available is a real challenge for a young
company. It requires careful cash management and attention to cash flow.
One company that managed cash successfully in its early years was
Microsoft (www.microsoft.com). During those years the company paid much
of its payroll with stock options (rights to purchase company stock in the
future at a given price) instead of cash. This strategy conserved cash, and
turned more than a thousand of its employees into millionaires during the
company’s first 20 years of business.
In recent years Microsoft has had a different kind of cash problem. Now that
it has reached a more “mature” stage in life, it generates so much cash—
roughly $1 billion per month—that it cannot always figure out what to do
with it. By 2004 Microsoft had accumulated $60 billion.
Scan Study Objectives ■
Read Feature Story ■
Read Preview ■
Read text and answer
p. 617 ■ p. 625 ■ p. 628 ■ p. 632 ■
Work Comprehensive p. 634 ■
Review Summary of Study Objectives ■
Work Comprehensive p. 648 ■
Answer Self-Study Questions ■
Complete Assignments ■
The Navigator✓
Do it!
Do it!
Do it!
JWCL165_c13_612-673.qxd 8/13/09 11:15 AM Page 612
613
The company said it was accumu-
lating cash to invest in new oppor-
tunities, buy other companies, and
pay off pending lawsuits. But for
years, the federal government has
blocked attempts by Microsoft to
buy anything other than small firms
because it feared that purchase of
a large firm would only increase
Microsoft’s monopolistic position.
In addition, even the largest esti-
mates of Microsoft’s legal obligations
related to pending lawsuits would use up only about $6 billion in cash.
Microsoft’s stockholders have complained for years that holding all this cash
was putting a drag on the company’s profitability. Why? Because Microsoft
had the cash invested in very low-yielding government securities. Stockhold-
ers felt that the company either should find new investment projects that
would bring higher returns, or return some of the cash to stockholders.
Finally, in July 2004 Microsoft announced a plan to return cash to stockhold-
ers, by paying a special one-time $32 billion dividend in December 2004.
This special dividend was so large that, according to the U.S. Commerce
Department, it caused total personal income in the United Stat.
This document provides information on how factoring works as a financing tool for businesses. It discusses the history of factoring dating back thousands of years, and how factoring has evolved over time. It then provides details on how factoring transactions work, including defining the key participants (payee, buyer, payor), the advance and reserve payments, discount fees, and benefits for both the client and factoring company. The document concludes with two case studies demonstrating how factoring can provide immediate working capital to businesses in need.
Macy's Inc. is the largest department store operator in the US with an 18% market share. The department store industry is declining due to competition from online retailers, supercenters, and discount stores. However, Macy's has been able to grow its market share and profitability compared to competitors through strategic acquisitions and focusing on an omnichannel customer experience. Macy's acquired the luxury beauty retailer Bluemercury and formed a joint venture in China to expand into new markets. While the overall industry declines, Macy's strategic focus on technology, acquisitions, and the customer experience have positioned it for continued strength relative to its competitors in the challenging department store industry.
Pitch Deck To Raise Funding From Mezzanine Debt PowerPoint Presentation SlidesSlideTeam
This complete presentation has PPT slides on wide range of topics highlighting the core areas of your business needs. It has professionally designed templates with relevant visuals and subject driven content. This presentation deck has total of fourty one slides. Get access to the customizable templates. Our designers have created editable templates for your convenience. You can edit the colour, text and font size as per your need. You can add or delete the content if required. You are just a click to away to have this ready-made presentation. Click the download button now. https://bit.ly/3aqxL7G
The document summarizes the career experience of a graphic designer, including roles at various design agencies and companies over 13 years. Some key responsibilities included creating branding, signage, and point-of-sale designs; setting jobs up for production; operating printing and cutting machinery; and managing projects from initial consultation through to final delivery. The designer also independently freelanced for a variety of clients in the southwest of England.
The document is a company profile for Alpha Systems Pvt. Ltd., which provides payroll outsourcing services. Some key points:
- Alpha Systems handles all aspects of payroll management for clients, including salary calculations, tax deductions, and maintaining employee records.
- Payroll outsourcing provides benefits to organizations like reduced costs, ensuring compliance with employment laws, and allowing them to focus on their core business.
- Alpha Systems has been providing payroll outsourcing in Pakistan since 1999 and claims to offer cost savings and high quality services to clients.
Supply Chain Metrics That Matter: A Closer Look at the Cash-To-Cash Cycle (20...Lora Cecere
Executive Overview
When it comes to metrics that matter, the cash-to-cash cycle is one of the top metrics cited by supply chain professionals. It is among the best financial metrics to provide a comprehensive picture of a company’s supply chain and the management of working capital.
The supply chain is a complex system. Successful management requires both orchestration and balance. To drive supply chain excellence, companies are required to balance four competing priorities: growth, profitability, cycle management and complexity. Several popular metrics, including the cash-to-cash cycle, for a variety of industries are presented in table 1.
This document discusses different forms of business ownership and types of businesses. It describes sole proprietorships, partnerships, corporations, cooperatives and franchises. It also discusses international structures like joint ventures, international franchises, strategic alliances, mergers, offshoring, and multinational corporations. The document provides details on key aspects of each type of business structure.
612
Chapter
Statement of
Cash Flows
After studying this chapter, you should be
able to:
1 Indicate the usefulness of the statement
of cash flows.
2 Distinguish among operating, investing,
and financing activities.
3 Prepare a statement of cash flows using
the indirect method.
4 Analyze the statement of cash flows.
S T U D Y O B J E C T I V E S
Feature Story
The Navigator✓
13
GOT CASH?
In today’s environment, companies must be ready to respond to changes
quickly in order to survive and thrive. They need to produce new products
and expand into new markets continually. To do this takes cash—lots and
lots of cash. Keeping lots of cash available is a real challenge for a young
company. It requires careful cash management and attention to cash flow.
One company that managed cash successfully in its early years was
Microsoft (www.microsoft.com). During those years the company paid much
of its payroll with stock options (rights to purchase company stock in the
future at a given price) instead of cash. This strategy conserved cash, and
turned more than a thousand of its employees into millionaires during the
company’s first 20 years of business.
In recent years Microsoft has had a different kind of cash problem. Now that
it has reached a more “mature” stage in life, it generates so much cash—
roughly $1 billion per month—that it cannot always figure out what to do
with it. By 2004 Microsoft had accumulated $60 billion.
Scan Study Objectives ■
Read Feature Story ■
Read Preview ■
Read text and answer
p. 617 ■ p. 625 ■ p. 628 ■ p. 632 ■
Work Comprehensive p. 634 ■
Review Summary of Study Objectives ■
Work Comprehensive p. 648 ■
Answer Self-Study Questions ■
Complete Assignments ■
The Navigator✓
Do it!
Do it!
Do it!
JWCL165_c13_612-673.qxd 8/13/09 11:15 AM Page 612
613
The company said it was accumu-
lating cash to invest in new oppor-
tunities, buy other companies, and
pay off pending lawsuits. But for
years, the federal government has
blocked attempts by Microsoft to
buy anything other than small firms
because it feared that purchase of
a large firm would only increase
Microsoft’s monopolistic position.
In addition, even the largest esti-
mates of Microsoft’s legal obligations
related to pending lawsuits would use up only about $6 billion in cash.
Microsoft’s stockholders have complained for years that holding all this cash
was putting a drag on the company’s profitability. Why? Because Microsoft
had the cash invested in very low-yielding government securities. Stockhold-
ers felt that the company either should find new investment projects that
would bring higher returns, or return some of the cash to stockholders.
Finally, in July 2004 Microsoft announced a plan to return cash to stockhold-
ers, by paying a special one-time $32 billion dividend in December 2004.
This special dividend was so large that, according to the U.S. Commerce
Department, it caused total personal income in the United Stat.
This document provides a guide to questions that will be on a FIN 370 final exam, including questions about financial statements, ratios, time value of money, stocks, bonds, capital budgeting, and other finance topics. It lists multiple choice questions about items like the statement of cash flows, primary markets, current and quick ratios, weighted average cost of capital, bond yields, compound interest, and the balance sheet. It also provides a link to purchase the full tutorial with answers to the exam questions.
Based on the information provided:
- SKI seems to follow a moderate working capital policy. It carries reasonable but not excessive levels of current assets relative to sales.
- Barnes' assumption that all sales are collected is not realistic. Bad debts would not be collected, so they would reduce cash inflows from sales collections in the cash budget. Barnes should estimate an amount for uncollectible accounts/bad debts based on SKI's historical experience and subtract that amount from projected cash collections from sales. This would make the cash budget more realistic.
Umesh Kotwani is a senior accountant with over 11 years of experience in finance, accounting, administration, and statutory compliance. He is seeking a new challenging position to further apply his skills and expertise. He has extensive experience with financial accounting and analysis, cost control, internal audits, and ensuring regulatory compliance. He is proficient with Oracle ERP systems and has a track record of improving operations and productivity.
The document provides background information on factoring and how it works. It defines key terms like invoices, accounts receivable, clients, customers, and factors. It explains that factors generate revenue not through interest on loans, but by purchasing invoices from clients at a discount fee. Factors provide upfront advances to clients and release reserves once invoices are paid, helping clients improve their cash flow.
The document discusses branch transformation in the financial services industry. It states that $16 billion will be invested globally in branch transformation in 2017. Effective branch transformation requires focusing first on people by training staff for new roles, then optimizing processes to support expanded staff roles, and ensuring the physical branch design complements the new approach. Key technologies discussed for branch transformation include cash recyclers to automate transactions and free up staff, and video capabilities to expand customer engagement opportunities but not replace face-to-face interaction, which many customers still prefer. The transformation requires a holistic approach across people, processes, and physical properties.
The document discusses the importance of cash flow statements for companies. It provides an overview of Tata Motors, an Indian automotive company, and notes that analyzing its cash flow statement over the past 5 years is necessary to assess the company's cash position and ability to support its success. The study will analyze Tata Motors' revenue figures over 5 years as reported in its annual reports using tools like averages and percentages to better understand the strengths and weaknesses in its cash flow position.
The document is a practice exam for FIN 370 with multiple choice questions covering various topics in corporate finance including financial statements, capital markets, ratios, time value of money, capital budgeting, cost of capital, and risk/return analysis. It tests understanding of key concepts like the statement of cash flows, primary markets, current/quick/cash ratios, net present value, yields, compounding, balance sheets, weighted average cost of capital, the efficient frontier, and bond pricing.
The Document is about Business Case of Cheesiano Pizza. It covers following topics:
Business Plan
Risk Analysis
Resources
TimeScale
FDD
DFD
Use Case Diagram
Activity Diagram
Decision Table & Decision Tree
Form
ER Diagram
Table Design
Report
Cost Accounting Essay
Accounting Essay
Accounting Essay
Accounting Essay
Bank Accounting Essay
What Is An Accountant? Essay
Accounting Essay
Accounting Career Essay
Accrual Basis Accounting Essay example
Essay on The History of Accounting
Accounting Major Essay
Accounting Essay
Management Accounting Essay
Accounting Essay
History of Accounting Essay
Cost Accounting Essay
Accounting Essay
Accounting Essay
Accounting Essay
Bank Accounting Essay
What Is An Accountant? Essay
Accounting Essay
Accounting Career Essay
Accrual Basis Accounting Essay example
Essay on The History of Accounting
Accounting Major Essay
Accounting Essay
Management Accounting Essay
Accounting Essay
History of Accounting Essay
The document discusses cash flows for a company over three years (1991, 1990, 1989). In 1990, major sources of cash were from investing activities. In 1989, major sources of cash were from financing activities. In 1991, major sources of cash came from operating activities followed by investing activities. Major uses of cash in 1991 were less than operating activities. In 1990 and 1989, major uses of cash were financing activities. Cash flow from operations was greater than net income in all three years. Current assets were primarily sources of cash in 1991 and 1990, while current assets were uses of cash in 1989. Current liabilities were uses of cash in 1991.
201204 Nolan QNL: Life and Annuity Industry OutlookSteven Callahan
An abbreviated version of the industry forecast for 2012 pointing out the highlights of key issues, strategies, areas needing focus, and likely structural changes.
This document discusses creative accounting and explores why managers engage in it. It notes that while creative accounting is often portrayed negatively, it can actually help companies in difficult times if used properly. An example is given of Pakistani cement companies during an economic downturn that used creative accounting to convert depreciation from a fixed to variable cost, allowing them to report profits and minimize losses. The document examines definitions of creative accounting, motivations for managers to engage in it such as meeting targets or smoothing earnings, and how it can be used to deliberately misrepresent financial information, for example by changing accounting policies or overstating assets. It concludes that while abuse of creative accounting can be harmful, moderate use that follows accounting standards may provide benefits.
Acct 504 mart perfect education acct504mart.commiddle12
FOR MORE CLASSES VISIT
www.acct504mart.com
Case Study 1 (Part A)Analyze the impact of business transactions on accounts; record (journalize and post) transactions in the books; construct and use a trial balance) During the first month of operation of Gordon Construction, Inc., completed the following transactions: Compare and contrast sole proprietorships, partnerships, and corporations.
Optimizing Cash Flow: Mastering Invoice Discounting, Bill Discounting, and In...M1xchange
In this section, we will lay the foundation by understanding the fundamental concepts of invoice discounting, bill discounting, and invoice financing. We will explore the nuances that set them apart and highlight the critical role these strategies play in efficient cash flow management.
Which financial statement reports the amounts of cash that the firm generated and distributed during a particular time period?
Statement of cash flows
Which of these provide a forum in which demanders of funds raise funds by issuing new financial instruments, such as stocks and bonds?
Primary markets
We call the process of earning interest on both the original deposit and on the earlier interest payments:
compounding.
The document contains questions and multiple choice answers that appear to be from a finance exam covering various topics like financial statements, ratios, time value of money, capital budgeting, cost of capital, and corporate finance. It asks the reader to identify statements of cash flows, primary markets, current ratios, weighted average cost of capital, net present value, compound interest, balance sheets, and income statements. It also contains questions about capital structure, risk and return, financial planning, and dividend valuation.
This document provides a guide to questions that will be on a FIN 370 final exam, including questions about financial statements, ratios, time value of money, stocks, bonds, capital budgeting, and other finance topics. It lists multiple choice questions about items like the statement of cash flows, primary markets, current and quick ratios, weighted average cost of capital, bond yields, compound interest, and the balance sheet. It also provides a link to purchase the full tutorial with answers to the exam questions.
Based on the information provided:
- SKI seems to follow a moderate working capital policy. It carries reasonable but not excessive levels of current assets relative to sales.
- Barnes' assumption that all sales are collected is not realistic. Bad debts would not be collected, so they would reduce cash inflows from sales collections in the cash budget. Barnes should estimate an amount for uncollectible accounts/bad debts based on SKI's historical experience and subtract that amount from projected cash collections from sales. This would make the cash budget more realistic.
Umesh Kotwani is a senior accountant with over 11 years of experience in finance, accounting, administration, and statutory compliance. He is seeking a new challenging position to further apply his skills and expertise. He has extensive experience with financial accounting and analysis, cost control, internal audits, and ensuring regulatory compliance. He is proficient with Oracle ERP systems and has a track record of improving operations and productivity.
The document provides background information on factoring and how it works. It defines key terms like invoices, accounts receivable, clients, customers, and factors. It explains that factors generate revenue not through interest on loans, but by purchasing invoices from clients at a discount fee. Factors provide upfront advances to clients and release reserves once invoices are paid, helping clients improve their cash flow.
The document discusses branch transformation in the financial services industry. It states that $16 billion will be invested globally in branch transformation in 2017. Effective branch transformation requires focusing first on people by training staff for new roles, then optimizing processes to support expanded staff roles, and ensuring the physical branch design complements the new approach. Key technologies discussed for branch transformation include cash recyclers to automate transactions and free up staff, and video capabilities to expand customer engagement opportunities but not replace face-to-face interaction, which many customers still prefer. The transformation requires a holistic approach across people, processes, and physical properties.
The document discusses the importance of cash flow statements for companies. It provides an overview of Tata Motors, an Indian automotive company, and notes that analyzing its cash flow statement over the past 5 years is necessary to assess the company's cash position and ability to support its success. The study will analyze Tata Motors' revenue figures over 5 years as reported in its annual reports using tools like averages and percentages to better understand the strengths and weaknesses in its cash flow position.
The document is a practice exam for FIN 370 with multiple choice questions covering various topics in corporate finance including financial statements, capital markets, ratios, time value of money, capital budgeting, cost of capital, and risk/return analysis. It tests understanding of key concepts like the statement of cash flows, primary markets, current/quick/cash ratios, net present value, yields, compounding, balance sheets, weighted average cost of capital, the efficient frontier, and bond pricing.
The Document is about Business Case of Cheesiano Pizza. It covers following topics:
Business Plan
Risk Analysis
Resources
TimeScale
FDD
DFD
Use Case Diagram
Activity Diagram
Decision Table & Decision Tree
Form
ER Diagram
Table Design
Report
Cost Accounting Essay
Accounting Essay
Accounting Essay
Accounting Essay
Bank Accounting Essay
What Is An Accountant? Essay
Accounting Essay
Accounting Career Essay
Accrual Basis Accounting Essay example
Essay on The History of Accounting
Accounting Major Essay
Accounting Essay
Management Accounting Essay
Accounting Essay
History of Accounting Essay
Cost Accounting Essay
Accounting Essay
Accounting Essay
Accounting Essay
Bank Accounting Essay
What Is An Accountant? Essay
Accounting Essay
Accounting Career Essay
Accrual Basis Accounting Essay example
Essay on The History of Accounting
Accounting Major Essay
Accounting Essay
Management Accounting Essay
Accounting Essay
History of Accounting Essay
The document discusses cash flows for a company over three years (1991, 1990, 1989). In 1990, major sources of cash were from investing activities. In 1989, major sources of cash were from financing activities. In 1991, major sources of cash came from operating activities followed by investing activities. Major uses of cash in 1991 were less than operating activities. In 1990 and 1989, major uses of cash were financing activities. Cash flow from operations was greater than net income in all three years. Current assets were primarily sources of cash in 1991 and 1990, while current assets were uses of cash in 1989. Current liabilities were uses of cash in 1991.
201204 Nolan QNL: Life and Annuity Industry OutlookSteven Callahan
An abbreviated version of the industry forecast for 2012 pointing out the highlights of key issues, strategies, areas needing focus, and likely structural changes.
This document discusses creative accounting and explores why managers engage in it. It notes that while creative accounting is often portrayed negatively, it can actually help companies in difficult times if used properly. An example is given of Pakistani cement companies during an economic downturn that used creative accounting to convert depreciation from a fixed to variable cost, allowing them to report profits and minimize losses. The document examines definitions of creative accounting, motivations for managers to engage in it such as meeting targets or smoothing earnings, and how it can be used to deliberately misrepresent financial information, for example by changing accounting policies or overstating assets. It concludes that while abuse of creative accounting can be harmful, moderate use that follows accounting standards may provide benefits.
Acct 504 mart perfect education acct504mart.commiddle12
FOR MORE CLASSES VISIT
www.acct504mart.com
Case Study 1 (Part A)Analyze the impact of business transactions on accounts; record (journalize and post) transactions in the books; construct and use a trial balance) During the first month of operation of Gordon Construction, Inc., completed the following transactions: Compare and contrast sole proprietorships, partnerships, and corporations.
Optimizing Cash Flow: Mastering Invoice Discounting, Bill Discounting, and In...M1xchange
In this section, we will lay the foundation by understanding the fundamental concepts of invoice discounting, bill discounting, and invoice financing. We will explore the nuances that set them apart and highlight the critical role these strategies play in efficient cash flow management.
Which financial statement reports the amounts of cash that the firm generated and distributed during a particular time period?
Statement of cash flows
Which of these provide a forum in which demanders of funds raise funds by issuing new financial instruments, such as stocks and bonds?
Primary markets
We call the process of earning interest on both the original deposit and on the earlier interest payments:
compounding.
The document contains questions and multiple choice answers that appear to be from a finance exam covering various topics like financial statements, ratios, time value of money, capital budgeting, cost of capital, and corporate finance. It asks the reader to identify statements of cash flows, primary markets, current ratios, weighted average cost of capital, net present value, compound interest, balance sheets, and income statements. It also contains questions about capital structure, risk and return, financial planning, and dividend valuation.
1. How to Create
Immediate Debt
Free Working
Capital!
The
InvoiceXchange The Financing Tool of Choice_____________________________________________________________________________________________
___________________________________________________________________________________
2005-2016 The Finance Institute
Greenwise Capital Solutions
www.greenwisecapitalsolutions.com
2. The History of Factoring
Recorded history reveals that the concept of turning future payments into
cash ( or cash equivalents) dates back thousands of years. Much like
today, the need for liquidity, or “cash” to pay everyday expenses, has
always been a great need. Think of the days when merchants would travel
the seas in search of various treasures. Ships would be filled with those in
need of food and necessities to survive.
Financiers offered payments against future rewards as a means to earn a
return on their investment. This financing was an integral part of the
success in establishing world trade. Thus, the concept of factoring was
born dating back some four thousand years.
Prior to the 1980’s, factoring was used primarily in the garment, textile,
and furniture industries – typically only available to larger companies.
Entrepreneurial funding companies, changed all this in the late 1990’s.
Due to the recent credit crisis and bank meltdown (2008) more
companies than ever are turning to factoring to create immediate debt
free working capital. Did you know Small to Midsize business bank loan
application decline rates are continuing to reach epidemic proportions.
Today factoring is becoming the alternative business finance tool of
choice, in many cases the only choice. There are over 55 million Small to
Midsize businesses across North America but, less than 10% of them
utilize factoring because most have never heard about the many benefits.
SMBs assume factoring has overwhelming costs. However, the reality is
factoring costs have been on a steady decline since 2008. Why?
Supply and Demand. Today, there are more factoring companies than
ever, which results in lower costs as they compete for clients. The
creation of The InvoiceXchange has created a unique auction based more
efficient marketplace providing the most liquidity for the least cost with a
simple process and flexible terms.
The
InvoiceXchange The Financing Tool of Choice_____________________________________________________________________________________________
___________________________________________________________________________________
2005-2016 The Finance Institute! 2www.greenwisecapitalsolutions.com
Greenwise Capital Solutions
3. Today big box retailers including Walmart and the Government have
entire departments dedicated to working with their vendor’s factoring
company. These big name brand retailers recognize that a factoring
company has deemed their vendor as safe to do business with and credit
worthy. As more companies embrace the many benefits of factoring, the
face of the factoring industry will continue to change forever.
The Facts
A recent study conducted by the Credit Research Foundation found nearly
80% of North American companies report that the economy has had a
direct negative effect on their business with a majority citing:
1. Lack of Available Working Capital
2. Tightening of Cash Flow
3. Slow Down in Customer Payments
As the three major issues that are having disastrous affects on the
viability of their businesses. Companies that were accustomed to
receiving payment on their invoices in 30 days are faced with the reality
that the payment cycle is now surpassing 60 days or longer. The national
average for invoices to be paid across North America is a staggering 73
days!
The trickle down effect of this is tremendous. Without the needed cash
flow, companies are forced to make tough decisions. Employees are
being let go (no money for payroll), supplier payments are delayed
(resulting in delayed or cancelled shipments for future orders), delaying
payment of operating expenses (negatively affecting the company’s credit
history which will adversely affect their purchasing power), payment of
taxes are delayed (resulting in judgments and tax liens) and the list goes
on.
The
InvoiceXchange The Financing Tool of Choice_____________________________________________________________________________________________
_________________________________________________________________________________
2005-2016 The Finance Institute! 3
Greenwise Capital Solutions
www.greenwisecapitalsolutions.com
4. Banking versus Factoring
When cash flow is tight, where do companies turn? Traditionally, this
answer has been to banks. Pick up today’s paper, listen to the news,
research the internet and you will see that banks are NO Longer the
solution. Due to the recent credit crisis, their directives had changed to
protect their existing portfolios, while becoming extremely conservative
in providing new loans (if any) due to loose credit policies of the past.
Today banks concentrate on generating revenue from deposits, bank fees
and a whole host of ancillary services like insurance etc.
So, what is factoring?
The definition of Factoring is simple: The purchase of business to
business (B2B) or business to government (B2G) accounts receivable
(current or outstanding invoices) for products delivered or services that
were rendered in the past, at a discount.
Factoring is NOT A LOAN and NO INTEREST is charged. It is simply the
discounted purchase (sale) of a company’s non performing asset
(accounts receivable – an invoice that is paid over time)
Is factoring just for a few selected industries?
Factoring related transactions are somewhat vast. By definition, invoices
must be from one business to another business or, from a business to
the government. With this in mind, the number of potential prospects is
HUGE! At the time of publishing this white paper, there were over 55
million Small to Midsize businesses scattered all across North America
(United States and Canada). This number is sure to increase due to new
start up companies that have sprouted up recently, mainly as a result of
those individuals that have been downsized and subsequently have
started their own businesses. While many industries have been
floundering over the past few years, the Factoring industry has been
experiencing explosive growth.
The
InvoiceXchange The Financing Tool of Choice_____________________________________________________________________________________________
___________________________________________________________________________________
2005-2016 The Finance Institute! 4www.greenwisecapitalsolutions.com
Greenwise Capital Solutions
5. Ask yourself this question: “How many businesses do you know of that
provide a product or service to another business or the government”?
Now ask yourself: “How many of those businesses are getting paid in over
30 days? 45 days? 60 days? 90 days?”
Since just about everything in a factoring transaction is centered on an
invoice, let’s see what a typical invoice may look like….
The
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6. There are a number of sections that make up an invoice. Let’s quickly
highlight and talk about an important section of an invoice. TERMS!
One of the most important sections of the invoice is the TERMS of
payment. Typical terms in business are: 2% 10/net 30 days which means
if the customer pays for the invoice within 10 days they will receive a 2%
discount off the face (total value) of the invoice. If the customer pays for
their invoice after ten days, they are required to pay the total (face value)
of the invoice. This is fundamental for the factoring industry. The longer
the terms (time to receive payment), the larger the ultimate burden on
the businesses cash flow.
The
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7. How Factoring Works
First, let’s define the participants in any factoring transaction.
•
Payee (Seller of invoices)
The Payee, also referred to as the “Seller”, is the company that has
manufactured a product and shipped that product or rendered a service
to their customer. In the factoring process, we call the “seller” a
prospect/client. That company will now create an invoice for a sales
transaction that has taken place and sends to their customer.
•
Buyer (factor)
The buyer (factor) is the company that supplies the capital in a factoring
transaction. The factor is commonly referred to as a funding source that
buys invoices at a discount.
•
Payor (also known as the debtor or customer)
The payor is a company (customer) or government agency that makes
payments against an invoice of the Payee, the “seller” (prospect/client).
The factoring process begins when Payee (client) is introduced to a Buyer
(Factor/Funding Source). The Buyer then makes their funding decisions
based on whether or not the Payor has the credit strength to pay for the
invoices and how long they typically take to pay for their invoices.
The
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8. The Factoring Industry is Recession Proof
Strong Economy - when the economy is strong companies will utilize
factoring to accommodate the growth they are experiencing.
Weak Economy - when the economy is weak companies will utilize
factoring to help them survive, stay current with fixed costs/taxes, meet
payroll etc. With the banks not lending and customers on average paying
their invoices in 73 days - the factoring industry is poised to experience
another wave of tremendous growth.
How does Factoring work?
There are two key disbursements that are associated with a factoring
facility. The first disbursement is called an “Advance” and the second
disbursement is called the “Reserve”.
·
· Advance – the client receives up to 95% of the face value (total) of
the invoice when the invoice has been purchased by the factor. The
advance rate depends on the “risks” involved with the transaction –
the greater the risk, the lower the advance.
· Reserve – the client receives the reserve balance (total invoice
amount minus advance rate) once the customer has paid for the
invoice – less the discount fee charged by the factor.
For example - if the invoice is $1,000.00 and the “Advance” has been set
at 90% by the factor, then the “Reserve” would be 10% (100% of invoice -
90% = 10%). The reserve is released (paid back to the client) once the
invoice has been paid by the customer (debtor).
The
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9. How do Factors make money?
When entering a discussion on how a factoring (funding Source) company
makes money, you must first embrace the idea that a factor is not a
“lender.” This is a grave error perpetrated by many who not only enter
the field, but also by those companies who are considering using
factoring as a tool to accelerate immediate cash flow in their business.
Why is this important, you ask? It is important for a few reasons:
Annual Percentage Rate: We are all conditioned to believe the only way to
get money is through a bank. After all, our first account was a passbook
savings account at a bank. When we grew older and it was time to get a
checking account, we secured this at a bank. To further the example, we
ask: Where does the business owner turn to get a business checking
account or a loan for his/her company? One thinks that the only place to
get these things is… at a bank. Therefore, it is safe to assume that
whenever you are talking to a company about financing, they will equate
factoring, to a bank.
We must emphasize again that banks charge interest on money they lend
while Factors buy invoices at a “discount fee”. No Lending, Different
Regulations: Since factors are actually purchasing assets at a discount
and not lending money, they are not regulated in the same way that
banks are. This flexibility allows factors to pursue funding opportunities
that are typically avoided by the banks (e.g. Service companies, new start
ups to < 3 years old, companies that are growing quickly, companies
declined by bank, companies with historic losses or liens against them/
bankruptcy). Said another way, why would a factor fund a company that a
bank would not lend to? When a bank makes a loan to a company, they
are relying on that company’s ability to pay back the loan.
The
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10. They look to hard assets like property, equipment, inventory and cash as
security in the event the company defaults on the repayment of the loan.
When a factor purchases an invoice at a discount, they are simply relying
on the client’s customer/debtor to pay the outstanding invoices, in full.
Ask yourself this question - how many companies do you know that are
non-manufacturing companies? Now ask yourself this question - how
many of them do you think are getting paid in 30 days, 60 days, 90 days
or longer?
To summarize, factors prosper by taking a different approach to
commercial financing. Banks are making their credit decisions based on
the strength of the borrower’s assets. Factors make their credit decisions
based on the credit strength of the Borrower’s customers.
How Does Factoring Work?
The following is an example to demonstrate how this works:
Invoice Amount:
$100,000.00
-------------
Amount Advanced to Client = 90%: $ 90,000.00
Amount Held In Reserve = 10%: $ 10,000.00
-------------
30 Days Later:
Amount paid by client’s customer:
$100,000.00
Advance amount back to factor:
- $ 90,000.00
Discount Fee = 2.0% of invoice:
- 2000.00
-------------
Amount Held In Reserve = 10%: $ 10,000.00
MINUS Discount Fee 2000.00
_____________________________________________
Amount rebated to client:
$ 8,000.00
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11. During the transaction, the amount held back in Reserve serves to protect
the factoring company against any potential credit offsets taken by the
client’s customer (debtor). If there were a credit taken by the client’s
customer, that amount would be subtracted from the “reserve” before
rebating the remaining monies to the client.
As you can see, in total, the client received an advance of $90,000 and a
reserve rebate of $8,000 for a total of $98,000. The factor received a
discount fee of just $2000 for the service.
Factoring Case Studies
Here are some real life case studies that will serve to better illustrate the
benefits of factoring.
Health Care Staffing
First, we must define the players in the transaction.
· Payee – Health care staffing company providing nurses to hospitals
on a temporary employment basis (client)
· Buyer – “”Funding Source” (factor)
· Payor – Hospitals (customer)
The Current situation:
Client was providing temporary nursing services to various hospitals.
Client’s major operating expense was in meeting the payroll demands of
its temporary workforce (nursing) on a bi-weekly basis. Client was
receiving payment on invoices to hospitals in 60 days. However, the client
had the ability to “cash flow” these expenditures out of current working
capital.
Client received a phone call from a very large hospital informing them
they had been awarded a contract for 50 nurses to be employed 40 hours
The
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12. per week. The hospital was mandating 60 day payment terms on all
invoices.
The Math:
Client (health care staffing company) pays its nurses (on average) $24.00
per hour.
Client charges it’s customers (on average) $36.00 per hour for hours
worked.
Hospital pays its invoices for services provided by the client in eight
weeks or every 60 days. Client must pay nurses bi-weekly for hours
worked.
In order to fulfill this new contract, the client is faced with the reality of
having to come up with $96,000 in cash every two weeks to cover the
payroll burden:
50 (nurses) X $24.00 (average hourly pay) x 40 (hours worked per week) x
2 (number of weeks payroll) = $96,000.
The Issue - The Bank:
Client approaches the bank to request a loan for $200,000.
Bank declines the loan due to “insufficient collateral” – only asset is
accounts receivables. In addition, the health care staffing company had
only been in business for 16 months and did not have enough financial
history.
The Solution:
Client is introduced to the merits of factoring by one of our Cash Flow
Consultants who gathers some simple information. The information is
forwarded onto The InvoiceXchange File Manager/Factor - a review of the
credit history of the payor (hospital) determines it to be a solid credit
risk. The Factor agrees to advance 90% against invoices purchased.
The
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13. Keep in mind, the $24.00 per hour was not the amount that the client
charged the hospital. If it were then the client would not earn a profit. In
this transaction the client charged the hospital $36.00 per hour, so the
client earned $12.00 per hour (gross profit) for each hour the nurses
worked ($36.00 amount charged to hospital - $24.00 amount paid to
each nurse = $12.00)
50 (nurses) X $36.00 (average hourly pay) x 40 (hours worked per week) x
2 (number of weeks for hospital to pay) = $144,000
The Factor will “Advance” (first key disbursement) 90% against invoices
created: $144,000 X 90% = $129,600
Note: Keep in mind that Factor will fund weekly based on verified hours
worked per nurse. This figure provides an aggregate amount that is
funded over the two week period.
Since the payroll burden is $96,000, The Factor’s advance of $129,600 is
more than enough to cover the payroll and provide additional working
capital every week/2weeks etc. The client now has additional working
capital to source out new contracts, and to help meet fixed costs like
rent, telephone, utility payments, etc.
A win-win situation!
Delta Components
Delta Components, Inc. (“Delta”) is a relatively small distribution company
located in Reston, VA. Delta currently has just over $500,000 in revenues
and during the past year, Delta enjoyed significant sales growth. While
most business owners would be thrilled to experience the growth that
Delta has, Ron Cotton (Principal), was very concerned that his company’s
cash flow status would be unable to keep pace with its sales growth.
The majority of Delta’s customers are strong financially and have a
history of paying their invoices on time. However, “on time” these days
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14. means 45 to 60 days. Delta pays their employees every week and they
must pay their vendors in 30 days. The discrepancy between the time
Delta needs to pay their employees and vendors has, and will continue to
create a cash flow problem for Delta.
In an effort to meet his internal cash flow needs, Ron has delayed vendor
payments resulting in placing his purchasing power at risk. This could
result in his vendors implementing more restrictive payment policies
(basically, Delta would need to pay faster, if not up front, in order to
receive future shipments from the vendors).
This lack of cash flow has also caused Ron to take a pass on a number of
significant business opportunities.
In Ron’s mind, it did not make sense to just take on new orders if it
meant increasing his inability to pay his vendors on time, and most
importantly, hindering his need to pay his employees on time. Let’s
review the following table:
Delta Components, Inc. Current financial position (without factoring)
Yearly Sales
$500,000
Variable costs (70% of sales)
$350,000
Fixed Costs
$50,000
Total Costs
$400,000
Gross Profit/Loss (Sales - Costs)
$100,000
Note: Ron has calculated that he has lost close to $200,000 in sales
opportunities due to the fact that he did not have the cash needed to pay
his vendors on time, nor to pay his employees, which were both needed
to fulfill on these commitments.
Ron was being forced to make a decision that would dictate the future
success or failure of Delta. Find a way to increase the cash flow within the
The
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15. company or continue to turn down future sales/growth opportunities.
Ron reviewed his options for improving his cash flow.
First, Ron reviewed the options that were available to him without seeking
financing:
1. Demand more strict payment terms from his customers.
2. Increase the sale price of his products.
3. Negotiate more conservative payment terms to his vendors.
4. Reduce employee cash burdens (e.g. insurance, bonus, wage increases
or possible layoffs).
5. Delay his payment of payroll taxes.
After much thought, Ron came to the following conclusions:
Options 1 and 2 were not possible. Demanding his customers to pay their
invoices faster was a recipe for disaster as his competitors were offering
more liberal payment terms now in an effort to induce his customers to
conduct business with them. Raising his prices would position him as
unattractive option to his customers. Ron was in a very competitive
business, and his customers would simply choose to buy their products
from another, less expensive resource.
Option 3 was not possible. His vendors had already placed him on credit
hold. Asking them to now give him more liberal payment terms would be
counter intuitive.
Option 4 was not possible: Simply put, if Ron were to increase his
business, he would need all his employees, if not more, to work for him.
In order for him to either keep current or attract new employees, he
would have to offer competitive wages and benefits to bring them to
Delta.
Option 5 was an option, but, a potential “death blow” to Delta. Avoiding
the payment of employee tax burdens to the government is never a good
long term solutions. Although the impact of not paying the taxes will
result in an immediate improvement in cash flow, the long term
implications could amount to tax liens and high financial penalties due.
The
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16. If Ron was unable to “recover” cash by making internal changes to his
business, he must now look to outside financing to help him.
Ron viewed his outside financing options as:
1. A line of credit with a bank
2. Offering ownership (equity) in his company, in exchange for working
capital
3. Factoring Delta’s accounts receivables
It is necessary to keep in mind that while Ron was considering all options,
he was losing orders (daily) with potential customers that may never
return.
Ron knew that a line of credit with a bank was not a valid option, as he
attempted this in recent memory and knew that he did not have the
collateral needed to secure a loan.
Ron had been approached in the past by a few potential “investors”, but
this option came at a very high price, as he would have to give up
ownership and control of his company in exchange for cash.
Ron determined that an accounts receivable factoring line of working
capital would be the best solution to help his company strengthen his
company’s financial position. This would enable Delta to now accept new
orders and to pay both vendors and employees on time. In fact, the
acceleration of cash into his business would put Ron into a position of
strength with vendors in that he could now be in a position to negotiate
early payment discounts.
Ron received a 90% advance from The Factor and a discount rate of 1.9%
(per 30 days). Since Delta was now getting paid on average in 60 days,
Ron budgeted a discount rate of 3.8%.
Ron then reconstructed his financial statements by adding the following:
1. The 3.8% factoring discount rate
2. The projected $200,000 increase in new business
3. Supplier discounts offered for quick pay.
The
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17. Delta Components, Inc. projected financial position (with Factoring)
Yearly Sales
$700,000
(Note: Increase of $200,000 from new orders)
Variable costs (65% of sales)
$455,000
(Note: 5% supplier discounts)
Factoring discount fees
(Note: 3.8% of sales)
$26,600
Fixed Costs
$50,000
Total Costs
$531,600
Gross Profit/Loss (Sales - Costs)
$168,400 Additional
Profit of $68,400, over 60%!
Therefore, by selling his invoices and ultimately giving a 3.8% discount to
the factor, Delta gained over 60% ($68,400) in profits - truly, addition by
subtraction!
So In Conclusion - Why is the Factoring Industry important to business?
When the Banks say “No” we typically say “Yes” and companies are
seeking our resources. Unlike a bank the credit line increases with the
value of the sales.
Small to midsize businesses across this country every single day are
delivering products and/or services. In order to remain competitive these
businesses issue invoices with credit terms and now wait to get paid.
Through Factoring a business can now turn this non-performing asset
(accounts receivable) into “C.O.D” creating immediate, continuous,
predictable cash flow without incurring debt.
For questions or more information email us at:
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