A 100% Service Disabled Veteran-Owned Business

Benefits of Factoring

 - Peter Drucker

As every business owner knows, sales alone do not measure the profitability of a company. For example, sales may be increasing, but your company may have to wait weeks or even months for payment. In essence, you are giving your customers an interest free loan.  During that time, your company may not be able to pay employees, purchase materials or meet other basic operating expense or have to pass on opportunities to expand your business.

Let's see... you have two choices

1. Go to a bank and see if we qualify for a loan where we pay interest or  
2. Turn to Optimal Financial Group  for interest free money.

Hm-m-m Decisions, Decisions, Decisions.  As absurd as that may sound there are many companies are paying banks some pretty hefty interest instead of utilizing the INTEREST FREE MONEY that is literally at their fingertips and available in less time and with no hassles.

Other benefits of having Optimal Financial Group manage your A/R include:

Better Than A Bank -
Most of us are aware of some of the roadblocks encountered in going to a bank in order to borrow working capital, payroll and or taxes. One of the biggest problems is that banks generally only lend a specific amount of money. And as soon as you go through the process and borrow it, you have to begin paying it back.

 
Bank Rates versus Factoring Fees
When prospective factoring Clients compare factoring to lending rates, factoring initially appears expensive. However, nothing could be further from the truth.

First, Factors purchase Accounts Receivables (A/R) at a discount. They do not lend money. The A/R paper is short-term in nature and management intensive versus a bank loan, which is secured against some stable asset and usually advanced once. Factors are continuously advancing and collecting accounts receivable, providing clients with ongoing reports, credit due diligence, and personalized account management services.

Second, Factoring discount fee will vary upon the amount of A/R being factored (generally the larger amount of A/R factored the lower the discount fee), the average aging of A/R, and total volume of business with a given Client are taken into consideration.

Clients not educated in the benefits and processes of A/R Factoring tend to equate the factoring fee as a monthly charge and annualize as if it were a bank loan and we noted in the second paragraph… Factors do not lend money.

Let's clear away the confusion by using a A/R funding example with a 3% discount fee.. Prospective Factoring Clients often confused the "discount fee" with per month then annualize it and think they have an interest rate of 36%. This is both an incomplete and incorrect comparison.

When prospective factoring Clients make this comparison, we ask them to look at the amount they offer their customers for early payment of payment due to them. If the standard 2% discount for payment within 10 days is annualized using the thirty-six 10 day periods in a year, they have lost 72% interest.

Are they really losing 72% for early payment? Of course not... It is more appropriate to look at the opportunity cost of the funds. If the funds cost 3% per month and you can take all the cash that you receive in 24 to 48 hours from the Factor we are working with to generate more than a 3% return or save more than 3% by being able to pay the invoices that offer you a discount for early payment.  Does this make sense? Then factoring may be the best alternative.

If your customers pays you on a 30  60  90 days or more, isn't that really an interest free loan?


What amount of return is generated when your company has an order but no way to fill it? The answer is none and worse yet is you may lose one of YOUR CLIENTS to a competitor who has the ability to fill their orders.

Or would you like to be the one YOUR COMPETITOR's Clients turn to to fill their orders because you have the cash flow and ability to meet their needs.

THE CHOICE IS YOURS...

A business must weigh the costs of factoring against not having the immediate cash flow. Most often the choice is between factoring and putting up with severe cash flow problems and missed sales opportunities.

What are the benefits of A/R Funding?

  Immediate Increase In Cash Flow.  Under conventional methods, a company must sometimes wait 30, 60, 90 and sometimes 120 days to collect on an invoice. With factoring, we immediately purchase your invoices and advance an initial payment up to 95% of the invoice amount. When the invoices are paid, you receive the remaining 20% less our fees.

  What Does It Cost?  Practically nothing when you consider how much is lost having to wait 60-90 days to get paid on services or products which you have already provided or paid for. This money could be placed in an interest bearing account or be reinvested into your company to help it grow and produce additional revenues.

Keep in mind that OFG's Factors will take over, the bulk if not, all your labor and other costs for debt collection and credit administration. This leaves your employees free for other tasks such as building more sales or allowing you to reassign staff to more business building efforts or even cut staff and costs.

	Think a moment about the discounts your supplier's offer for quick payment and what those discounts would amount to in a year.
	What does it cost to pay your staff to deposit checks, log payments, produce reports and handle collections?
	How many personnel hours does all this require?

  Fast Funding. Once the initial due diligence is completed you get quick approvals and get cash within 24-48 hours for many of your Clients'/Customers' invoices. This can be wired directly  to your account making it even easier.

  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.

  Credit Screening.  OFG's Factors will provide you with credit information on new Clients, which enables you to make better credit decisions. OFG will also provide ongoing credit monitoring of existing Clients to make sure there is no significant diminution in their credit status.

  Invoices Are Paid Faster.  Many people don't realize that some debtors pay factored invoices faster than non-factored invoices. The reason is that factors may report payment experiences to Dun & Bradstreet or other credit agencies, and most clients do not. A debtor who is aware of this knows he may impair his credit rating by paying a factor slowly, whereas paying the client slowly may not affect his credit rating at all.

 Professional Collections.  OFG's Factors can handle collections (at your request) more professionally and more productively than you can so you can eliminate the overhead cost associated with having someone internally handle collections.

 Detailed Management Reports.  OFG's Factors provides you with detailed management reports enabling you to better run your business and manage your cash flow. You no longer have to pay someone internally to produce such reports.

  Unlimited Capital.  Factoring is the only source of funding that grows with your sales. As sales increase, more money becomes immediately available to you. This allows you to constantly be able to meet increasing the increasing demands within your industry.

  Avoids The Necessity Of Obtaining Funds From Venture Capitalists, a who receives an interest in the business and generally have a say as to how the busiiness is run on a day to day basis.

Continuing Dependable source of cash without the necessity of making separate loan applications every time additional money is needed.
 
  Saves the Business Owner Precious Time Waiting for a Loan Board To Grant or Deny Their Loan. Loan boards' decisions are influenced by many considerations, and the outcome is often unpredictable. Factoring eliminates periodic delays and negotiations, allowing the business owner the time and focus to do what he or she does best • run YOUR business.

  Take Advantage Of Early Payment Discounts.  Invoice factoring will allow you to take advantage of early payment terms offered by your suppliers. If you can save two percent of your raw materials cost because you have the cash to pay the bills within ten days, then you can use those extra savings towards other areas of your business.

  Factoring Helps Build YOUR Credit.  Once you begin factoring and you have adequate cash flow, you can begin to pay your bills in a more timely manner and start establishing, or improving your credit. This improves your chances of getting credit terms from suppliers and improves your chances of getting conventional financing in the future. We can even work with you if you have tax problems or are in bankruptcy.

  Leverage Off Your Clients' Credit.  A company does not need to be credit worthy to factor. You do not need to be profitable or in business for at least three years or meet any of the other assorted credit criteria required by banks and other commercial lenders. If you have credit-worthy Clients, you can get funding through OFG's Factors.

  Financial Flexibility.  OFG's Factors can work in conjunction with your other lenders if they are not providing you all the money your business needs