Are you turning down new sales because you lack the cash flow to purchase raw materials or pay your employees? A factoring line of credit may provide you with the cash flow boost you need to grow your sales. And at Amerisource, you have real Freedom to Grow® because your line of credit "floats" and grows as your business grows — so you'll never be constrained by your own success!
Below is a simple illustration of the positive financial effects factoring can have on your business. In the first example below, you will see a sample income statement of a company that lacks the cash flow to take on new sales.
ACME Manufacturing Company
Company unable to grow due to lack of cash flow
Below you will see how cash flow from a factoring line of credit allows a company to grow both its top-line as well as its bottom-line.
With factoring line of credit in place, Company able to grow sales
Obviously, as growth continues, the figures get more and more compelling. Just as obvious, even Microsoft and GE started at zero sales at some point. No business could possibly have enough cash to finance unlimited growth — at some point everyone needs more working capital.
Do you know the tell-tale signs of a company about to file bankruptcy? How well do you really know the customers you are selling to? For that matter, how well do you know the prospects you are seeking to sell to? But monitoring customer credit risk requires expertise…and money. Subscriptions to the major credit reporting agencies can cost you well in excess of $100,000 a year. And a single credit manager employee can cost you an additional $75,000 + a year in wages, taxes and benefits. As a factoring customer of Amerisource, you'll have access to over 25 years of unmatched credit expertise — at no cost to you. We'll investigate the creditworthiness of your customers and prospects. And we'll monitor that credit, track pay trends, and maintain individual credit limits for all of your important customers. So sleep well at night knowing your credit exposures are being continuously monitored by Amerisource.
Ever wonder why large suppliers offer discounts to their customers who pay early — for example, "2% 10 / net 30"? Simply put, it's because having the cash flow on-hand quickly to reinvest in the business is much more valuable to these companies than waiting 30 days for an additional 2% margin. By offering you a discount in exchange for receiving payment early, your suppliers are in effect "paying" you for cash flow — in other words, they are "factoring" their receivables with you! Perhaps you now also realize that any time Wal-Mart or Costco accepts a credit card from you, they are factoring your account with Visa, MasterCard or American Express! These suppliers and retailers all understand the value of factoring to improve working capital efficiency and maximize their business's IRR. And, what's more, factoring with Amerisource is usually less expensive than using Visa, MasterCard or American Express!
When you factor your receivables, the factoring company evaluates the creditworthiness of your customers and establishes credit limits for those customers. A factor will typically not allow exposures above those credit limits and will re-evaluate credit limits frequently. This imparts a level of discipline that helps your company avoid bad debt losses. For over 25 years, Amerisource has helped thousands of customers avoid write-offs and bad debt losses. And with aggregate historic bad debt losses of less than 0.12%, we've got the results to prove it.
You may be like many of today's companies that are struggling to keep current with suppliers and vendors. Vendors are far more accommodating to you if they are paid on a timely basis. Stretching these vendor payments can cause serious delays in getting your orders filled. And without product shipped on credit terms from your vendors, growing your sales is next to impossible. If your business had more cash on hand, would you be able to pay your suppliers and vendors more timely? Factoring your accounts receivable ("A/R") helps you unlock the cash trapped in those accounts receivable…ensuring that late payments never interfere with your ability to service your customers.
Ever wonder why large suppliers offer discounts to their customers who pay early — for example, "2% 10 / net 30"? Simply put, it's because having the cash flow on-hand quickly to reinvest in the business is much more valuable to these companies than waiting 30 days for an additional 2% margin. And paying your suppliers quickly will really improve your credit rating as a prompt payer…and that can save you a lot of money in the long run. Factoring your receivables with Amerisource creates the cash flow you need in order to take advantage of these valuable discounts whenever possible.
Ever heard the collection industry phrase "The squeaky wheel gets the grease"? Experts agree that performing collection calls on your accounts receivable speeds up your receivable turnover and improves your cash flow. But hiring a staff to handle your collections is no easy task. A single collection employee can cost you in excess of $50,000 a year in wages, taxes and benefits. As a factoring client of Amerisource, you'll have unlimited access to a full staff of courteous and professional collection experts — all at no cost to you. And staying on top of your past due accounts receivable ("A/R") ensures that your customers understand how serious you take your business. Studies prove that consistent and properly managed customer contact reduces your A/R days outstanding, improves customer satisfaction, and increases repeat business.
If your sales and operations employees are also required to approve credit and collect open accounts receivable, there's little time left for them to focus on the strategies and responsibilities critical to growing your business. And, as illustrated above, hiring a professional credit and collection staff can cost you well over $200,000 a year in wages, taxes and benefits. Outsourcing your accounts receivable ("A/R") management to Amerisource is just plain smart. Amerisource can handle both of these business-critical needs, without burdening your existing staff, or your pocketbook!
Are you continually late on making your regular loan payments? If so, you likely have a shortage of working capital. And those late payment fees can really add up over time. Factoring allows you to unlock the cash flow trapped in your accounts receivable, enabling you to stay current with important lenders. And you can use the cash flow to clean up your revolving debt too.
You've probably heard the saying "Only two things are certain in life — death and taxes". Paying taxes is not optional, especially payroll taxes, and not even a bankruptcy filing can rid you of your tax liability. Failure to pay taxes can be devastating for your business. In addition to steep penalties and interest, a Federal Tax Lien filing can completely shut down your access to capital. Factoring your accounts receivable can improve your cash flow and allow you stay current with your regular payroll tax deposits. Factoring can also be an attractive alternative to dipping into personal or business savings.
Even in tough economic times, entrepreneurs seem to never give up. Yet, a struggling company needs two things to survive and implement a turnaround — time and money. Without either of these, a troubled company has little hope of survival. The good news is — money can buy you time. This is where accounts receivable factoring can be a true lifesaver. Cash flow from A/R factoring buys time (and hope) for a business to implement a turnaround plan. Even if factoring adds expense to a business during the initial months, the business has bought time to reorganize and reduce expenses — and hopefully return to profitability. In many cases, factoring is the single most important factor in company's successfully turnaround. And the fact remains that some will survive; and some even succeed.
How much do you pay your bank each month for insufficient funds charges? When you do the math, NSF fees are a real killer for a business's profitability. There's a much cheaper, and more reliable, option for accessing additional cash quickly when you need it. Factoring your invoices gets you immediate cash so you can cover payroll, vendor payments and other time-sensitive needs. You'll notice the difference immediately and, what's more, you'll end the dally fire-drill to get your bank to cover your outstanding checks. Improve your cash flow and credit rating at the same time.
Do you struggle and juggle to make your monthly lease/term loan payments? The problem is you're waiting 30, 45, or 60 days to collect your accounts receivable. Improve your cash flow immediately by using accounts receivable ("A/R") factoring. This will lead to more steady cash flow and allow you to manage your expenses more predictably.
If you collect your receivables from your customers in 50 days, but you pay your employees weekly, you'll need enough cash on hand to cover 7 payrolls out of pocket before having any inflow. You can see why so many fast-growing companies fail under the strain of their unpaid accounts receivable. As a business owner, you know if you can't meet your payroll, you can't stay in business. And for growing businesses, it's even tougher. But instead of using last month's collected sales to cover today's payroll, factoring allows you to use today's receivables to cover today's payroll. And that gives you a lot less to worry about, and a lot more time to focus on growing your business.
Anyone who's ever had judgments or liens filed against them can tell you what a problem it can become. The creditors can seize your bank accounts and even come after your personal property. Utilizing factoring can not only give you cash to pay off existing judgments and liens, it can also help you avoid future judgments and liens.
Just ask your accountant — borrowing long term to finance your short-term cash flow needs is a bad idea. Longer term debt, like fully-amortizing term loans, is designed to finance longer term assets such as real estate and equipment. Shorter term assets, such as accounts receivable and inventory require short term financing — like factoring. Unlike a term loan, factoring adds no debt to your balance sheet — you're simply swapping one asset (accounts receivable) for another (cash). And that keeps your debt-to-equity ratios (i.e. financial leverage) low. So go ahead, use longer-term loans to finance your real estate and equipment. But day-to-day cash needs should be covered by cash flow generated from short term financing or factoring.
Any investment expert will tell you that a business needs to "stand on its own" in order to be worthy of investment. But if you're continually supporting your business with personal assets and funding, you'll never achieve this. A factoring line of credit allows you to obtain financial support for your business on its own merit, using your accounts receivable as the principle source of repayment. But unlike traditional loans that are based on the creditworthiness of the borrower, factoring credit lines are based on the creditworthiness of your customers. And personal assets like real estate and retirement accounts are almost never used as collateral for a factoring line of credit.
Do you currently have a loan with your bank or other lender that encumbers all of your assets, but provides you with no additional credit availability for your accounts receivable? Use factoring to swap accounts receivable for cash, and then use the cash to either supplement or retire debt — and get the benefits of reduced financial leverage.
At some point in their evolution, most businesses need to take on debt in order to grow or to navigate through a business cycle. There are many forms of financing available to businesses, including traditional bank loans as well as alternative financing solutions. The cost of funds, length of time to repay the debt, perceived risk by the lender and other considerations often dictate which form of financing is the best choice at the time. Since cash flow is the lifeblood of any business, funding that cash flow often becomes the main objective in obtaining financing. Receivable factoring credit lines have higher advance rates than bank loans, yielding more availability and allowing faster access to funds. When traditional bank financing is no longer an option, a factoring line of credit can retire the old debt and, often, allow for additional working capital as well. Unlike traditional bank loans, factoring is not a loan and therefore does not add debt to a company's balance sheet.