(800) 218-9000
(800) 218-9000
PMF Newsletter Signup

Can Los Angeles Wholesalers Find Factoring Invoices to be Better than Bank Loans?

Factoring Invoices

Working Capital Is Essential

Factoring Invoice financing is not always thought of immediately by Los Angeles wholesalers because most businesses look to their local bank for loans. Local banks do not provide factoring because it costs too much to monitor and is not a product that fits their lending profiles.

Most businesses understand factoring as the conversion of invoices into immediate cash. This is correct, but some factoring companies are also commercial lenders so the local wholesaler should know all the lending services before using some other potentially more expensive ways to raise capital such as selling equity.

Here are the ways a business can fund itself….

Factoring Invoices Financing: Selling your business’s invoices can raise cash fast.

PO Financing: Funding suppliers based on credit worthy purchase order (POs) from your customers. Often, a supplier will not release your goods based on credit so having a finance company pay the supplier can be a big benefit to cash flow and timeliness of delivery.

Inventory Financing: Los Angeles wholesalers are often preferred over Chinese supplier by large customers because they keep inventory in the US for quick replenishment and can absorb service issues. However, how does a small or mid-sized wholesaler finance their inventory. With PMF Bancorp’s inventory financing, your business could use its regularly sold inventory items as eligible collateral.

Equipment Financing: Los Angeles wholesalers are constantly picking up goods at the port. They often need vehicle financing or equipment financing. PMF Bancorp has programs to assist with these credit needs as well.

The Cost of NOT Financing

Small business financing Los Angeles

Starting 2016 right!

Savvy business entrepreneurs often feel that financing adds additional cost and try to stay away from the need of financing. It is normal to think of financing as a cost center. However, the very successful entrepreneurs that grow their businesses beyond $10 million typically understand the value of financing. In fact, financing is often used to grow the infrastructure and improve the overall value of a business.

On the other hand, many businesses do not qualify for traditional bank financing because of the bank’s stringent lending requirements and the business principles? own credit standing. Even when the business qualifies, it often does not receive a large enough line of credit to properly grow. Alternative financing such as factoring purchase order of financing, trade financing are often available as short term working capital to businesses whether they qualify at a traditional bank or not. These short term working capital lines of credit for business with strong management and purchase orders from strong clients can make a large difference in the overall sales volume on a yearly basis and the profitability of the business.

PMF Bancorp has financed businesses for over 30 years as a commercial lender and we have seen entrepreneurs decline financing at the expense of their growth many times. PMF Bancorp has observed that there are large costs to not having the right financing in place as well as forgoing financing that albeit, may not be perfect but allows the business to continue its growth momentum.

The following are the cost of not financing when growth is available:

  1. Loss of sales
  2. Inability to service large customers
  3. Inability to take on new customers
  4. Inability to buy new inventory
  5. Inability to hire proper talent
  6. Loss of enterprise value

Small Business Financing

Some of these costs like not having enough working capital or declining financing are obvious but I would like to discuss the damage that number 6 causes which most entrepreneurs do not think about because they are caught up in day-to-day operations, working capital needs, and customer service issues. The dream of many business owners is to eventually build a business that has value and that can be sold for a large profit but few entrepreneurs with fast growing businesses take the time to build the infrastructure or think of the strategy that maximizes the enterprise value or shareholder value. This is often and exercise that corporate America takes because of the rigorous quarter-to-quarter reporting of Wall Street, but small businesses do not have this oversight or push for quarterly reporting. In fact smaller businesses often run emotionally and based on decisions that are made quickly.

Small owners of businesses should realize that the value of their business is often charged by the size of their sales volume even if profitability is not perfect. Businesses that are very profitable but small are of no use to buyers in most cases so understanding enterprise value can only come when the small business owner starts thinking like corporate America. It is important to achieve a critical mass in sales for smaller business so that it can make the cross over to a larger businesses. Only then will you be on the road to creating enterprise value for another buyer.

5 Financial Numbers to Watch as an Executive

– Are You Monitoring Your Business correctly?

female-executive-reportsMany executives of growing companies are too busy to monitor their business’ financials on a monthly basis at the level needed because of the many pressures from clients, maintaining sales, human resources, and even daily cash flow.

Executives that are running hard and fast can still keep the financial pulse and monitor their business by reviewing the following numbers on a monthly basis.

Gross Margins. Sales is a given number that all executive officers look at constantly, but they sometimes fail to monitor the Gross Margins or the better known as the difference between the sales price and the cost of goods (COGS). Different industries have different percent margins, but on average, a business should have Gross Margins equal of 15% or more (importers or special industries may have smaller margins so don’t immediately worry as margins vary quite dramatically depending on the product, industry, and market).

Accounts Receivable (aka A/R). Accounts Receivable are the sales or invoices that are open and to be paid on your Balance Sheet. The number varies from business to business, but as an executive, is your A/R turning over at the industry standard. For example, if you are a supplier of food and your A/R is not turning within 15 day average then there might be an issue; however, if you are a supplier for general merchandise to Walmart then 30-60 day turnover for A/R is expected. Make sure to bench mark your average A/R and your average pay for A/R on a customer level as well so you do not find yourself with all your cash flow stuck in you’re A/R and nothing to pay the rent or payroll (however, there are financing solutions when this kind of thing happens through factoring invoice companies like 1st PMF Bancorp).

Accounts Payable (aka A/P). Accounts Payable represent the credit for product given by your suppliers and this number is often overlooked by busy executives. I know this number is not always easy to manage but it is extremely important you keep your eye on this number for the following reasons. One, if it gets too large and payments to your suppliers are even a little late, the suppliers will often not increase credit when needed, and may even reduce available credit. Also, I use a general rule that if your A/P becomes more than 50% of your A/R, then it could indicate you are leaning toward too much leverage and there is not enough capital in the business. We are not all blessed with a trust fund so running lean and leveraged is not a choice, but if your A/P equals or is larger than your A/R, then there is a problem.

Inventory. Most executives review this number quite closely, but it is not the number that is most relevant for our discussion as different businesses based on size and industry will have different inventory levels they must maintain. The key numbers concerning inventory that should be monitored by executives on a monthly basis are the turns on the inventory. There is no magic turn rate / number, but turns of at least 4 times a year on your inventory should be achieved (which means you are rotating your inventory 100% every 90 days at least), while 6 to 12 turns a year are very healthy. Don’t panic if your inventory is not turning this well, but it is a goal to shoot for. There are many benefits to keeping inventory moving such as more sales, better rotation of product, improved cash flow, financing pushed to the supplier, a happier lender, and countless other benefits.

Retained Earnings. This is the excess profit that your business makes during the year and that you keep in the business in order to build your working capital base. By even saving a small portion of the profit each year in the company, one will realize a substantial equity base built after several years. This does not translate to many executives as immediately beneficial, but it will allow your business to more easily grow in several ways. The obvious way is that there will be more working capital in the business, but this is still limited. The less obvious benefit will be that you are creating a historical precedent of profitability year after year, and bankers and investors will pick up on this subtle but very important detail.

These 5 seemingly small financial items related to your Profit and Loss and Balance Sheet if monitored and managed correctly can have a very positive affect in shaping your future growth.

7 Ways to Better Manage Your Cash Flow when Selling to Larger Customers….

Manager-In-Warehouse-Checking-BoxesThere are many ways to improve your cash flow, but how and who you sell may be the most important way you can control your cash flow. We all know and love those clients that pay COD, but they are far and few between. The reality is that larger customers in the US almost always take commercial terms (i.e. 30 to 90 payment terms). When selling to larger customers, many feel they are forced to take anything they are offered, but there are ways to get paid faster and better control your cash flow….

  1. Negotiate Vendor Agreement(s) – Even if your large customer says their terms are 60 days without exception, there still can be items that they can do to assist your company with its cash flow. They can often add a clause for early payments such as a 2% discount for a payment within a 10 day term…however, bringing your own independent financing through a factoring company can often save you a lot of money and provide more flexibility.
  2. Negotiate Terms of Delivery with Larger Customers – Better logistics equal better cash flow. For example, if you can have the larger customer pickup FOB China, then your billing can start sooner and a 60 day term can feel more like 30 days because you are not carrying the product as inventory. Often, using larger customers’ logistics can also save you money and time.
  3. Better Logistics Equates to Better Financing – When a business has better financing, it has better cash flow by default (in most cases). Logistics that is fast and without long holding periods for inventory is easier to finance. If you think of your inventory as a “Hot Potato” and hold it as little as possible, you will find better financing, profitability, and cash flow.
  4. Make Deals with Suppliers – Chinese Suppliers are tough, but if you take the time to visit and build a relationship with your factory, they will most likely support your company with some terms after the first year if your business has been smooth. Suppliers can be a great source of extra credit and relive strains on your cash flow, especially when selling to larger customers.
  5. Selling Smart – When selling to a large customer, we all dream of the big orders. These orders can just as easily become a dream as a nightmare. Start by selling small amounts by selling regions of retailers or via their online presence before rolling your product to all their stores. Even though buyers are looking for margin and product wins…you need to be able to win too. Sell smart.
  6. Visit Your Buyers – Good communications with you buyer(s) is essential and meeting up with your buyers for face to face meetings at least twice a year is even more important. This way you can establish a real connection and credibility that you are really working with them as a partner. They will, at least, feel motivated to give you a chance to compete if they are thinking of going with another vendor. Remember, without a real relationship, you are like the morning trash…ready to be taken out at any time.
  7. Get the Right Financing – Yes, we all think we should have a big credit line with the major bank across the street for at a half point over prime. Again, the faster you realize what financing is meant for your company, then the faster you can move on to selling and growing sales. Many small to medium size businesses need working capital to buy more products and to hire for staff…one does not need to beg a bank for a line to grow. Commercial lending banks that specialize in lending to businesses like PMF Bancorp can setup lines of credit, AR financing, trade financing and many other types of financing without the brain damage that the major banks cause. How? By looking at your good customer base and basing the line on the future sales growth and product, not past profits and tax returns which give little indication of future performance in many cases.

7 Ways to Unlock Cash & Profit in Your Business…

Invoice Factoring Los Angeles

Cash is King!

After more than 30 years of lending to businesses, PMF Bancorp has seen many methods to improve cash flow and profitability. It is cliché, but the old saying that “Cash is King” is actually not far from the truth. As you know, even if your profits are large, without cash flow to pay the rent, you are out of business. This is the blessing and the curse of doing business with and selling to large companies as they take forever to pay. It is almost an unwritten right that large corporations expect credit or terms to pay their invoices. Well, PMF has 7 simple ways to increase your cash flow and profit that can be implemented easily as follows:

1. Review: your Invoices (accounts receivable) should be monitored on a weekly basis;

2. Collections: If your business is carrying accounts receivable greater than a typical employee’s salary then you should have a person dedicated to their management (a soft collector);

3. Make a Deal: Don’t be afraid to talk to your customers (even the bigger ones) to get them to pay early for a small discount (this is common and these funds can be arbitraged to potentially pay suppliers early for a discount as well);

4. Relationships: Visit your largest customers once a year at minimum and twice if possible as they can pull strings during a lean period or if processing your invoices is delayed;

5. Credit Monitoring: most companies evaluate credit once and forget it…this is wrong as credit on larger customer should be monitored at least annually to make sure no adverse changes occurred which could impact your sales and your invoice repayment;

6. Common Sense: don’t sell customers that are too big as you will run out of cash. Even if you complete the order, what will happen if payment is delayed or another good customer needs material…grow with common sense (i.e. doubling size in one year is a red flag for you and most lenders);

7. Financing & Invoice Factoring: Make sure to have financing lined up and set when you DON’T need it because I guarantee you it won’t be around when you do need it.

Financing is really essential to a small to medium size business that is growing. Owners and executives of these companies are always optimistic and in many cases try to put off needed financing to save costs; however, this is not the right mind set. The owners and execs should make sure to have a financing deal already signed and on the shelf ready to use. Even borrowing a little from the line facility and testing out the process when it’s not absolutely necessary is useful to make sure everything is ready to rock when the big sales start to arrive. PMF Bancorp has been providing invoice factoring, lines of credit, trade finance, and other short working capital solutions for businesses to grow for over three decades. Often, smaller businesses are rejected by the traditional banks as not having enough credit, profit, equity, etc., but PMF Bancorp has developed special programs that still provide a business with the lines of credit they need.