Staffing companies are usually responsible for paying contractors' wages directly, and then must wait for repayment by their clients.   What happens is reflected below:

ABC Staffing Company hires David as a contractor to work for CDE Corp and submits an invoice to CDE for its fee and David’s first payment. Two weeks after starting work, David submits his timesheet and invoice to ABC Staffing, which must pay David in 15 days. However, ABC Staffing does not receive payment from CDE Corp for 45 or perhaps even longer, but it has to lay out David's salary for 15-30 days.

Traditionally, staffing companies have relied on factoring to help bridge this cash flow gap. Receiving cash within 24 hours of generating an invoice can spell the difference between success and failure for many staffing companies.

An IT staffing company in Ontario began factoring invoices with money on Tap Inc (MOT) in 2005, and the owner says it has been a critical factor in the company's 7 successful years in business. "We can have as many as 9 -12 contractors out in the field at one time, and at $75 an hour, the payroll can add up quickly," says the owner. "We are so appreciative of the service received from our factor in doing the wait for us since our first day in business."

The owner explains that he receives 85 % of the gross invoices he sends to his clients the very next day from the factor, and the balance (less the factoring fee) when the factor collects from the client. "It's hard to beat that," says the owner. "Factoring covers the cash flow gap so I don't have to pay contractors' wages out of my own pocket."

"Factoring is very common in the staffing industry, and it's not unusual for staffing companies to view factoring as a long-term financing solution," notes MOT President, Martin Charney has been a catalyst in the growth and success of this company since day one."

The owner says other financing companies have tried to lure him away over the years, "but I have remained loyal to MOT because they have been with us since the very beginning. They took a chance on us when we were brand new."

"Factoring has always been the best financing option for us," he continues. "We've never borrowed any money for the business, and we've been profitable every year since we started except one. If it's not broken, there's no need to try to fix it."

Klausen says this client has referred other companies to MOT over the years. "They've been very pleased with factoring and the service MOT has provided, and we're thrilled to be able to help contribute to their success."

To learn more about MOT and the financing options we can provide to clients, please visit  www.ifactoring.ca or call Martin Charney at (416) 524 5518 or 1800 656 ifac

This article attempts to explain some of the common elements of a accounts receivable factoring or an asset based loan for business.

Customers of an Asset Based Loan:

1. Customers (or debtors) of the factor’s clients must always be well spread, under 90 days and always credit approved up to the high credit limits requested by clients.

2. Consignment sales by clients to their customers / debtors are unacceptable.  All sales must be stand alone final sales.

3. Cheques signed by customers must always be honoured.  NSF cheques decrease the customers’ credit worthiness.

4. Character or the Credit reputation of the customers must be honourable.  All their financial commitments need to always be honoured and they must not delay payment of their invoices beyond the due dates.

5. Conceptualization generally by customers of how well they understand their business and have been operating for.  Their general reputation is in the business community is vital.

6. Cancellation of orders by clients’ customers should ideally be kept to a minimum.

Clients of an Asset Based Loan:

7. Confirmation or verification telephonically (or by email) of all goods delivered or services rendered by clients to their customers must be obtainable and is essential.  This gives the client and the factor their security knowing that payments will be made on all overdue undisputed invoices. The completion of all orders by clients is essential with no progress payments being made in the future can be allowed.  Each order must be completed and stand alone.

8. Capacity is the ability of clients to perform, manufacture, import or provide the service in the required quantities and qualities in the correct packaging at the correct price delivered at the right times to the correct customers’ delivery points without onerous warrant or right of returns issues.

9. Capital refers to the clients’ available assets in their businesses.  Examples are accounts receivable, inventory, equipment, vehicles, patients or any goodwill.

Clients and Customers:

10. Conditions in the market may affect businesses.  For example seasonal fluctuations, political manifestations or changes, climate changes, increased or decreased competition or exchange rate fluctuations may all have an affect on clients ability to deliver and on customers ability to pay.

How To Easily Eliminate The Problem Of Being Underfunded While Waiting 30 Or 60 Days

For Your Customers To Pay Their Invoices

Tired of playing catch up with your cash flow? Having to wait 30, 60 or even 90 days for customers’ before you are paid for delivered goods or procured services?

Feeling squeezed by having to offer your customers attractive payment terms only to find your cash flow not flowing?

Have you just been refused a line of credit, owe CRA or suppliers money or are simply overwhelmed by expenses?

Putting your business at risk by skipping credit checks on your customers? These are expensive and require expertise.

Nervous about financial stability of your customers and how their delayed payments  affect your business?

These are all very real, risky situations. Whether you’re a wholesaler, importer, trucking company, temporary personnel agent or manufacturer. Cash flow and customer creditworthiness are major concerns.

With 9 out of 10 of all 2009 start ups failing, growing pains in a business can make or break a business.  More importantly, 90% of the surviving 10% grow to financial maturity faster with additional financing.

There’s Always Bank Loans

Yes you could go get a bank loan, but how’s your financial situation?    Will you be approved? How long will you have to wait for approval? And then how long till you actually get funded?  What are the banks’ conditions for loans?

Banks always insist on up to date balance sheets, income statements, revised business plans, cash flows, four consecutive  years profit, the maintenance of healthy monthly ratios, positive personal assets and liabilities AND good personal credit.  Why would anyone need a bank line if all these conditions were met?  From your accountant’s point of view, in procuring all the bank’s requirements, there is a lot more work (and cost) involved in securing a bank line.

So maybe bank loans aren’t for you.

So Bank Loans Aren’t Solving My Problem.  What About Other Sources of Cash  Injections?

Business can borrow from many sources:

1. Love money – they normally have to start with some family money or personal savings. put a negative here… But this form of money can only be used at the very early stages as it is the only way to commence existance in order to be able to bring the product to market.

2. Then Angel Finance starts.  Angel Investors usually want at least 50% of the company's equity and only accept 1 out of 1,000 applicants.  This form of money can only be used at the very early stages as it is the only way to commence existance in order to be able to bring the product to market.

3. Mezzanine Finance is another form of initial funding. But this form of money can only be used at the very early stages as it is the only way to commence existance.

4. Venture capital comes a little later when the new company has progressed from the initial "Idea" stage to having made some workable widgets achieved some success and at least had a business plan and cash flow drawn up. But this form of money can only be used at the very early stages as it is the only way to commence existance.

5. Showroom Finance is specifically designed to finance unsold vehicles while they remain unsold on the showroom floor. But this form of money can only be used at the very early stages as it is the only way to commence existance.

6. Factoring commences with the delivery of goods or procurement of services when continuous liquidity is required.

7. Then equity finance and shares may be sold – thus decreasing profitability later which factoring prevents.

8. There is always the option of selling shares and taking in new monied partners or silent partners - BUT then you a left with less of your own comany as enjoy less of it growth.

Having More Cash Available Solves Many Problems

Imagine having cash flowing back into your business only days after issuing invoices, being confident offering customers generous payments terms in order to obtain contracts without having to worry about running credit checks on them?

What if you could take your accounts receivables and turn them into instant cash within a few days, eliminating the need for any credit checks, no monthly payments required and carry on business with a lot less worry and stress… and all for a nominal fee?  Isn’t this all a luxury compared to banks or private investors?  Now you keep 100% of the equity in your business.   No wonder there is over $20 billion dollars of factoring done in Canada each year!

What could your business do with more cash?

• expand your operations?

• take advantage of supplier discounts to more than cover the cost of factoring?

• open new locations?

• hire more staff and pay them all on time?

• do more research and development

• become enabled to tender on major contracts

• employ the best professionals (accountants, lawyers and computer systems and equipment)

• wait for your SRED (Scientific Research and Experimental Development capital arrears from the government,

• go after bigger clients?

• become suppliers of choice to all your customers?

• purchase more fixed assets?

• do an IPO (Initial Public Offer) and go public

• Advertise more for additional brand awareness and market penetration.

Consider an Asset Based Loan

Well there is a solution. Factoring from Money On Tap will give your company immediate freedom from the pressures of inadequate cash flow.  Your direct costs and overheads are paid immediately by a factoring company and you only wait a few weeks for your profits.

With factoring, you can continue to offer competitive terms. Your business will grow exponentially, with our cash resources turning your business into a cash-on-delivery operation.

With factoring, we set high credit limits on your customers.   This is a vital task in the professional credit checking procedure.  There is security in knowing that you are not taking a high risk trusting your customer.

Demanding COD from your customers is the only way to conduct business while suffering from illiquidity. Factoring gives you and your customers breathing space allowing for their payment terms. You can continue to conduct business with the factor’s additional working capital.

Money On Tap acts professionally to sounding alarm bells when the factor notices any changes to your customers’ credit. By bringing any looming debt problems to your attention, we can save you money.  The factor may reduce credit limits if any NSF payments are received.  You can remain “the good guy” while we do all of your outside-of-court collections free of charge.

You may delegate this very important specialized task to the factor.  We will use our professional expertise to collect as many overdue accounts as possible. Any seriously delinquent accounts will be handed over to lawyers for collection or claimed from insurance wherever trade insurance has been taken out.

We look after your delinquent accounts for you, so you won’t have to put undue pressure on your customers once you see them becoming overdue.

It is impossible to appear financially secure to your customers without having a factor reduce your risk, and maintain a healthy financial cash flow. With factoring you will be able to maintain a healthy bank account while watching your business grow.

Having Money On Tap responsible for your business accounts receivable, you eliminate all pressure on your customers by allowing terms thereby reducing your fear of losing their business.  So your customers can now sell the goods before they have to pay you for it them.

When a factor is on board you are assured of:

• Payment within 24 hours of delivery of goods or rendering of services which give you near immediate payment on your invoices.

• Professional credit checks on all your clients, without having to hire any staff with credit expertise.

• Ability to offer terms and thereby being able to compete on those bigger projects and accept government tenders.

• Up-to-date collections with a healthy aged AR list so you’ll never have to chase your clients for payment again.

• Access to take advantage of supplier discounts due to the additional working capital available thereby totally covering the cost of factoring.

• Opportunity to provide your bank and larger customers like Walmart with a healthy aged receivable list.

• Approval of a bank loan long before you would otherwise enjoy one knowing you can survive until then

• Faster increase in sales because now you’ll have the money to do what’s you know is necessary to grow and expand.

• Immediate notification to a change in your customers’ credit so you can react quickly to stabilizing your position.

• Have all the necessary liquidity to run your business, hire the best staff, buy the most cost effective machinery, advertise effectively, pay professionals and take advantage of suppliers cash discounts from your suppliers…

96% of $1,000,000

(4% factoring cost  for 60 days days)

Is more than 100% of $100,000

How Do I Get Started?

Email Your Request For a Quote Today!

THOUSANDS OF OTHER SUCCESSFUL BUSINESSES ARE USING THE POWER OF FACTORING TO THEIR BEST ADVANTAGE.

IS FACTORING RIGHT FOR YOU?

Asset Based Factoring also sometimes known as Asset Based Financing, Asset Based Lending or Asset Based Loan, is a financing method of choice for small to medium sized businesses particularly when they find themself in a position of illiquidity unable to enjoy a bank line of cedit.

Factoring is simply the sale of a company's accounts receivable for immediate cash. In order for a business to grow it needs a strong cash flow.   Without it, a business will struggle covering it's monthly expenses and thus affect its growth.

Factoring companies will usually pay 80% of verified invoices within 24 hours of delivery.  Then the outstanding 20%, minus a discount, is refunded to the client as soon as the customer / debtor pays the invoice.  So for example, if a businesses invoices total $100,000, the factoring company will fund $80,000 right away to the business within 24 hours of delivery of goods OR procurement of the service. Once the customer pays the factoring company in full, the remaining $20,000, minus the fee, will be sent to the client.

History tells us that during times of economic recession, factoring has proven to be a practical alternative.  When loans from banks are more difficult to obtain, many businesses consider paying a slightly higher rate for access to immediate working capital.

Asset based factoring is different than from a loan because lenders look at the creditworthiness of a businesses clients as opposed to that of the clients' customers.   In reality,  the client does not incur any debt itself.   A factoring company will provide funding for all its clients' customers who are substantially creditworthy.

Clients' customers don't have  issues with factoring accounts receivable because they do not have to pay any more or any sooner than if there was no factoring involved.   Usually these clients' customers / debtors are fairly large organizations and wanting to ensure the growth of their suppliers so they can to maintain their own future business.

When a business already has a loan, factoring is still possible but the bank has to release the receivalbles from the GSA (General Security Agreement).

Whenever a business is in arrear with its taxes, it may still possible to be approved for funding.  CRA has been known to work with clients in this regard, knowing that for them to receive working capital from a factor, may be the missing ingredient for survival and future growth.

A business going through a bankruptcy will NOT be factored for obvious reasons.  After resuscitation and with the correct profile, a prospect client may be entitled to funding.

To apply for funding through asset based factoring, the prospect client will need to fill out a simple application, provide a detailed customer list, an aged accounts receivable list, an accounts payable report, it's Articles of Incorporation and its business licenses.

The process usually takes 14 days from the receipt of a completed application to funding.  Usually funds are dispersed within 24 hours of an applicant receiving a Term Sheet or Proposal.

Asset based factoring gives business owners access to immediate cash, leveraged against their creditworthy customers.  In light of today's credit environment, more and more businesses are looking to factoring for growth.

iFactoring acts as a broker sourcing the best factoring company with the most relevant appetite for that particular industry with NO cost to the client.  iFactoring is a privately funded company helping businesses leverage their assets to improve cash flow.

There are a number of reasons that financial documentation is required when applying for accounts receivable factoring or an asset based loan.

1.    Firstly the factor needs to verify that their client is going to remain in business. The trend of sales, expenses and income are all telltale evidence of a client’s stability and reliability.

Unfortunately if a client who is the supplier on the other side goes out of business the customer / debtor may not pay for the goods.  As an example, if the factor’s client is a furniture manufacturer and the debtor is The Big Store, The Big Store will always have a number of suppliers.

Using the Balance Sheet can be a valuable lesson in common sense when predicting whether a client will stay in business or close down soon.  For instance a low figure shown for the client’s AP (Accounts Payable) would ring an alarm bell because that could mean suppliers are not supplying goods.  That may mean the client’s credit worthiness is so bad that they may be paying cash for their goods.

If one supplier goes out of business, a debtor/customer may decide that they will not pay for the last delivery.  This is due to the customer having incurred additional costs.   They may  even  be embarrassed by having the goods displayed in their catalogue with no continuity of supply or warranty fulfillment.

Balance Sheets which are not prepared on time may indicate that the accountant is not working for the client and that may mean the client has not liquidity to pay the accountant.  All this does not auger well.

2.    The factor needs to compare the amount owed to CRA as shown in the application and compare that to the liability described in the client’s Balance Sheet. If there is a discrepancy, the factor will expect a good explanation as to why the 2 amounts differ.

If the client owes money to Revenue Canada, the factor can call CRA with the intention of negotiating a settlement with CRA on behalf of the client.  CRA is often “relaxed” and reasonable because they realize that with new money coming in from the factor, they will get paid faster.  And without that money coming in, they may never get paid and the client may go under.

3.    The third reason is that if the client shows any degree of bad faith at the beginning of the relationship, the factor may decide not to proceed and may refuse to fund the deal. A factor reserves his right to change heart and refuse to fund right up to the 11th hour.

This may seem harsh to the client, but from years of experience, the factor has learnt to do all his due diligence as thoroughly as possible.

All the above require the client to submit transparent and accurate figures. Any factor would much prefer a client to be honest and admit to some weakness or imperfection and the sooner the client explains that challenge to the factor, the better.

Many small to medium sized businesses look to asset based factoring, often know as asset based lending in order to provide a quick cash flow.  This article addresses the question of whether asset based factoring is a loan or not.

If you are a business owner or financial executive, then this article will hopefully answer some of your questions about asset based factoring.

Is Asset Based Financing a Loan?

The answer is no. It's is not a loan. Although sometimes it is referred to as an asset based loan, it is actually quite different. Factoring is the purchase of a businesses's accounts receivables and uses those receivables as collateral. When a business has good standing credit approved customers who normally take 30 – 60 days to pay their invoices.  Asset based factoring is an interim measure in order used by businesses in the short term.

Usually a business can receive upwards of 80% of the entire amount of the gross invoice. Eventually, once the client pays the invoice directly to the factoring company, the business will then receive the remaining 20%, less a small percentage which is the fee paid to the factoring company for purchasing the receivable.

For example, if a business has receivables of $100,000, after approval, the factoring company will immediately disperse $80,000 to the business for it to use to cover for it's daily expenses. Thirty, sixty or even 90 days later, once the customer pays the invoice (directly to the factoring company), the factoring company then sends the remaining $8,000, known as the reserve to the business (less the factoring fee of say, $2,000).

For the factor’s security and in order for it to be able to advance literally millions of dollars to the client, the factor takes a GSA (General Security Agreement) over the client’s assets. Here is the difference between lending the client money and buying its receivables.  In factoring, each time the factor buys a specific receivable or invoice, instead of making a loan.

All invoices are confirmed telephonically and the paper trail checked both for the client’s and the factor’s protection.   NO interest is paid, but there is a fee earned.

One of the differences between a loan from the bank and selling receivables is that the factoring company is not concerned so much with the client’s business, as it is with the creditworthiness of the business's clients. If accounts receivable from a particular client are, and have been in good standing, then usually that is enough to receive immediate monies from asset based factoring.

Other advantages of asset based lending over a bank loan, is that factoring companies usually approve the application and disperse cash quickly. Also, there is no debt line in the business's balance sheet.

Asset Based Financing is a favored method of financing illiquidity for start ups, small to medium sized businesses and for any business that simply can’t get or has insufficient bank lines available.

It simply consists of companies selling their accounts receivable for immediate cash. In order for a business to grow it needs a strong reliable cash flows. Without available cash, a business remaining without cover for all its weekly and monthly expenses, is doomed.

Here are the 16 requirements applicants need to complete or provide before approval to receive funds.

1. Clients need to submit a standard application.
2. Information must include a current aged accounts receivable list.
3. A clear legal description of the entity to be factored
4. Identification of all directors and Officers of the company.
5. A legal search is done to determine if AR securities are available for registration.
6. Details of all customers or debtors must be provided
7. All banking information.
8. Personal statement of assets and liabilities.
9. Any contracts or special arrangements that need to be respected.
10. All sales need to be final with no consignment sales being factored.
11. A general description of the nature of the clients’ business model
12. Clients sign a standard guarantee as is always required by banks of loan institutions
13. CRA Source Deductions and GST payment need to be up to date. Negations can be made by the factor on behalf of the client.
14. Clients should preferably be incorporated although Sole Proprietors and Partnerships are funded.
15. If clients suffer from bruised credit, they should describe the reasons for that.
16. Any industry is acceptable except construction, software development or valuable jewelry.

A factoring specialist will be able to help you understand in more detail each of these requirements.

Asset based factoring gives business owners access to immediate cash, leveraged against their creditworthy clients. In light of today's credit environment, more and more businesses are looking to factoring their receivables in order to allow them to grow in the short term.

Some of the more common advantages of Accounts Receivable Factoring include:

1. 24 hour electronic funding in US or Canadian Dollars are made after the required documents are supplied.

2. Because we are an international company over 200 years old, there are massive cash resources available.

3. $5 million maximum outstanding per client at any one time provides immediate injection of working capital.

4. There is NO time based contracts or minimums required although most factors start above $50,000 pm.

5. The client is free to choose which ever customers and invoices it wants to factor at any time. The more invoices factored, the lower the rate. Clients are never obligated to factor any fast (under 15 day) paying customers. Discounts apply for all fast payers.

6. The factor does not concern itself solely with the credit of the client, but looks closely at the spread of its clients’ credit approved customers.

7. Professional credit checking and collections are done. Credit is either “a scientific art” or “an artistic science” and because the credit department may give a certain credit limit, does not mean that payment (without insurance) is guaranteed. Good customer credit checking prevents clients’ losses.

8. Collections are often done a lot faster & more efficiently by the factor than directly by the client.

9. Spot factoring – the purchase of individual invoices, is also available, giving clients great flexibility. Spot confirmations are rare and often done as a PR exercise.

10. The factor can provide a letter of undertaking FREE of charge to the client’s North American suppliers stating that payments can be made directly by the factor to the client’s supplier within 24 hours of delivery or completion of the service with its customer or debtor.

11. Set up of new accounts is a lot faster than banks which may often take over 6 weeks initially.

12. Hands on management, after sales service, including short term loans to purchase AR generating assets.

13. Monthly aged accounts receivable listings are provided free of charges electronically through the web.

14. Feedback from confirmations done by the factor, are given timeously for the benefit of the client.

15. Our clients’ customers often prefer that they are factoring which is NOT evident on the client’s financials and there is no dilution of equity.

16. Voluntary credit protection / insurance can be arranged for the client.

17. Major cost reductions can be effected for the client by funding part way into the due date period. e. g. Instead of funding on day 1, the client asks the factor to make payment later on the 45th day thus reducing the cost of factoring substantially.

18. The cost of factoring can be set off against many advantages of supplier discounts, the client’s ability to always make payroll on time, tremendous increases in sales by being able to extent terms to customers.

19. We explain how and why customers are requested to sign the factor’s assignment letter agreeing to pay the factor instead of the client – thus protecting the client.

20. We do not take mortgages on property or leases on equipment. We are only concerned about the quality of your well spread under 90 days credit approved company receivables.

The trucking industry requires Factoring and the use of our over all service process because of their constant need for additional working capital brought about by the need to pay gas and drivers’ salary bills immediately. Their cash flow is delayed by their customers taking extended terms to pay.

Jessie of Northbound Logistics, a typical trucking customer came to us in 1999 while he was doing $8,000 per month. His bank had just called up his bank line because his ratios were out of wack and he desperately needed additional liquidity from his main asset – his ARs account receivables. After only 2 and a half years, Jessie was factoring over $300,000 a month and enjoyed a rate far less than originally. He later went on to receiving bank funding at a few points above prime.