Gold Leaf Capital

            Thank you for you interest in Gold Leaf Capital.  Within the last few years many companies have turned to factoring in order to stabilize their cash flow.  Consistent cash flow has increased their potential to take on more business and helped build highly successful businesses.

            Factoring, in short, is the purchase of accounts receivable at a discount.  Factoring is one of the oldest forms of financing.  The garment and apparel industry was taking advantage of this form of financing hundreds of years ago.  They needed raw material to manufacture their product, suppliers expected payment before shipping goods, clients wouldn't pay until delivery.

Benefits of Factoring

            You, the holder of an invoice, can sell the invoice today for an immediate cash advance.  You can meet payroll, pay vendors, take on new clients and pay other bills.  Now the Factor (financing company) will have to wait 30, 60, 90 days for your clients to pay.  Now you wait for more orders and clients.

The Cost of Not Factoring

This is not hard to figure out.  Lose prospective clients, limit growth of the company, drain bank line of credit, lower you competitive edge.  What then?  Tax liens, poor credit rating, no supplier credit, retire later then sooner.  You spend too much time collecting and not enough time providing quality products and service.

The Truth About Factoring

 "Our company has a large bank line of credit, we have no use for factoring."  Factoring works in synergy with traditional credit lines."  Even though your company has a large credit line, the company benefits from having access to factoring lines. In fact, many of today's Fortune 500 companies employ this type of financing to supplement their working capital needs.  Factoring can reserve the bank line of credit for ‘as needed' basis, thus extending the life of the line.  Factoring can help pay down the line when used.  And, since this is not a loan (an asset is being purchased), this form of financing will not appear as a liability on your balance sheet.  This strengthens your company's position when seeking new or additional bank funding. Now both your balance sheet and cash flow statements are more appealing to a loan officer. 

                 "It costs to much." Not true, anymore.  Sure, long, long ago, it did cost an arm and a leg.  No more!  Fees are only pennies on the dollar.  What you should be saying is, "It costs too much not to factor."  Think about it.  You have $100,000 of receivables on your books and $15,000 cash in the bank.  You get a purchase order for $36,000 (a cost to you, with 20% margin, of $30,000 due now).  You are $15,000 short.  You lose the order because you are unable to pay the vendor.  You have just lost 20% profit.  If you had factored only half your receivables, you would have paid maybe 4%, made 20%, grossed 16%, and still have cash in the bank. Better to lose 4% than 20%, wouldn't you agree?  To cut costs even more, most factoring companies perform additional services for clients including collections and invoicing (decreasing overhead in these areas), maintaining aging reports, and negotiating with suppliers to receive "early pay" discounts (further mitigating the expense to factor).

How Does Factoring Differ from Bank Financing?

            In many situations, factoring is more appropriate than bank financing, because factoring:

·      Is based only on the accounts receivable.  A client's ability to raise cash by factoring is based on the total accounts receivable, rather than on traditional measures of financial strength and stability.

·      Provides continuing cash flow without the requirement of periodic payments or interim payoffs.  New sales continuously create new power to obtain cash, and the business does not have to deal with renewal of loans or worry about maturity dates.

·      Gives a business increased access to cash as sales and receivables increase.  There is no ceiling beyond which the factor must stop providing cash.  The more sales a business makes, the more cash it can draw.  The factor does not concentrate on the business's debt/equity ratio to provide funds, as banks do.

·      Offers a dependable, continuing source of cash without the necessity of making separate loan applications.

·      Avoids the necessity of obtaining funds from venture capitalist, who receive an interest in the business and generally have a say in how the business is run.

Saves the business owner precious time waiting for a loan board to grant or deny his or her loan.  Loan boards' decisions are influenced by many considerations, and the outcome is often unpredictable.  With factoring, periodic delays and negotiations are eliminated, allowing the business owner time to do what he or she does best  - run the business.

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