business had a net interest of only $34,650.31 for the $1million loan — an effective 6.34 percent APR.
A business in the same 21 percent composite tax bracket that sells $1 million in accounts receivable in a year at a 4 percent discount would reduce the taxable income by $40,000. The tax savings is $8,400, an effective discount fee of 3.16 percent.
Financial a r factoring
professionals using this technique to sell finance loan business
services to credit financing business prospects will increase your productivity in obtaining financing applications. Start by finding out the state factoring industry
corporate tax structure for your state. Then use the taxable income strategy for each of the business prospects that pay corporate income taxes.
Most financial officers of factoring loans
corporations are already aware of and use the leverage that taxes have on debt so they can grow the business. When those same financial officers are presented with a new debt or factoring instrument, they often forget about the finance receivables
leverage that taxes play on a growing business. Savvy receivable financing
financial professionals can use the taxable income small business finance strategy in their presentations to business finance executives and be rewarded more frequently.
The Perceived Cost of account receivable factoring
http://flexiblefactoring.com/Documents/business-factoring.htm
You MUST have control of your cash flow. Do not be held captive by your customers’ delaying the payment of your account receivable software .
“A journey of a thousand miles begins with the first step.” Let us help you with your first steps.
Would you like the answer to this accounts receivable services
question?
If my customers would just pay me today, I’d have enough money to . . . !
Factoring may help you gain the answer you need to this question.
What is business factoring?
In its simplest form, business factoring invoice
is the purchase and sale of a company’s accounts receivable (invoices) at an amount less than (a discount of) the face value. (Example: If the credit factoring discount is 3 percent, the invoice is being purchased for 97 cents on the dollar). This allows a company to convert its dormant assets — or invoices — into useable cash flow. It is not a loan.
How does it work?
Company ABC sells products to Company XYZ for $10,000. XYZ accepts delivery of the product and is then invoiced by ABC. ABC now waits for XYZ to pay the invoice, in most cases, for 30, 60 even 90 days. ABC sells the receivable to a factor who disburses funds to ABC in an amount equal to approximately 80 percent of the face value of the invoice ($8,000). The remainder of the invoice’s value is held back in case XYZ does not pay the whole amount due. This amount will be given to the ABC [minus the ar factoring fee] upon payment by XYZ. This process enables ABC to have the small business factoring cash flow now rather than waiting until XYZ decides to pay the invoice. ABC now has the funds available for payroll, operating expenses, taxes, expansion, discount purchases or any other reason that it wishes to use the funds.
What should i know?
To become knowledgeable and understand some of the cash flow factoring
terminology, we have listed a few of the basic terms:
Accounts Receivable: A group of invoices. Monies owed for goods or services a company supplied to customers
Invoices: Statement for credit card factoring
payment sent to a client’s customer for goods or services sold and delivered
Advance: Those factoring brokers
monies transferred to the client when the factor buys invoices
Rebate (reserve): Amount of money held back from the original invoice value, which is sent to a client — minus the discount fee — only after the total value of the invoice is collected
Discount: A factoring invoices
percentage charged for the service of extending factoring loan
monies based on a funded invoice
Non-Recourse: The purchase of receivables by a invoice factoring
without credit liability to the client (seller). Once the invoice is purchased, the factoring company
assumes full credit responsibility for its collection. (Some factoring services
exceptions may apply.)
Recourse: The purchase of receivables by a factor with the seller retaining full liability for any invoices that remain unpaid in part or in full
Seller (Client): The company or individual that sells its accounts receivable (invoices) owed by various customers to whom the client has provided goods and/or services
company essentially becomes the property manager of the receivables asset. All accounts receivable
sent to the accounts receivable finance
company come under its management. The creditworthiness of the customers is checked, invoices and payments are posted in an accurate and timely manner, monthly accounts receivable loans statements are sent to customers by the business accounts receivable
factoring company, and late-paying accounts receivable loan
customers are brought more in line with that industry’s normal pay cycle. For these receivables management services, the factoring company charges a factor accounts receivable
management fee, exactly as would the real estate manager in our example, and interest is charged on the funds advanced. The total cost of the accounts receivable software
service is, of course, the sum of the two items, but combining the accounts receivables management expense with the interest on the money would be like adding your home repair, gardener, pool maintenance, and all other property upkeep to your account receivable collections mortgage bill and calling it interest.
A accounts receivable funding client can obtain a credit facility equal to 80 percent to 97 percent of his accounts receivable, and the amount of that facility can continue to expand proportionally, allowing him to always having the account receivables
working capital necessary to meet expanding business.
Understanding the difference between the account receivable lending
factor’s management fee and the interest rate charged on the money advanced is extremely important psychologically. If one mentally combines those account receivable outsourcing fees and calls it interest, the feeling of being treated unfairly prohibits a logical analysis of the potential benefits of obtaining needed account receivable program
working capital.
What is commercial account receivable
Factoring/Off-Balance Sheet Financing?
Account Debtor: The company to whom the client (seller) has provided goods and/or services and who owes money to your client for those goods and/or services
UCC-1: A business factoring receivables
document that is placed on record with the Secretary of State or with the County Recording Office. The purpose of filing this document is to evidence the factoring service
funding source’s security interest in the client’s personal property. His factoring association
document is filed in the same state or county in which the client’s business is located.
What the factoring companies
Looks for
In order to expedite the funding transaction with you and the factoring financing
company, it is important that all the factoring trucking
paperwork is filled out completely. With this in mind, the following are lists of what a factor looks for to proceed with your funding process:
For pre-qualification
1. Completed Client Profile Form
2. Customer / Debtor list including address, etc.
3. Aging of Receivables report, if available
For Processing Toward Closing the File
1. Client Profile Form;
2. Certificate of Incorporation (Articles of Incorporation) and/or Certificate of Partnership.
3. Current business financial factoring
Accounts Receivable Aging.
4. List of financial factoring
Customers with Name, Address, Phone/Fax and Contact person.
5. Corp and Personal Financial Statement;
6. Due Diligence commercial factoring
fee.
Saving Taxes through transportation factoring
Do you believe there are corporate tax benefits to finance factoring
the working capital requirements of a business? Those benefits exist, and this article introduces a taxable income strategy that factoring invoice discounting
financial professionals can use to promote their freight factoring
financial services.
First, let’s summarize the 2005 corporate tax rates (banks have different tax rates). The federal corporate tax rates range from 15 percent to 39 percent of the taxable income with several tax brackets. The state corporate taxes rates range from 1 percent to 12 percent of the taxable income, depending on where the factoring financial services
corporation resides (six states have no corporate income taxes). With only this information, you can appreciate the following:
Taxes on staffing factoring
corporate income are significant . This impact on corporate earnings can be seen as targets of opportunity for government factoring
financial professionals, particularly factoring services.
Taxes on corporate taxable income are dependent on which state the corporation resides in . Many states that collect corporate taxes have flat tax rates and the rest have tax brackets, more opportunity for financial professionals.
Corporate tax rates do not always increase with factoring quote
taxable income , e.g., federal corporate tax brackets favor larger corporations.
Taxable factoring quotes
income
Over Not over factoring rates
Tax rate
$ 0 $ 50,000 15 percent
50,000 75,000 25 percent
75,000 100,000 34 percent
100,000 335,000 39 percent
335,000 10 million 34 percent
10 million 15 million 35 percent
5 million` 18,333,333 38 percent
18,333,333 35 percent
It is important to note that factoring and invoice discounting
corporations that have taxable income of $100,000 to $335,000 are in the 39 percent tax bracket. These corporations generally are great targets of opportunity for company factoring invoice
financial professionals. However, most factoring funding
financial professionals seek to provide their factoring solutions
financial services for businesses whose revenue is $30 million or less.
Financing has a negative impact on the recourse factoring
taxable income of a corporation because of the interest for construction factoring
loans and the discount fee for factoring program services. On the other hand, because of the lower taxable income of either of these instruments, there are fewer taxes due to the federal and state revenue services. The amount of income tax savings depends on the reduction in factoring broker taxable income. It is obvious that any reduction in taxable income would recover some of the interest or the discount fee.
Let’s look at a business receivables that is in the 15 percent federal income tax bracket and pays 6 percent state income taxes — a composite 21 percent tax bracket. Now, let’s also suppose the debt factoring
business has a $1 million loan at 8 percent APR with a term of one year. The question is: How much lower are the non recourse factoring
taxes due to the federal and state revenue services? The interest paid during the year is $43,861.15. The factoring credit line
taxable income is reduced by $43,861.15, and at the 21 percent composite tax bracket, $9,210.84 less in taxes are due to the revenue services. That means the payroll factoring
Versus The Actual Real Cost
One of the most common mistakes clients and their advisors make regarding account receivable factoring company is in miscalculating the interest cost of their program. Having made the calculation error, the client mistakenly believes the cost to be double digits and has an emotional response as if being cheated, “Gee, that’s 18 percent a year. I’d never do that (you’re cheating me).” Feeling that he is being treated unfairly, the client dismisses a potentially valuable finance option.
Clients need to have a clear understanding of what accounts receivables factoring is and then to understand why it’s used, what account receivable factor
services are provided, and finally, what the real accounts receivable factoring company
cost is.
The basics of account receivables factoring
are quite simple: The client gives the receivables factoring
company his accounts receivable. The receivable factoring
company advances funds against that paper then remits the balance of the money, less fees, when the receivable is paid by the customer. Understanding some of the complexities of business receivable factoring
, however, enables you to better analyze its value.
Compare account receivable
factoring to the following real estate example. Assume that the client owns a strip mall, a dozen or so shops in a small shopping center, and goes to the bank for a $2,000,000 mortgage on the property. The bank looks at the account receivable finance
financial statement of the mall and sets a mortgage based on the property’s income stream, real estate location, and other considerations regarding the property’s general condition. Then the account receivable financing bank reviews the location’s information and finds that the tenant files are in poor order, credit checks on the tenants are mostly missing, and postings to the rent roster are late and frequently inaccurate. As a result, the bank cannot offer such a large account receivable services
mortgage and suggests only $1,500,000. The client, very much like someone trying to get a working capital line of credit, either accepts less money than he needs or must seek a different financial solution.
One option may be to seek the professional management of property by a real estate company that could also provide the new account receivable funding mortgage. The management company, now in charge of the property, can begin to collect rents in a timely fashion, determine the creditworthiness of the tenants, collect aged items, and accurately post account receivable collection
on a timely basis. Being in direct control of the asset, the account receivable loan
management company can feel comfortable in providing a larger mortgage than the bank. The account receivable insurance mortgage interest rate would be set, and of course, there would be a fee for managing the property. It is at this point that the client misinterprets the fees. The client combines the property management fee and the finance rate on the account receivable purchasing mortgage and perceives it to be an extraordinary internal rate of return.
The accounts receivable financing