There is a reason why accounts receivable financing is a four thousand year old financing technique: it works. Accounts receivable financing, factoring, and asset based financing all mean the same thing as related to asset based lending- invoices are sold or pledged to a third party, usually a commercial finance company (sometimes a bank) to accelerate cash flow.

In simple terms, the process follows these steps. A business sells and delivers a product or service to another business. The customer receives an invoice. The business requests funding from the financing entity and a percentage of the invoice (usually 80% to 90%) is transferred to the business by the financing entity. The customer pays the invoice directly to the financing entity. The agreed upon fees are deducted and the remainder is rebated to the business by the financing entity.

How does the customer know to pay the financing entity instead of the business they are receiving goods or services from? The legal term is called “notification”. The financing entity informs the customer in writing of the financing agreement and the customer must agree in writing to this arrangement. In general, if the customer refuses to agree in writing to pay the lender instead of the business providing the goods or services, the financing entity will decline to advance funds.

Why? The main security for the financing entity to be repaid is the creditworthiness of the customer paying the invoice. Before funds are advanced to the business there is a second step called “verification”. The finance entity verifies with the customer that the goods have been received or the services were performed satisfactorily. There being no dispute, it is reasonable for the financing entity to assume that the invoice will be paid; therefore funds are advanced. This is a general view of how the accounts receivable financing process works.

Non-notification accounts receivable financing is a type of confidential factoring where the customers are not notified of the business’ financing arrangement with the financing entity. One typical situation involves a business that sells inexpensive items to thousands of customers; the cost of notification and verification is excessive compared to the risk of nonpayment by an individual customer. It simply may not make economic sense for the financing entity to have several employees contacting hundreds of customers for one financing customer’s transactions on a daily basis.

Non-notification factoring may require additional collateral requirements such as real estate; superior credit of the borrowing business may also be required with personal guarantees from the owners. It is more difficult to obtain non-notification factoring than the normal accounts receivable financing with notification and verification provisions.

Some businesses worry that if their customers learn that a commercial financing entity is factoring their receivables it may hurt their relationship with their customer; perhaps they may loose the customer’s business. What is this worry, why does it exist and is it justified?

The MSN Encarta Dictionary defines the word worry as:

“Worry

verb (past and past participle wor•ried, present participle wor•ry•ing, 3rd person present singular wor•ries)Definition: 1. transitive and intransitive verb be or make anxious: to feel anxious about something unpleasant that may have happened or may happen, or make somebody do this

2. transitive verb annoy somebody: to annoy somebody by making insistent demands or complaints

3. transitive verb try to bite animal: to try to wound or kill an animal by biting it

a dog suspected of worrying sheep

4. transitive verb

Same as worry at

5. intransitive verb proceed despite problems: to proceed persistently despite problems or obstacles

6. transitive verb touch something repeatedly: to touch, move, or interfere with something repeatedly

Stop worrying that button or it’ll come off.

noun (plural wor•ries)Definition: 1. anxiousness: a troubled unsettled feeling

2. cause of anxiety: something that causes anxiety or concern

3. period of anxiety: a period spent feeling anxious or concerned…”

The opposite is:

”not to worry used to tell somebody that something is not important and need not be a cause of concern (informal)

Not to worry. We’ll do better next time.

no worries U.K. Australia New Zealand used to say that something is no trouble or is not worth mentioning (informal)”.

Query: if a business is financing their invoices with accounts receivable financing, is this an indication of financial strength or weakness? Query: from the point of view of the customer, if you are buying goods or services from a business that is factoring their receivables, should you be concerned? Query: is there one answer to these questions that fits all situations?

The answer is it’s a paradox. A paradox is a statement, proposition, or situation that seems to be absurd or contradictory, but in fact is or may be true.

Accounts receivable financing is both a sign of weakness with regard to cash flow and a sign of strength with respect to cash flow. It is a weakness because, prior to financing, funds are not available to provide cash flow to pay for materials, salaries, etc. and it is an indication of strength because, subsequent to funding cash is available to facilitate a business’ needs for cash to grow. It is a paradox. When properly structured as a financing tool for growth at a reasonable cost, it is a beneficial solution to cash flow shortages.

If your entire business depended on one supplier, and you were notified that your supplier was factoring their receivables, you might have a justifiable concern. If your only supplier went out of business, your business could be severely compromised. But this is also true whether or not the supplier is utilizing accounts receivable financing. It’s a paradox. This involves matters of perception, ego and character of the personalities in charge of the business and the supplier.

Every day, every month thousands of customers accept millions of dollars of goods and services in contracts that involve notification, verification and the factoring of receivables. For most customers, “notification” of accounts receivable financing is a non-issue: it is merely a change of the name or addresses of the payee on a check. This is a job for a person in the accounts payable department to make a minor clerical change. It is a mainstream business practice.

Bobby McFerrin wrote and performed a song called “Don’t Worry, Be Happy” for the movie “Cocktails” starring Tom Cruise. The song was a number one U.S. pop hit in 1988 and won the Grammy for Best Song of the Year. Here are the lyrics:

”Here is a little song I wrote

You might want to sing it note for note

Don’t worry be happy

In every life we have some trouble

When you worry you make it double

Don’t worry, be happy……

Ain’t got no place to lay your head

Somebody came and took your bed

Don’t worry, be happy

The land lord say your rent is late

He may have to litigate

Don’t worry, be happy

Look at me I am happy

Don’t worry, be happy

Here I give you my phone number

When you worry call me

I make you happy

Don’t worry, be happy

Ain’t got no cash, ain’t got no style

Ain’t got not girl to make you smile

But don’t worry be happy

Cause when you worry

Your face will frown

And that will bring everybody down

So don’t worry, be happy (now)…..

There is this little song I wrote

I hope you learn it note for note

Like good little children

Don’t worry, be happy

Listen to what I say

In your life expect some trouble

But when you worry

You make it double

Don’t worry, be happy……

Don’t worry don’t do it, be happy

Put a smile on your face

Don’t bring everybody down like this

Don’t worry, it will soon past

Whatever it is

Don’t worry, be happy”

The bottom line: “notification” should not be an issue in most situations involving accounts receivable financing; non-notification factoring is another option that is available for businesses concerned with confidentiality that meet minimum credit standards for asset based lending. Bobby McFerrin was right: “Don’t Worry, Be Happy”.

Copyright © 2007 Gregg Financial Services

www.greggfinancialservices.com

Many Australians have large amounts of their savings invested in SMSFs, or Self Management Super Funds. If you are one of those people, you may find that you want to invest in real estate. With a Self Management Super Fund loan, the investor is able to take a serious interest in his or her investments. The investor works with a financial advisor to take control of accounts. With a SMSF (Self Management Super Fund) loan, investors are able to add real estate to the investment profile.

Many people want to invest in real estate using their SMSF (Self Management Super Fund) loan because they want to make more money on an investment and minimize risk. Until recently, restrictions would not allow funds to purchase real estate. Now, it is possible to do so. However, there are limitations on your SMSF (Self Management Super Fund) loan purchase. If you are buying land, you can’t live on the land. However, you can use your SMSF (Self Management Super Fund) loan to purchase land that you plan to live on when you retire. When purchasing land with your SMSF (Self Management Super Fund) loan, you can buy any type of property. This includes commercial, residential, business and vacation property. However, living on the property yourself would violate the “in house asset” rule.

There are many tax benefits to your SMSF (Self Management Super Fund) loan purchase. Not only are there many tax limitations, but in many cases it is tax deductible. When you pay on your property, the payments go directly into the Self Management Super Fund loan. Your fund may acquire up to 100% of its value in real estate. If you have an SMSF (Self Management Super Fund), you may want to consider diversifying your investments by purchasing land with an SMSF (Self Management Super Fund) loan. However, if you purchase residential property, you must buy it from an arms-length vendor in order to be in compliance.

If you would like to sell your land, you can sell to a third party as long as the mortgage is paid out. When you finish paying your loan, the title is transferred to the SMSF. If you are looking into using your SMSF (Super Management Super Fund) loan to buy property, you should make sure you do a lot of research. Call your financial advisor for help. He or she will better understand your SMSF (Self Management Super Fund) loan and can help you make decisions. Loan decisions are also based on your credit rating. You should make sure you are familiar with your credit history before you attempt to get an SMSF (Self Management Super Fund) loan to purchase property. You should make sure that you are prepared to make the commitment and to commit your funds to a new mortgage. A property purchase can be a great investment and a good way to diversify your portfolio. But if you are not prepared to make the commitment, you can end up losing a lot of money. In order to make sure that you are ready to handle it, make sure you talk to your financial advisor before making decisions.

Attracting an investor and securing funding for your business can be an extremely time consuming process. But, with the right knowledge, you can make it far easier on yourself. If you want a quick guide on how to find one, read on…

If you want to find an investor for your business, the first thing you need to do is make it attractive to them. No-one wants to invest in a business that doesn’t interest them, so make sure you offer something that other companies don’t. A competitive edge, a brand new product, a top-class service – something that makes you stand out from the crowd.

Your business must have potential for growth and profit. If you can’t offer an investor a good return, they won’t even think about investing.

Make sure that your business plan is up to scratch. Know your figures and your market inside out, and have a clear view of where your business is going. Investors like to know that you’ve thought about the long-term, and are keen to have an exit strategy in place for them to generate their return. Value your business realistically and offer an appealing share of the business to really grab their attention.

If you can, look for investors that specialise in the area that your business occupies. If they have a personal interest in the field they’ll be more likely to invest, and will bring with them their knowledge and expertise of how to succeed in the area. Always bear in mind the contacts they can offer as well, which can be invaluable to your success.

You can find investors from a number or sources, from friends and family to recommendations and websites. If you’re looking to find an investor in Australia, make sure you check out www.EntrepreneurInvestorNetwork.com.au, who specialise in bringing business and investors together.

As long as you have your business plan sorted, know what you want and know where to look, you’ll have no problem finding an investor who’s perfect for you business needs.