An export overdraft allows businesses to expedite the receipt of cash from their sales invoices prior to their maturity by advancing their value. It has been a tried and proven method in ensuring that liquidity, cash flows and working capital are upheld all without the presence of debts, collateral and interests allowing entities to flourish in their global trade and ventures.
But like any other method of financing, the resources received from an export overdraft arrangement must be used in as efficient and effective as possible in order to garner maximum benefits. But budgets are easier said than done. They’re particularly tricky so much so that individuals and organizations alike find themselves trapped in the usual blunders that they say they won’t ever be in. What are these familiar culprits? Here take a look.
The Blunder: Under-qualified Staff
We can only expect quality outputs when we put in quality inputs. The same applies to people. Regardless if you’re hiring in-house employees or outsourcing from a firm, it is important that you only pick the right people to handle the finances as well as the planning phase of your budgets and financial plans. Brainstorming here is important and you want the right heads for it. Only seek advice from professionals. You will need all the help you can get to create an effective and efficient budget to best use your export overdraft resources.
The Blunder: Slack and Negligence
If you create a budget that is so easy to attain and is not strictly implemented then you lose every bit of sense and purpose to it. It creates slack and an opportunity for the organization to take advantage of the opportunity for wastage without consequences.
The Blunder: Unrealistic Plans
But it’s also not good to set the bar too high so much so that it becomes impossible to attain. That’ll only lead to frustration. The budget in the use of one’s export overdraft has to be done in a challenging but realistic manner. Budgets have to be tough enough to encourage improvement and avoid slack but also realistic in all sense. There has to be a sweet balance in between.
The Blunder: Failure to Account for Needs
An export overdraft arrangement helps businesses reinvest in themselves. The resources taken from it are oftentimes used to fund for the additional production brought about by the added demand from the new markets. These needs have to be specifically acknowledged for better accounting and planning.
What do spot factoring companies do? Judging by their name, they’re financial firms that factor our receivables or invoices. In other words, they provide an advance of their value even before they mature allowing companies an immediate means to cash.
These providers have been labeled as lifesavers and more but if we were to summarize them in five words, it’ll have to be the following adjectives: redeeming, quick, debt-free, relieving and helpful.
As mentioned, they are lifesavers simply because they provide that needed bag of blood to an organization in need of it. Remember that money is the lifeblood to any organization and without it, nothing would and can work. Operations would be put on halt. 2. QUICK
This service is unlike any other because spot factoring companies can provide for the financial resources in such a short amount of time. Think twenty-four hours quick! Yes, you’re eyes aren’t fooling you. These providers can release cash in as little as a day’s time which is a very stark contrast to majority of the options available in the market today. Additionally, it doesn’t come with as much requirements and restrictions. 3. DEBT-FREE
Spot factoring is a service that comes free of liabilities simply because it isn’t one. It’s an asset transaction which involves the sale of the right to collect against an invoice/s. It doesn’t require asset-based or property collateral, comes free of interest (simple or compounded) and reflects in the books as a decrease in receivables, an increase in cash and a debit to an expense account for the fee involved. 4. RELIEVING
In a world where financing, especially emergency and immediate ones, are very hard to attain, spot factoring companies makes it easier not only for the established organizations but also the startups, small to medium scale enterprises and even recovering entities that do not have the capacity to take on other financing options like bank loans and mortgages due to their strict requirements. They’re a breath of fresh air and a hug relief for users. 5. HELPFUL
Of course if we were to end this list, we’d have to use this adjective to define spot factoring companies. Indeed, these firms have been a huge help in raising additional and immediate capital without the hassles and strings attached to a debt. They help reduce bad debts, hasten collections and even remove the burden of such administrative task. They’re very helpful to entrepreneurs and even that is an understatement.
When asked to describe single invoice finance, entrepreneurs and business owners will refer to it as a certified game changer.
The method, a financing option used to release cash locked up in receivables or invoices, is done either by selling the rights of collection on an invoice (factoring) or by using it as a form of security or guarantee (discounting) in exchange for an advance of its value.
Take note that spot, selective or single invoice finance only involves one receivable instead of an entire bulk. It is a onetime transaction and does not cover an entire period’s worth be it weekly, monthly or annually. Because of this, the fee is likewise a onetime thing. There are no lengthy contracts which make it a very flexible solution for businesses that need a fast and fuss-free funding option.
Although single invoice finance can be broken down into factoring and discounting, the benefits are still more or less the same, as follows.
It improves cash flows as it converts and frees up any locked up cash from a customer invoice. This not only helps provide immediate cash for use but also aids in the liquidity of the company.
It does not affect the liabilities portion of the balance sheet making way for more attractive financial statements and lesser debts to worry about. It is an asset transaction which reflects as a decrease in trade receivables and an increase in cash. An expense account shall likewise be debited to reflect the onetime fee.
It does not involve any interests or property collateral. Why? Refer to the above. Because of this, even smaller businesses can make use of the method. Startups, small to medium scale enterprises and even recovering entities can get hold of single invoice finance.
The fee is fixed and agreed upon at the onset of the transaction. This makes it far more cost effective as a funding medium for entrepreneurs. Both parties shall come into agreement as to the percentage of the invoice value to be received by the financing provider. Oftentimes, this is anywhere from 10% or less.
It provides a quick injection of cash. No more waiting just as you would other financing options. Funds are released real quick even in as fast as twenty-four hours or a day’s time. No other alternative comes close or is as fast as single invoice finance.
Spot factoring companies have thrived thus further saturating the financing market. Is this even good? For customers or clients, it sure is because the more providers there are the higher competition amongst them becomes. In return, this allows for better services at lower costs to users. But the challenge of finding the best and most valuable factors still remain. After all, it’s our job to filter the great from the mediocre.
How then can we tell if certain spot factoring companies are worth the trouble? Which ones are likely to helps us with our needs? To give you an idea, we came up with the following list. Read on.
First of all, a streamlined process is a great indicator. But finding out if a certain provider indeed has it can be a bit tricky. So how should it be done? A little research goes a long way and so does communication. They should be able to discuss their process and services with ease and consistency. Moreover, users should find it easy to understand them.
There’s the presence of great feedback too. In the world of marketing, word of mouth is the most powerful tool whether it’s something that falls under the more traditional or the digital type. Things like reviews, feedback and customer testimonials online (e.g. blogs, forums and websites) can speak legions about a spot factoring company. It also gives prospect clients a glimpse of what hiring them can result to. Having personal contacts recommending a provider can also mean good things but of course one has to take all these with a grain of salt. These are only a part of the equation and as mentioned, only serve to give us a glimpse not the entire picture.
The price is right. Nope not the game show but the idea is pretty similar. A worth it spot factoring provider should have reasonable rates. Cheap always raises red flags because quality never comes in discounted numbers nor does expensive guarantee quality. The keyword is reasonable.
Quality spot factoring companies also deliver on time, lighting fast to be precise. Because the service seeks to hasten collection and improve liquidity, hassle-free application process and a quick cash release make for a quality service. In fact, a day’s worth of time or twenty-four hours is considered the benchmark. If they can’t provide as quick as that then they’re not as good as they say they are.
As businesses seek to grow and various enterprises aim for global expansion, the need for export finance has increased exponentially. Although there are various other funding methods available in the market, entrepreneurs have continuously sought it for its benefits.
Ever wondered if export finance is for you too? Well, take a look at this list and discover for yourself.
1. Free of Bias Unlike other forms of financing, it remains relatively unbiased in a sense that it’s not exclusive to established companies. Startups, small to medium scale enterprises, conglomerates and even recovering entities alike can make use of it. This is because providers bank not on the business’ creditworthiness but instead that of the customer to whom the export sales invoice/s is attached to. This brings us to our next point. 2. Zero Collateral Export finance is very useful for entrepreneurs who do not pass the usual standards and asset level requirements that other options require. For startups most especially, property collateral can be a huge problem because they are still at the infancy of their operations. There’s not just enough assets to constitute as collateral. Luckily, the method doesn’t require one. 3. Faster Collections Most importers and foreign customers choose to defer payment. Oftentimes, these transactions fall under sales on credit and actual cash payment is only received upon complete delivery or until goods have been resold by said importer. This creates receivables, which although are assets, lock up cash in invoices for prolonged periods making them unavailable for immediate use. Export finance allows the advance of their values prior to maturity thereby releasing cash almost instantaneously and improving liquidity and working capital in the process. 4. Lesser Risks Another daunting feat that many exporters face is financial risks. There’s credit risk which pertains to possible losses due to late or no collections, interest rate risk that refers to the fluctuation of rates in the market and foreign currency risk that can signify losses due to the rise and fall of exchange across currencies. Because of the advance, export finance helps avoid and minimize all these. 5. Cost Savings Last but not the least, export finance allows companies to save not only bucks but also effort. Because providers will not only provide an advance of the invoice values but will likewise take care of administrative duties like collection, entrepreneurs get to save on the additional costs that would otherwise be necessary for those tasks.
Find out more on http://workingcapitalpartners.com/solutions/export-finance.
Financing options of all kind come with their fair share of pros and cons. Their applicability, however, is not one and the same for all as companies come with varying needs and are a combination of various factors combined. Furthermore, it’s crucial that such methods are used properly otherwise their benefits would remain futile and so today we’re dishing out some Single Invoice Discounting tips to get everyone on the right track.
Understand how it works. Single Invoice Discounting is a type of receivables financing wherein cash is drawn up against a specifically chosen sales invoice. A cash advance is received by the company from the provider with the latter getting the invoice as security. The company goes on to use the funds as it deems fit and waits for its maturity to collect from the owing customer, after which it then goes off to pay the provider of the resources received in advance. This is the simplest and shortest way of putting things into perspective but if you’re planning to use it make sure to dig more and research to fully understand it and be able to address as to whether or not it’s the best option.
Screen customers to whom credit is extended. Since the method draws funds from sales invoices which are a result of a credit sale, it is therefore a must that the company already has strong and effective credit management procedures and terms. One of the important aspects to pay attention to would be credit screening. Make sure to extend credit only to those that are worthy and capable of repaying the debt at maturity. Don’t lean towards loose and lenient credit requirements and processes either. If an invoice is poor and the customer is not creditworthy, the Single Invoice Discounting provider may reject one’s application.
Only transact with trusted providers. Perform research, run background checks and look for reviews and feedback. Finding the best Single Invoice Discounting firm is just as crucial as determining which funding option to go for. Even if the method is beneficial, majority still lies on the quality of the service provided.
Opt for a confidential arrangement. Single Invoice Discounting can either be disclosed or confidential. Preference is the underlying concept here but if we were to suggest, we’d recommend the latter. This is to avoid any confusion in terms of collection in the perspective of the customer to whom the invoice is attached to.
Entrepreneurs all have a common dream: growth and expansion. In every industry, businesses strive not only for profitability but also for longevity and to do that growing one’s enterprise becomes part of the long term plan. One way to do so is by taking things to the bigger stage or in other words the world market. But that’s not an easy feat considering that exportation not only comes with a lot of work but also added costs. In comes export funding.
There are many ways by which business entities can finance their export projects and ventures and below are only some of the options available.
BANK LOAN – Perhaps one of the more common options, it refers to a long term borrowing, often of a large sum, from a banking institution. The amount loaned referred to as the principal shall be repaid in equal installments with interest for a specific period of time. Despite being a very popular option, not all exporting companies make use of it due to the weight of the liability. Plus, those with poor credit scores or inadequate assets (e.g. startups, small to medium scale enterprises) may find it hard to get an application approved due to the strict terms and conditions governed by it.
INTERIM FINANCING – This short term funding is very useful in terms of immediate needs. As its name suggests, it allows businesses to derive the needed cash to fund for their emergency or short term liquidity requirements while their main source of resources are not yet ready or are still being arranged (e.g. mortgage, proceeds from a sale, etc.).
INVOICE FINANCING – This asset based financing is different from the first two options in the sense that it is not a liability. In other words, there are no debts or loans involved. Here, cash is derived by advancing the value of a sales invoice (receivable) or a bulk thereof before their maturity date thus prior to payment and collections. This export funding option can further be split into two types as follows.
Discounting makes use of the invoice/s as security or collateral against the advance. Collection shall remain as the entity’s responsibility and once they have been completed as scheduled and as mandated by the stipulated maturity date, it shall then repay the provider for the amount advanced plus fees.
Factoring on the other hand involves the sale against the invoice’s collection. The advance is received similarly but shall only constitute to a majority percentage with the remainder less fees only to be forwarded upon payment completion. The burden of collection shall now be borne by the provider.
At the end of the day, the type of export funding chosen should complement the business entity’s needs.
A superhero refers to someone who has superhuman powers or abilities and uses them to fight crime or evil. We’ve seen them time and again from literature to film to television and print. They’re everywhere and we still adore them for obvious reasons. They save the day. In the business world, something comes quite close and it’s called spot factoring. As to why that is, we shall all find out today.
Considered to be one of the most versatile and easy to use financing methods there is, spot factoring allows companies to draw immediate cash from a particular sales invoice by advancing its value prior to maturity and collection in exchange for the right to collect against it. Now, why does it deserve the praise and honor it is given?
It’s as fast as “The Flash”. – It moves at the speed of light! Okay, maybe we’re exaggerating but in terms of finance, it sure does. You can advance the value of your chosen receivable within twenty four hours or a day’s time. You won’t achieve that with other available financing methods in the market.
It’s as smooth as “Bruce Wayne”. – More than his gadgets and his infamous bat mobile, Batman’s secret identity or should we say real life identity Bruce Wayne sure got chops in the business department. Like him, spot factoring is pro-business and seeks to help companies regardless of size and financial status. It puts a quick injection of cash in the working capital allowing for lesser opportunity losses and the pursuit of important projects. Not all entities can provide funds for projects at the moment every single time.
It’s as super as “Superman”. – What makes the best cash source? The mere fact that it is not a loan. Yes, you’ve read that right. You do not incur debt with spot factoring. As this is in no way a loan, it therefore does not increase your liabilities. You would not have to fear about the rising interests and the other strings attached to one. It is an asset transaction that only affects asset accounts in the company’s books.
It’s as precise as the “Green Arrow”. – In contrast to traditional factoring, spot factoring allows business entities to choose which invoice to use, when and how often. It is a onetime transaction that does not involve lengthy contracts. This means that there are no recurring fees and companies get all the liberty and flexibility they need.
Single invoice factoring is the strategic method of raising financial resources against individual invoices. Since cash is locked up and tied to an asset, in this case a receivable, the procedure frees it up as it enables a business to receive money in advance on a single outstanding invoice before it matures.
Sounds confusing? To elaborate and help you understand further, allow us to put it in contrast to traditional credit, specifically a bank loan.
Classification – It is a type of liability transaction. In other words, a bank loan is a type of debt or borrowing and therefore an obligation towards the financial provider.
Amount – The amount of loan depends on the amount applied for which may be more or less depending on the borrower’s creditworthiness.
Cost or Fees – It involves interests, oftentimes compounded, to be paid on top of the principal in equal installments.
Length of Contract – A type of long term loan, it can span from at least five years to thirty depending on the terms of the contract.
Collateral Requirements – Collateral is oftentimes always involved which can be any of the company’s or its owners’ assets. Properties would be one. It is used as a form of security against the loan in the event of nonpayment.
Application Process – It takes weeks to months for bank loan applications to be processed. They are very meticulous and comes with a number of requirements.
Single Invoice Factoring
Classification – It falls under the category of asset transactions. This means that it is not a debt and is therefore recorded as a decrease in trade receivables coupled by an increase in cash.
Amount – It is equivalent to the value of the invoice being subjected to the method.
Cost or Fees – The fee is a onetime deal which is often deductible against the total value advanced by the business. It is equivalent to an agreed upon percentage from both parties.
Length of Contract – It is a onetime deal and does not involve lengthy contracts.
Collateral Requirements – Because it is not a debt, there are no collaterals involved.
Application Process – Considered to be mighty swift, single invoice factoring can be processed quickly in contrast to other financing methods available in the market. Majority of providers can approve and release cash within at least a day’s time to at most of a few days.
Looking for a medium of financing is no easy job. With so many alternatives out there, people can get seriously lost. Confusion is something we’re all bound to face but that doesn’t mean that we can’t work around and away from it. This makes it important to understand each option before diving right through. Today we shall do exactly that by first getting to know more about spot factoring and what makes it a wise move.
Spot factoring falls under the category of receivables financing. It works by deriving cash from a customer or sales invoice. With this particular type, a specific invoice is selected. The rights to its collection are then traded to a financing institution called a factor in exchange for an advance of its value, often equal to at least 80% of its total worth with the remaining balance less the fees forwarded only upon collection from the owing customer. The collection function and all other responsibilities attached to it shall also be borne by the factor.
The reason why the method is often utilized lies in its various benefits as follows.
First, the cash is received almost immediately and prior to the receivable’s maturity. Some providers can even release the sum in as fast as a day’s time, something than no other type of financing is capable of.
Second, it hastens the collection. Businesses no longer have to wait for the invoice to mature before they can collect and use the cash. It essentially takes out the waiting game.
Third, it’s perfect for immediate needs. It cannot be denied that some invoices hold quite a significant value which can be used for an emergency expense or for purposes of operations and reinvestment. Because of its swift process, spot factoring is but the perfect choice.
Fourth, it strengthens liquidity and working capital. Because the locked up cash is freed almost immediately and prior to its supposed maturity, it injects resources into the system thereby improving working capital and liquidity at the same time.
Fifth, it is a onetime transaction. Spot factoring is selective in nature meaning that businesses have all the liberty to choose which invoice to use and when. There are no long term contracts involved so entrepreneurs need not fear of being tied to an agreement for a significant period of time. Plus, they have all the option to use it as often and as less as they want.