Fall - InsideOutdoor Magazine
Fall - InsideOutdoor Magazine
Fall - InsideOutdoor Magazine
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Back Office<br />
(or factor) at a discount. Instead of<br />
waiting 60 to 90 days or longer to get<br />
paid, the business receives most of<br />
the cash (usually 70 to 90 percent<br />
of the receivable) when the invoice<br />
is generated. The factor remits the<br />
balance (less the discount) after it<br />
collects the invoice.<br />
A/R financing is similar to a bank<br />
loan or line of credit. The business will<br />
submit its invoices to the lender, which<br />
establishes a borrowing base of usually<br />
70 to 90 percent of the qualified<br />
receivables – this is the amount the<br />
business can borrow against the<br />
eligible A/R. The lender will usually<br />
charge a collateral fee and interest on<br />
the amount borrowed.<br />
With asset-based lending, the loan<br />
is secured by business assets (e.g.,<br />
equipment, real estate, accounts<br />
receivable and inventory) with interest<br />
also charged on the amount borrowed,<br />
as well as certain fees. The business<br />
is able to borrow against more of the<br />
assets of the company, giving it access<br />
to more capital.<br />
The business collects and manages<br />
its own receivables, instead of selling<br />
them to the factor, while submitting<br />
a monthly aging report to the lender.<br />
There are usually tighter constraints by<br />
the lender due to the greater leverage<br />
that is allowed.<br />
Real or Paper Profits?<br />
The takeaway is simple: Don’t focus<br />
disproportionately on all the profits that<br />
are showing up on your profit and loss<br />
statement. Sure, every business wants<br />
to make money, but make sure your<br />
profits are real, not just on paper.<br />
You also need to anticipate<br />
and forecast your cash flow cycle.<br />
Understand both the constraints that<br />
can be placed on you by key suppliers<br />
and the ramifications of expansion,<br />
and where that capital needs to come<br />
from. Anticipate what challenges key<br />
customers can throw at you with slow<br />
pay, disputes, etc. And always overestimate<br />
the cash gap so that there<br />
will be no unpleasant surprises.<br />
If you’re experiencing a cash flow<br />
crunch, or see one coming down the<br />
road, don’t hesitate to take steps now<br />
to secure working capital financing,<br />
including alternative financing vehicles<br />
like factoring, A/R financing and assetbased<br />
lending. Such vehicles may<br />
be the lifeline that helps ensure your<br />
business’ survival.<br />
Tracy Eden is the National<br />
Marketing Director for Commercial<br />
Finance Group (CFG), which has<br />
offices throughout the U.S. CFG<br />
provides creative financing solutions<br />
to small and medium-sized businesses<br />
that may not qualify for traditional<br />
financing. Tracy’s direct email is<br />
tdeden@cfgroup.net.<br />
<strong>Fall</strong> 2011 | <strong>InsideOutdoor</strong> | 41