Tag Archives: factor financing

Coldwell Banker

How to establish trust with your bank

According to a recent survey, financial services and banks were noted as the least-trusted industries in 2012.  Despite the fact that the financial crisis occurred five years ago, people are still concerned about the reliability of banks.

The 2012 Edelman Trust Barometer had more than 30,000 online respondents, in which only 46% of U.S. respondents said they trusted the financial services industry, and only 41% said they trusted banks. Clearly, the last few years tainted the banking industry’s image, and it is taking time for public perception to change.

Despite what the public may think due to the history with the bank crisis and the bad press, banks are not inherently sneaky or dishonest. But like any business, it comes down to building relationships.

To establish trust with your bank, there are a few precautions you can take that will help to set the foundation for a strong relationship.

Don’t put all your eggs in one basket

When you are establishing your business, don’t have all your banking relationships at one bank. For example, many bank documents will cross collateralize loans and bank accounts – both personal and business. Set up your operating business account at one bank and payroll at another. It is also a good idea to open personal accounts and loans at a completely different bank than your business.

Grow the relationship

While it is vital to have a great relationship with your primary banker, you need to move beyond that relationship in the bank. Bankers are transient and move positions within the bank or to another bank quite often. If you only build a relationship with your banker and your banker is promoted or leaves the bank, you will be left with no allies. Get to know your banker’s boss and associates. You never know who will be your banker tomorrow.

Know your bank

The relationship you are trying to establish is really with the bank, so take the time to learn about the banks you do business with. Understand the services they offer. Search the Internet to read blogs and reviews from happy and unhappy business customers. This will help you better understand if this bank is a good fit for you.

Sources and uses of cash

When you talk to a banker about the best loan for your company make sure the banker understands what the money will be used for. Don’t assume the banker knows. For example, if you need money to fund payroll and pay vendors, you need a working capital loan. A working capital loan is based on short-term assets (accounts receivable and inventory) and is used to finance short-term liabilities (payroll, accounts payable).  Don’t let a banker talk you into an SBA term loan to finance working capital. Match assets and liabilities – short term loans fund short-term liabilities and long term loans fund equipment and real estate.

Read the loan documents

So many smart business people are more concerned with the terms on their cell phone contract, but never bother to read or understand the details on a commercial bank loan. While most bank loan documents are standard and the bank may not make any changes, a business owner should still have an attorney review all the documents. The attorney’s role would be to advise you on what is in the documents – what are events of default?  What are cure periods? What should the business owner make sure they do in terms of financial reporting, notice of management or ownership change?  If you understand your loan documents, you will be better protected against surprises.

The public’s perception of the banking industry is clearly still hindered by the scandals, government accusations and lawsuits brought on by the financial crisis. Fortunately, the reality of the situation is better than it is perceived.

Regardless of the industry’s image, it is always best for business owners to take a proactive approach. Taking the time to get to know your bank is the key to building a long term successful relationship; one that you can feel confident in, where you can trust your financial service provider.

 

Robyn Barrett is founder and managing member of FSW Funding, formerly Factors Southwest LLC, specializing in factor financing for small to mid-size companies. For more information visit: www.fswfunding.com

 

Factor Financing

Considering Factor Financing Helps Companies Protect And Grow

Considering Factor Financing Helps Companies Protect And Grow

Companies faced with a cash-flow squeeze and slow-paying customers can quickly find their own credit ratings at risk and face difficulty securing a credit line or loan.

When you don’t quite qualify for a traditional loan, receiving an advance against invoices or accounts receivable from asset-based lenders called factors can be an optimal solution for securing cash needed to grow.

Many business owners don’t realize that factor financing can be a good source of capital for high growth or start-up companies. The factor advances most of the invoice amount, usually 70-90 percent, after reviewing the credit-worthiness of the billed customer. When the bill is paid, the factor remits the balance, minus a transaction – or factoring) – fee.

If you are going to consider factor financing, it is important to understand the different options. In non-recourse factoring, the factor accepts specified risks around the debtor’s failure to pay. In other words, the credit risk has shifted to the factor and if the debtor (your client) does not pay, you are not required to pay back the factor for the advance against the factored invoice. While this might sound like a great option, non-recourse factoring is very expensive and the factor becomes the aggressive collection company pursuing your clients. The factor takes over all rights to pursue the customer for payment. This includes the right to take legal action.

In recourse factoring, the factor does not take on the risk of bad debts and the credit risk remains with you. To put it another way, the factor will be able to reclaim their money from you if the customer does not pay. Whether you refund the advance or not, you will still have to pay the fee and interest. Recourse factoring is cheaper than non-recourse factoring and may have fewer requirements concerning your customers and your systems.

When choosing recourse factoring, it is important to protect your company against credit risk, since you retain the credit risk of non-payment. In the event your customer goes bust or just doesn’t pay, you are ultimately responsible for any funds advanced to you by the factoring company. If you sell on open credit to your customers, there will be times when you are concerned about repayment. If you don’t want to be on the hook for all the credit risk, trade credit insurance may be an option.

Trade credit insurance insures manufacturers, traders and providers of services against the risk that their buyer does not pay (after bankruptcy or insolvency) or pays very late. The trade credit insurance premium will be based primarily on the credit profile of the customers you are insuring against. The trade credit insurance policy will pay out a percentage of the outstanding debt. This percentage usually ranges from 75- 95 percent of the invoice amount, but may be higher or lower depending on the type of cover that was purchased.

Before deciding what the best option, is for your organization, including factor financing, do your homework, ask questions and get referrals.

Robyn Barrett is founder and managing member of Factors Southwest LLC, specializing in factoring financing for small to mid-size companies. For more information about factor financing, visit www.factors-southwest.com.