Factoring Basics

History

Factoring is the act of selling an asset at a discount for the advantage of
immediate cash. As a business, it has been around for hundreds of years. In
fact, if you want a Biblical reference to discounting invoices check out Luke16:
1- 13.

Waiting for your ship to come in

In the United States, factoring most likely got its foothold at the docks on
the east coast. When the growers brought their crops, mostly cotton, to places
like Savannah they placed them in dockside warehouses and preceded to wait
for the ship to arrive to buy their crops. Hence developed the saying “waiting
for your ship to come in.”

Today, if you go to Savannah, Georgia, along the docks you just might see
an old street sign with the words, “Factors Row.” All along that row of small
offices sat Factors who would buy the title to the farmer’s crop at a discounted
price. The farmer could then go home and tend his farm while the factor
waited for the ship to come in that would buy that crop.

Time was very valuable to the farmer. If you have ever spent any time on
a farm, you know that farms don’t do well when left unattended. The farmer
knew the value of his time. Too much time spent waiting for that “ship to come
in” could cost him dearly. The factor performed a very valuable service to the
farmer. And the farmer got back to what he does best.

Well, from the docks of Savannah to the mills of the Carolinas, factoring
followed the cotton. Each step along the way one business after another added value to the cotton and was faced with the long wait for the buyer to pay the bill. Eventually the cotton and the factoring arrived in the garment districts of New York.

Ford Required

The factoring business was very slow to make the transition to other
industries in the US. Eventually, however, it did jump and this time it was to
the emerging auto industry. In fact, it is rumored, that one of the largest and
oldest car manufacturer s in the US once required their suppliers to show proof
they could “carry” the manufacturer s invoices for 90 to 120 days. If the
supplier could not show the financial strength required, the car manufacturer
required that the supplier provide the name of his factor.

In the Southwestern US as recently as the 1980’s, factoring was relatively
unknown. Today, however, factoring is available to almost any known
indus t ry. The basics are still fairly simple: a vendor, subcont ractor, or supplier
to a larger company needs to be paid sooner than the larger client company is
able or willing to pay.

For the vendor, subcont ractor or supplier, this delay can be distressing.
Not only do they have the cost of producing and delivering their product or
service, but they have the additional expense of lost opportuni ty - they cannot
take on more busines s because their capital is tied up in receivables.

Again, this “ship” with the invoice payment on it is slow to arrive. Just as
in Savannah, the factor cashes - out the vendor, subcont ractor or supplier at a
discount and the large client company pays the factor in due course. The
vendor, subcont ractor or supplier takes the relatively small trade discount off
the face value of the invoice in exchange for immediate cash, which is then
available to fund new business. Thus factoring funds business growth.

Benefits

The benefits of factoring depend on the stage and needs of a company.

Take for example a start- up company ; the benefits include:

1. The ability to make payroll while waiting for slow clients to pay
2. The ability to purchase materials and inventory at a discount by paying
cash
3. The ability to “get started” without sacrificing equity
4. The ability to “get started” at all, without investor dollars
5. The ability to pay 940's and 941's without penalties
6. The ability to pay overhead in a timely fashion

Start - up companies inevitably are under-capitalized. It always takes
more money and more time to get a business up and running than was
budgeted. That is just a fact. So, the availability of working capital early on can
mean the difference between being a success or merely being a statistic.

Benefits to an established company include:

1. The ability to fund new contracts and new orders
2. The ability to pay cash and take discount s from suppliers
3. The ability to grow through acquisition (using cash from accounts receivable to fund the acquisition)
4. The ability to fund internal growth SPIKES
5. The ability to expand into new territories or new lines
6. The ability to retain equity when others might have to sacrifice it
7. The ability to avoid tax penalties
8. The ability to work out of a tax liability
9. The ability to fund a buyout of a retiring partner or heirs
10.The ability to avoid long term debt

Mechanics of Factoring

Essentials

In order to factor, most businesses will need to provide some
fundament al information to the Factor. With this information, the Factor will
determine whether or not factoring will benefit the prospective client. This
information usually consists of:

1. a short application
2. copies of the company's Articles of Incorporation or Assumed Name
Certificate
3. an aging of the company's receivables and payables
4. recent tax return or financial statement on the company

If a business is a start - up, don't worry. The Factor can help the start - up,
too. The start - up business may not have receivables or payables yet. But if
there are invoices to good customer s, the Factor may still buy them, even
though the business is just starting up.

The Factor's review and approval process usually takes about a day. The
next step is entering into an agreement with the Factor. This is usually an
industry standard agreement whereby a busines s agrees to sell and the Factor agrees to buy invoices approved by the Factor at prearranged discount s for the time it takes the invoices to pay.

Reputable Factors do not charge application fees, handling fees, due
diligence fees, interest, or processing fees. The upfront expenses incurred by
the experienced Factor are considered a cost of doing business.

Once the contract is signed, the Factor must begin the process of confirming the invoices. Just as no one would not want to buy a car without knowing that it will run, the Factor does not want to buy invoices without knowing they will be paid. When handled by seasoned professionals, this process goes very smoothly. Most reputable Factors employ well trained personnel who know how to graciously engage accounts payable personnel and get the invoices paid. Seldom is it necessary ever to speak to anyone beyon the accounts payable office.

Upon confirmation of the receivables, an arrangement is made with the accounts payable personnel to direct the payment to the Factor's lock- box This
would be a lock- box arrangement just like a bank will use for a traditional line
of credit. Accounts Payable personnel are very familiar with this process and
are quickly able to make the necessary remittance changes. The confirmation
process usually takes from a couple of days to a week depending on the number of account s to be factored. Once completed, funding can occur
immediately.

After the initial funding, most good factoring firms will be able to fund your
additional request s within 24 hours of receipt of approved invoices. Funding
usually occurs via wire transfer or ACH. Funds electronically deposited are
immediately available to the business.

Process

So, the process is this simple:
1. Application and submission of the required document s
2. Approval by the Factor on agreed terms
3. Execution of the Factoring Agreement including UCC filing
4. Credit approval of individual account s by the Factor
5. Submission of invoices to be discounted along with proof of performance
6. Verification and confirmation of invoices by the Factor
7. The Factor funds the approved, verified and confirmed invoices

Why does the Factor need a signed application? The application, which is
usually a one page document, usually establishes the company name and
address, the ownership of the company, the size of the account s receivable
outstanding, whether or not the business has filed bankruptcy, and a few other
simple facts about the business. Perhaps most importantly, it contains an
authorized signature giving permission to the Factor to verify the facts
provided and to check personal and business credit.

Factors are in the risk management business. They need to take steps to
ensure that they are dealing with legitimate companies who produce and
deliver legal products and services. In today's world, they are required to take
prudent steps to ensure they know with whom they are transacting business.
Think of it this way, no business can acquire a credit card without credit being
checked.

The next step is entering into the Factoring Agreement. This indust ry
standard document is a contract that must contain a security agreement
between the company and the Factor. This is the place where the business
agrees to sell receivables and the Factor agrees to purchase those that meet the credit standards of the Factor. The discount price should be clearly stated in
an unders tandable manner.

Additionally, the Factoring Agreement should explain what happens if the
customer s do not pay the receivables the business sold to the Factor. The
Agreement will also state clearly what is the available maximum credit limit
with the Factor.

After the Factoring Agreement is signed, the business will begin to
submit credit requests and individual invoices for funding. It should be
expected to have individual credit limits on the business' customer s as well.
Remember a Factor wants to buy good accounts. The Factor is not a collection
agency that might buy some bad debt. The Factor wants to buy only those
credit - worthy accounts that will pay in a reasonable amount of time.

The invoices should carry unique numeric identifiers and should have
any Purchase Order number or client number or work Order number required
by the specific customer. Invoices must contain the customer's name and the
addres s being billed along with any separate delivery address used. These
invoice specific details along with the Proof of Performance will not only satisfy
the Factor but they will facilitate the invoices being paid in a timely manner,
thus costing less in fees. Remember, the more detailed the invoices, the faster
they get paid.

Questions

What questions should I ask myself to determine if I am a candidate for
factoring? That is easy. You know your business. Are you looking for capital?
Are you hoping there is an Angel out there who will give you the money you
need to grow your business? Ask yourself these questions:

1. If I had the money in cash from my receivables right now, would I take on
new jobs?
2. If I had the money in cash from my receivables right now, could I get
some suppliers off my back?
3. If I had the money in cash from my receivables right now, would I use it
to meet payroll?
4. If I had the money in cash from my receivables right now, could I take
care of the IRS?
5. If I had the money in cash from my receivables right now, would I be able
to focus on something other than collections and juggling payables?
6. If I had the money in cash from my receivables right now, could I avoid
giving up equity in order to grow the business?
7. If I had the money in cash from my receivables right now, would I buy
that competitor of mine who is supposedly for sale?
If you answered yes and especially if you smiled and answered yes, you
just might be a candidate for factoring. At least give it some thought. You may
be concerned about what other people will think. Don't be.

If you are dealing with a well established, reputable factoring firm, their
contact with those “other people” will usually be limited to the account s
payable personnel. Accounts payable personnel deal with factored accounts
every day.

The payables personnel do not “judge” you if you factor your receivables.
They don't want to pay for work that has not been done and they don't want to
send the money to the wrong place. Other than that, it is business as usual for
them.

In fact, you have just demonstrated to anyone who cares that you are a
stronger company, you have cash in the bank (from factoring your receivables)
with which you can keep your bills paid. Thus you are a stronger company
than before you factored. You have avoided creating long term debt.

Zero Long-term Debt

Factoring never creates long term debt that would have to be repaid in
bad times as well as good. Any busines s that survived 9/11 in the United States knows that bad times can come suddenly and unexpectedly. Not having long term debt can mean you survive when others do not. Never create long- term debt to meet short - term needs in your business. Factoring allows your
business to “pay as it grows” without losing equity and without long- term debt.

For more information:

Eric Standlee
www.americanprudential.com
281.377.6296 direct

© 2007 American Prudential Capital, Inc.

Looking at the life of Paul, we see at least two distinct parts of his life. We see the more obvious spiritual side, but we are also introduced to the work side of his life.

Which do you think was Paul's purpose:

Boldly sharing the Good News with every people group to whom God directs my path.

-= OR =-

Designing, Sourcing, Prototyping and Manufacturing small, medium, large and specialty tents.

Paul's purpose in life that God whispered into his soul before he was born is the first and not the last of those to example purpose statements. Yet, he did a very good job building tents apparently. In his life, he didn't fulfill his purpose only through his work. That is not to say that in God's Kingdom purposes are only filled outside of work, but it does give you something to think about, doesn't it?

I learned alot about being "on-purpose" as Kevin McCarthy calls it from the book he wrote called the On-Purpose Person. It is a fable about a spiritual journey of a pilgrim being introduced to the idea of being On-Purpose and then learning how to discover what that God-whispered purpose was. I thoroughly recommend Kevin's books and training. It is life changing and has remade our family-owned company. I can honestly say that we are On-Purpose and that has played a major role in our company growing to $200 Million.

Thanks Kevin for being obedient to God and publishing this foundational work.

Eric Standlee

This email just arrived from Tim, and I had to share it:

------forwarded email:
I first met Andy Andrews on stage at a National awards ceremony
where we both enjoyed a nice moment of recognition – mine for
best musical group in the US; his for best comedian in the
country.  Our careers have intersected often since due to
similar interests and messages.  Here is one to really digest
and keep.

TD

* * * * * * * * * * * * * * * *

Commitment is the foundation of success. Not a single football
game has ever been won without it. Commitment has been involved
in every skyscraper that has ever grown beyond the first floor.
Businesses, marriages, and schoolwork all depend on the quality
of commitment for their success. By focusing on that one
important component, commitment, we can plan our future.

Deciding just how much we really want to achieve our goals is
obviously the first critical step.

It has been proven time and time again by our own experiences
that we get out of something only what we put into it. We can
accomplish extraordinary things only when we have planned to
accomplish extraordinary things. And we alone can determine how
hard we will work, how much we will invest, how late we will
stay up, how many miles we will drive, and how much we are
willing to endure to realize those extraordinary things.

Our goals, our dreams, are a reality already awaiting our
arrival. It is only when we claim a successful future that it
begins to move toward us. But first let's examine the past,
because by studying yesterday's challenges, we can more ably
ensure tomorrow's success.

In February 1519, Hernando Cortez set sail on the final leg of a
voyage that was to take him from Cuba, a stopover, to the shores
of the Yucatan.
He commanded 11 ships, with more than 500 soldiers, 100 sailors,
and 16 horses, bound for Mexico to take the world's richest
treasure. The precious jewels, gold, silver, and sculptures
sheltered on this limestone peninsula had been hoarded by the
same army for 600 years.  

The quest for these riches began several years before in Spain.
Cortez, already a wealthy man, had heard about the treasure. For
centuries people had tried to take it, to no avail. But ambitious
Cortez knew that he could take it if he had the right kind of
help. He decided to get more people involved. He wanted to build
an army that could accomplish something that one man could not.
So Cortez began to travel around Spain to talk to people and
build a dream in them. Since he was already rich and successful
in their eyes, as he told them of the bountiful treasure that
was theirs for the taking, they believed him.

Oh, other people had tried, he told them. Columbus, Vasquez,
DeSoto, Vespucci –all had gone to Mexico seeking the fortune.
And all were ordinary people, just like those Cortez was trying
to persuade.

"They are just like us," he said to his listeners.

"If they can do it, we can! And we will succeed!"

This got them excited.

"Let's do it!" they agreed after Cortez's persuasive speech.

Of course, a few said, "I don't really believe there's treasure
there," or "I don't think it'll work. But the majority of the
people enthusiastically embraced the idea, and before long,
Cortez's ships were in place. The soldiers were in position, the
sailors were prepared, and the horses were aboard. And together
they set sail for Mexico and the richest treasure in the world.

But once out on the ocean, it didn't take long for Cortez to
realize he had a problem. Some who were excited before the
journey, had now turned into whiners.

There are always whiners.

Cries of "I shouldn't have come," "This isn't what I thought it
was," and "I didn't know we were going to have to work this
hard," began to circulate among the people. Yet Cortez
persisted, in spite of them, and made it to Cuba, where he took
on water, food, and supplies. After resting his men and letting
the quitters get off the ship, he began the final leg of the
journey, formulating an idea that had never been used before. He
created a system to motivate and train his soldiers and sailors
that was unheard of in the history of the military. When they
landed on the shores of the Yucatan, Cortez began training,
coaching, stoking them, even. He would hold "seminars" in the
afternoon and "pep-rallies" at night. They were reminded
constantly of all that they were about to accomplish. Cortez
painted a panoramic picture of the magnificent treasure that
would soon be theirs. And as they marched up and down the beach,
honing their skills of warfare, they were told, "This is just one
of the beautiful beaches we'll be able to walk along when we get
that treasure!"

Oh, but they were fired up! They were eager, animated,
energized, and as they waited, trained, and prepared for
victory, their conviction grew.

But there was one more level of commitment that Cortez wanted to
take them to, and they arrived at that place on that last,
historic day, as they lined up to march inland. Before they
would be allowed to seize the treasure that no army had taken
for 600 years, Cortez would speak to them.

They were probably expecting something like, "OK, guys, we're
gonna get out there and win today, and when we do, we are going
to par-TAAAY! . . . Oh, and if it gets too tough, we'll just
meet at the oak tree and come back to the ship." But that's not
what they heard.

As they listened, Cortez leaned in and said three simple words
that changed everything: "Burn the boats."

"Excuse me?" they must have said.

"Burn the boats," he repeated, "because if we are going home, we
are going home in their boats." And he torched them. He burned
his own boats, and by doing so, he raised their commitment level
to new and astounding heights!

And an amazing thing took place: they fought well! For the first
time in six centuries, the wealth changed hands.

Cortez's band took that treasure. And why did they win?

The answer is very simple.  They had no choice! It was "take it
or die" no options. Their boats were burned.

Theirs is the attitude you must embrace in your heart and mind:
you must burn your boats. What are the boats in your life that
are keeping you from accomplishing what you really want? What
vessels in your mind are keeping afloat the fear and doubt and
frustration that hold you captive?

Whatever prevents you from achieving your goals and dreams is a
boat that must be burned.

Unfortunately, when the bullets start flying, we make for the
boats. It's just human nature. Doing anything else really
requires a decision on our part. It's attitude more than
anything. A willingness to work without the net, to burn the
bridge or boat. What boat do you need to burn? It can only
happen one way: by embracing a level of commitment that sees
sacrifice as a positive thing.

So many people think of sacrifice as something that is taken
away, and it's gone forever. Nothing could be further from the
truth. Sacrifices of time, money, and effort are what we give to
the game. How badly do you want that final result?

Are you willing to sacrifice more than anyone else? If so, then
your triumphs will be consistently greater than anyone else's.
Greatness your greatness will always be measured by the
sacrifices that you are willing to make!

So strike a match to the anchors of your past and introduce
yourself to the victories of your future.

Burn the boats!

Blessings,
Tim

-----end of forwarded message

You are a champion.  You are in your current
trials for a purpose.  It is time to commit and burn those
boats.

Be blessed,

Eric Standlee

"Commit your works to the Lord, and your plans WILL succeed."
-- Proverbs 16:3

I used to believe that success was the dollar and the things and the houses and the boats and the planes and the vehicles.  Not any more.  God has taken that wrong attitude and changed it for me.

The bible states that God has blessings and abundance stored up in heavenly places for us.  It has no purpose stored there.  Its only purpose is in use here.  But, if I am like the Dead Sea and only receive the richness I die.  If I instead pour out the blessings and let them flow through me as a good steward would, then I am instead like a mighty river which not only blesses those along it banks but all the way down and to the sea and the wares and products produced from the flow of such blessing touches every corner of the earth.

God wants to use me to bless his children.  He doesn't want me to do it like a robot, but instead He is building in me as I grow through the trials a giddy expectation of the blessings that come back to me when I let the blessings flow through me to others.

Stop thinking about "just us four and no more" and instead Champion believe God for more vessles to hold the oil that God will pour out beyond your greatest imagination.  Who are you do dam up the flow of the blessings to God?  Don't you know the actions of a butterfly on the other side of the earth causes great winds over here.  Your actions are not without consequences.  Champion, commit instead that the consequences of your actions will have amazing impact on thousands and even hundreds of thousands of lives around the world.

Stand with me Champion.