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Archive for May, 2008

Factoring Receivables - The Real Costx (Business strategy)

May 30th, 2008

In January 2008 Inc. Magazine, “Short on Cash?” in the Finance: Cash Flow column, the point was made that a factoring discount was an equivalent annual interest rate of 12 times the factoring discount rate. This hypothetical 12 times interest rate is then compared to a bank loan at a competitive annual rate. For the article this meant that a monthly factoring discount of 2% is equivalent to a 24% annual interest rate. This is really a misleading comparison of apples and oranges. In reality a 2% factoring discount rate is equivalent to a 2% annual interest rate, but to understand it we need to go into some detail.

The Standard 2% Net 10 Supplier Discount

We will start with the scenario with a typical supplier discount to their customers, 2% net 10. This is where the supplier has offered to self-factor the customer with 2% discount of the invoice price if they pay within 10 days. In this first example the customer takes the discount and pays by day 10. So the customer pays the client the $1,000 less the 2%, or $20, for a net payment of $980 on day 10.

Let’s calculate the effective interest rate the way the article did. Using this same mathematical logic, for a ten day term this 2% over ten days is an equivalent rate of 6% over 30 days, and 6% times 12 months, or 72% for a year. Now 72% of $1,000 is $720, so based on this logic, how did the customer pay $980, and not just $280? The answer is simple, the money was only used by the customer for 10 days, not a whole year, and a factoring discount is not an interest rate but a fee for using the money under the stipulated terms of 2% net 10.

Now let’s consider that this happens once every month. So at the end of the year, the client sends twelve invoices for a total of $12,000 to the customer. Each month the customer took the 2% discount and thus kept a total of $240 over the year. Now $240 is what percent of the $12,000? The answer is, 2%. So in this case the client’s self-factoring discount rate of 2% net 10 equates to an annual interest rate of 2% and not 72% or 24%.

Accounts Receivable Factoring

But what if our customer does not take the 2% net 10 terms and instead pays later? Some customers ignore all client 2% net 10 terms and pay when they want, which can be 30, 45, 60 or even 90 days. If the client does not accept the customer’s terms, the customer will buy elsewhere from someone who will. Or for some companies, especially larger ones, their systems and cash flow management processes make it very difficult to pay in less than 30-90 days. So if a client wants that large customer business, they must accept the terms required by the customer. In this case we will use 30 days.

What is the real cost of factoring? Let’s describe a basic scenario first and then look at comparative costs. A supplier has entered into an agreement with the factor and has become the factor’s client. In this scenario we will factor invoices of $1,000 each month at a 5% discount rate and an 80% immediate payment of the invoice amount upon verification to the factor with 20% hold back until the invoice is paid by the client’s customer.

So under the terms of the factoring agreement, instead of waiting the 30 days, the client has sold the invoice, at the face amount of $1,000 to the factor. The factor pays the client $800 less $50 (the 5% discount) upon presentment and validation of the invoice. The remaining 20% is held back by the factor until the customer pays the invoice in full. The customer, or the debtor, pays the invoice on day 30. The factor then pays the remaining $200 to the client on day 30.

This process is repeated every month. So the net effect is that every month the client factors a $1,000 invoice and receives from the factor $750 on day 1 and $200 on day 30. So for a full year, $12,000 worth of invoices has been factored for a discount of 12 times $50, or $600. $600 is 5% of the total $12,000. So in the 30 day example, the factoring discount is the comparative equivalent interest rate. Thus the 5% discount rate is not 60% but, 5%.

So What is the True Factoring Equivalent Interest Rate?

The factoring discount rate in not an interest rate but a fee for using money, paid once for the terms of the period involved. So when comparing factoring to bank loan annual interest rates, the discount rate is the equivalent annual interest rate and not some multiple thereof. So a 5% factoring discount rate is equivalent, not to five times twelve or 60%, but 5 times 1, or a 5% annual interest rate.

Don Mann is CEO of RiteMann Consulting Inc. a company that helps businesses improve sales, profits, cash flow and people effectiveness, and is located in the Wilmington DE area. For inquiries please contact him at http://www.RiteMann.com

Posted in Business | Comments (0)

The many useful how to’s in casino gaming to put you nearer to the jackpot

May 21st, 2008

Today, there are a lot of people who would look at casino players and see that they are happy and much content at the games that they are playing for big consumption of hours, they see their faces and they also want to experience the joys that they are feeling right at the moment when they go into a live room and do their thing.

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But as to what they say, the more games you play would make you a much better gambler one of these days, so good luck pal!

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Fighting for their Rights

May 20th, 2008

Freedom they say, is a very big and broad concept. It can also mean different things for different people. But for the different gay, lesbian, homosexual, and transgender communities in the world today, freedom would entail so many good things for them. This would mean that they can be a part of any company they want to work with, or join the government and serve the people, or simpler things such as just going to a restaurant and eat without being conscious because of all the stares coming their way. In short, all they are fighting for is to live a normal life like ours. Just like the gay romania blog where different articles showing the condition of the gays, lesbians and homosexuals in their country. It also features their activities aimed at making their rights be known and at the same time fighting against the discrimination they are experiencing. This includes their Gay Fest 2008, Miss Travesti, legalization of gay and lesbian marriages, raising a kid with a homosexual partner and others, all for the same purpose. The site also is a venue for those belonging in the community to pour out their feelings and thoughts without any hesitation. Check them out at http://darkq.net.

Posted in News and Society | Comments (0)

Easy Learning

May 16th, 2008

One of the reasons why people would not want to learn something new, especially when they are a little bit older is because of the notion that at that age, learning has become a hard thing or process to do. But thanks to the new way of learning techniques that are now becoming more and more popular and accessible to almost everyone, this wrong notion can be prevented. I’m talking about the modules and reliable websites in the internet that can teach you many things faster and easier. And one of them is maxwebdesign.eu.

Like the name says, the site teaches you how to design blog entries the easy and fun way. They also have articles that can teach you the basics of troubleshooting. This is very important especially today wherein one of the most valuable possessions we have are our computers. And if you think designing blog entries or sites are all they teach, think again. Because they can also teach you how you can earn money and a career using your blogs. Interesting right? Well if it does, then go on and start reading a blog about web design at http://www.maxwebdesign.eu and you’ll sure be an expert in no time.

Posted in Web Design | Comments (0)

The Biggest Name

May 15th, 2008

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Posted in Computer and Technology | Comments (0)

We’ll Bring out the Best in You

May 9th, 2008

I have always wanted to be in a fashion school but not just too decided where to go. Fashion schools had always amazed me and I often imagine myself having my training at the best fashion design school. Bring out the best and you and have your talents be recognized.

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Immeasurable Internet Uses

May 7th, 2008

Almost everyone today uses the internet in one or two reasons every day. For example, a student would always go online to do research works and papers, a call center agent would also use the net and research, but this time, not to do homework but rather assist people in getting a service or product they need. A person with his or her loved one/s working or staying abroad would regularly go online to chat with them and see if they are okay. These are just some of the uses of the internet today. There are still many more of course such as those offered by stylishwebdesign.us.

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Be Rich with These Numbers

May 7th, 2008

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