The term financial service is used to mean the economic services that are offered by the finance industry. Finance industry includes the credit-card companies, insurance companies, accountancy companies, credit unions, banks and consumer-finance companies where Doug Foshee worked. There are various types of financial services, for instance, accounts receivable financing, assets based lending and purchase order financing. Now let’s take a look at each service.
Accounts Receivable Financing
Account receivable financing is a type of financial services where business are given a chance to secure a cash advance using their receivables which they use as collateral. In the recent years, the small business and medium business communities have shown an increased interest in account receivable financing. These type of financial services is a way of increasing or improving cash flow in the business.
Banking community has attached a stigma to these type of financial service that why most people are reluctant using the account receivable financing. However, factoring has so many benefits, this includes:
At times your business may incur unexpected expenses or late payments, and such payments may steer your business backward. Under such situation account receivable financing would be very appropriate since you would immediately convert the credit sales or the invoices to cash hence saving you the need to make immediate payment requests to your clients.
Small business friendly
The good thing with account receivable financing it does not need collateral from business, individual or assets, it is a type of unsecured financing to be precise. The approval of this type of financing services can take hours to few days and you are free to apply for as little or as much amount as you require. U cannot compare accounts receivable financing to banks who do take weeks to months before they verify whether your business is creditworthy or the traditional lenders who consider a solid credit score and a collateral before giving loan.
No debt incurred
Account receivable financing is not a type of loan meaning when you factor, you are not incurring any debt. This will help you to obtain other types of financing since your balance sheet looks good. You are even free to sell the company if you wish so.
Purchasing order financing
This type of financial services is ideal for those businesspersons who need capital to deliver a large purchase, for example, the product distributors, resellers, and jobbers. The good thing with purchasing order financing is that you are able to deliver goods from the source to your clients before the invoice is generated. This means the financing services helps to fuel and grow your business. Some of the benefits of purchase order financing include:
It can cover up to a hundred percent of your supplier costs
As long as your gross margin is 25% or more, purchase order financing can cater for all of your supplier costs. At times depending on your gross margin, you may be required to contribute some funds to the transaction. The rule of thumb is usually used to get the maximum amount the purchasing order financing will pay for supplier costs.
The line grows with your business
Factors such as track records of your supplier, the ability to execute an order, profitability level, the credit quality of your customers and your strength to purchase order do affect the size of the line in this type of financial service. It is clear that you as a businessperson, you can control most of these variables meaning you are able to control the size of your line.
The line can be set up quickly
So long as you avail the full application package, it will only take a limited time to have the purchase order financing set up. For instance, it only takes one to two week to have your first transaction funded, then the subsequent transaction will take a shorter time to be funded. This means for companies that need quick funding, then purchase order financing is one of their best options.