Factoring Receivables for the Packaging Industry
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- No Financials - No monthly minimums - No invoice minimums
- No facility fees - No audits - No up-front fees - No hidden fees
- Set up account in 3 to 5 working days - 24 hr funding thereafter
- Credit Lines starting at $5,000 & up to 10 million
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Do you Need Cash Flow Now?
It’s common for commercial packaging companies to provide their customers with net-45 or even net-60 day payment terms on invoices. In some cases, those terms can be even higher as customers continually use their purchasing power and economies of scale to their advantage. However, what happens when your packaging company has to pay its own vendors and creditors within 30 days? Worse yet, what happens when your company has to prepay some of its vendors and creditors and can’t, simply because you can’t maintain a positive cash position? Ultimately, giving your customers net-45 and net-60 day terms, while paying your vendors within 30 days, or sooner, is bound to give your company problems with cash flow. It is bound to make it extremely difficult to manage your payables and receivables. So what’s the solution? Well, when companies face a mismatch between their payables and receivables, they often turn to accounts receivable factoring. How can accounts receivable factoring help?
Factoring in the corrugated box and packaging industry:
In order to improve your cash position, your company needs to shorten its receivables collection times, insist that customers prepay, increase its bank financing, or call upon an alternative financing solution like receivables factoring. Unfortunately, your company is bound by its net-45 and net-60 day customer terms because of the industry it operates in. Your enterprise can’t simply decide to change these terms and expect your customers to accept them as gospel. After all, your competitors aren’t likely to change their terms. If anything, your competitors will see your decision to reduce terms as a sure sign that your company is abandoning the market. As such, your customers will simply move their business from your company to your competitors. In this case, you can’t simply change terms without incurring substantial losses. What about prepayment? Can that make a difference?
- Boxes-Corrugated and Fiber
- Box Partitions
- Packaging Materials wholesale and manufacturing
- Packaging Consultants
- Thermoforming Service providers
- Tape/Foam/Labels Wholesale and manufacturing
Prepayment is only a viable option with customers who have no choice but to prepay. Customers with terms won’t prepay in today’s economy, one where cash flow is a going concern and one where the costs of financing are constantly increasing. In addition, focusing on prepayment means your company is focusing on customers who are credit risks. This certainly isn’t the ideal approach to planning for your future, and it’s no way to build a sales forecast. What about securing additional bank financing?
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The Problem with Bank Financing in the Packaging Business
If your company is lucky enough to have financing with a bank, then you are well aware of how difficult it is to secure additional financing, and how difficult it is to increase your limit and credit line. Today’s banks are extremely cautious. For instance, they insist that all applicants pass a series of stringent requirements, ones where companies must showcase their strong cash position and one where they must demonstrate a rock-solid history of performance. This includes providing financials and showing positive returns over a three to five year period. Unfortunately, this all but eliminates new business ventures, entrepreneurships and start-ups, ones that are just trying to get their operations off the ground. In addition, every company, regardless of its market or its business model, has suffered tremendous losses over the last couple of years due to the most recent global recession. As such, very few packaging companies have the ability to meet any bank’s borrowing criteria. So what about using an alternative financing solution like receivables factoring?
Reduce the Delay Between Your Receivables and Payables
Asking your customers to prepay their orders isn’t an option. Pursuing customers that have to prepay isn’t one either. Bank financing is extremely difficult to secure and is therefore less of an option for today’s packaging enterprises. So what else is there? Well, there is always accounts receivable factoring. This is an asset-based financing solution that allows your company to reduce the inherent time delays between your accounts payable and accounts receivable collection times. In essence, receivables factoring helps your company avoid the issues of having to pay your vendors within 30 days, while waiting for your customers to pay within 45 to 60 days. How does this asset-based financing solution work?
Accounts receivable factoring shortens the time between your accounts payable and accounts receivable by allowing you to avoid long receivable collection periods. Instead of invoicing your customer, and chasing them for payment, you simply sell your receivable to a financing company, one that will advance your enterprise upwards of 90 percent of the receivable’s value. In essence, you avoid financing your customer’s business for them. You avoid the hassles of chasing your customer for 45, 60 or even 90 days. Ultimately, you avoid the wasted time and high costs of financing your customer’s business, while yours struggle to maintain a positive cash position. Accounts receivable factoring is a solution that helps you pay your own vendors on time. It’s one that helps to shorten the time between your payables and your receivables, and it’s one that will dramatically improve your cash flow.
Now, most companies aren’t aware that they are financing their customer’s business when those customers take too long to pay their invoices. However, when you think about what it costs your customers to finance their businesses, it suddenly becomes obvious that their least expensive financing source involves delaying the time it takes to pay your company on an invoice. Why? Well, for one thing, your company isn’t charging your customer interest on the invoice. In fact, your company isn’t charging anything at all. Your customer is able to borrow capital interest-free, and since these 45 and 60 day terms are the norm in the market, your customer doesn’t have to change their payment habits. This is ultimately why receivables factoring works so well for today’s commercial packaging enterprises.
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Most companies assume that receivables factoring is a new alternative financing solution, or that it’s an unproven solution. However, this simply isn’t true. Financing Receivables has been an alternative financing solution for thousands of years. It has proven itself time and again as a viable alternative to financing a company’s operations. So what are some of the differences between financing with a bank and financing with a financing firm that provides receivables factoring?
• Credit Rating is Not a Concern: With bank financing the decision to approve your packaging company for credit rests on your company’s ability to demonstrate a solid credit rating and history. With receivables factoring, your company’s credit rating plays no role whatsoever in the decision to advance your company working capital. The financing company bases its decisions on the account debtor’s (your customer’s) credit rating.
• No Need to Provide Financial Statements: Financing with a bank always involves providing financials. Not so with receivables factoring. With the financing firm, there is no need to provide financials. This goes for both your company and any of your customers. Again, the decision to advance your company working capital is based on the account debtor’s credit rating.
• Receivables Factoring Isn’t a Loan: One of the issues with bank financing is that any secured credit line or loan is represented as one on a company’s balance sheet. Each additional loan is shown as increased liability. When a bank reviews these balance statements they immediately notice the amount of uncovered debt. However, receivables factoring isn’t a loan. While it acts like one, it won’t be shown as one on your balance statement.
The entire process of receivables factoring is ideally suited to commercial packaging companies. It will help you shorten the time between your payables and receivables. Here is a simple process to making it work. First, take a list of all your company’s best paying customers. In this case, it doesn’t matter how long your customers take to pay, as long as they have demonstrated a history of paying their bills. Second, forward all this information over the financing company. Include the amount of revenue your company does with each customer. Summarize the information in terms of the addresses of these customers, their phone number, their business types, and any other pertinent information about their location and structure. The financing company will need this information in order to perform a credit check on each one of your customers. Third, after the financing company has approved your list, and set up a credit line, you forward the financing company a receivable each time you generate one. Once the receivable is received, the financing company will credit your account upwards of 90 percent of your customer’s unpaid invoice.
Receivables factoring is an asset-based financing solution you can use to shorten the time between your accounts payable periods and accounts receivable periods. It is an alternative financing solution that will allow your packaging company to improve its cash flow. That improved cash position can then be used to reduce your day-to-day operating expenses. In the end, it’s a solution where the decision to lend your company money won’t be based on criteria out of your control. The decision will be based on the amount of business you bring the financing firm.
At 1st Commercial Credit, our receivable factoring service is a flexible source of funds for businesses. We are a factoring company that simply utilizes your accounts receivable as the collateral and advance money against the face value of your invoices. Financing receivables is a credit line that grows proportionately with your sales cycle and we can fund as little as $5,000 a month and up to $10 million for larger companies.
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