AFA Delegation Educates Legislators About Factoring

By Kevin Wood

Commercial Factor Magazine, August 2019 edition

NOTE: This article originally appeared in the August 2019 issue of Commercial Factor, a publication of the International Factoring Association, which Kevin Wood is a member of the advisory board.

July 16, 2019 was the 50th anniversary of the Apollo 11 Moon launch. Not only did that successful launch lead to placing the first humans on the moon four days later, it also affected our day-to-day lives, bringing new products and innovations that were created as part of the Apollo missions. Things like computer microchips, cordless tools, CAT scanners, satellite television and numerous other inventions that make our lives better resulted from the efforts of those Apollo missions.

Fifty years later, on that same day, three AFA members, along with our AFA Lobbying Group, launched another successful visit to Washington to lobby Congress and several key committees to continue the important work of the AFA.

The AFA seeks to influence our elected leaders and regulatory authorities to make our lives better for our factoring community from both a legislative and regulatory perspective.

Our two-day fly in was led by Palmer Hamilton of Jones Walker and included Debra Wilson from BAMfi and Tania Daniel from ENGS Commercial Capital. It was great to have such an experienced and knowledgeable team on our visit.

Not having participated in a previous fly in, I did not know what to expect, but Palmer and the team at Jones Walker had everything planned out for our meetings and had prepared focused agenda topics for discussion. We had a detailed agenda and reading material to allow us to quickly get up to speed on the topics.

Our main focus for this visit was to continue to differentiate factors from MCA lenders and to work to insure that Section 1071 of the Dodd-Frank Act would not be improperly applied to factoring. This section of Dodd-Frank will require lenders to gather and report information on applications based on race, gender and other components.

Since factors do not lend money, but rather purchase assets, we wanted to make our position known to as many influencers as possible and to ensure that factors would not be inappropriately required to comply with the regulation implementing Section 1071. Not only would this be a difficult and onerous burden on individual factors, it would
also distort the information that Congress hoped to have compiled, since factoring is not a lending function.

Our two days started with a strategy meeting with Palmer and then we met with leadership from the Small Business Administration; leadership from the Consumer Financial Protection Bureau (CFPB) which is crafting the actual regulation implementing Section 1071; House Financial Services Committee staff; the financial liaison for a US Senator and, finally, a House Member and his team.

Even though we had to suffer in 95-degree heat with the high Washington humidity, we had a very successful discussion in every meeting. We were all very impressed with the Representative from Colorado, Ed Perlmutter, who, as a former bankruptcy attorney, knew quite a bit about the details of factoring!

Everyone we met was aware of factoring and our concerns which speaks to the effectiveness over the past 10 years of our lobbying firm and the numerous members of the AFA who have spent time and money to attend and educate our elected officials.

All of the people with whom we met understood our point of view and were receptive to our ideas. Because the CFPB regulations implementing Section 1071 will not be finalized until 2021, we must continue to educate and inform Congress and request Congressional help to make sure we have the best possible opportunities to help fund small businesses across the U.S. and provide creative solutions to helping businesses grow.

Being new to the fly in process, my main takeaways from the two days were:

  • The depth of knowledge and the amount of groundwork that is required to set up these meetings
  • The willingness of our elected officials to hear our side of the story and be open to our point of view
  • The knowledge and professionalism of our IFA and AFA members and their willingness to contribute time and money to help the industry overall
  • The need for more people to get involved and contribute either time or money to help direct legislation that will create a better future for the Factoring industry

We must continue to be diligent in monitoring and managing the receivables. We need to be just as diligent in monitoring and managing the legislation and regulations that affect our industry and our livelihoods.

Just as the launch of Apollo improved the lives of all of society, the continued launches of AFA visits to Washington will hopefully help the lives of factors now and in the future.

The goal of the AFA is to increase membership and financial support from every IFA member. We urge every IFA member to contribute to the AFA as we are in the midst of our annual membership fund drive. Currently, we have Bronze Members who have contributed as little as $500, up to Diamond Members who have contributed in excess of $10,000. This is a very inexpensive insurance policy to help protect our industry from needless regulation which will be both costly and prohibitive. Please consider supporting the American Factoring Association. •

  • Contact Us

    Fill out this form and someone from Cash Flow will be in touch as soon as possible. Thank you!

  • This field is for validation purposes and should be left unchanged.

Cash Flow 101: Cash flow management for business owners

By Reggie Connaughton

Cash flow management for business owners

Effective cash flow management is essential to maintain and grow your business — big or small.

As Managing Director at Chesapeake Bank’s Cash Flow division, Kevin Wood understands the complexities associated with managing a business’ cash flow. To help break down the basics and share best practices for cash flow management, Kevin answers a few cash flow FAQs.

What is cash flow management?

Cash flow management simply means managing your cash so that you have enough cash in your account to pay your expenses as they come due. Some companies are very profitable in their financial statements but never have enough cash on hand to cover weekly payroll.

Profits are often determined by what jobs you have completed and how much you have billed your customers, not how much they have paid you. Your accounts receivables balance may look great on your balance sheet, but it doesn’t help with your actual checking account balance.

Why is managing cash flow important?

Managing cash, or cash flow is important because if you do not pay your expenses when they come due, it can create poor relationships with vendors and suppliers, poor employee morale and possibly late fees or tax penalties. In extreme circumstances, cash flow issues can cause a profitable company to go out of business.

What are some key cash flow management terms?
  • Net Profit – sales minus expenses
  • Accounts Receivable – money owed for services performed
  • Accrual Accounting – a type of accounting that includes money owed to you and money you owe to others as part of the balance sheet
  • Cash Accounting – a type of accounting that includes only cash received by you and cash paid out by you for expenses as part of the balance sheet

Understanding these terms and how they apply to your business can help you better manage cash flow.

What are some best practices for managing cash flow?

One of the best ways to manage cash flow is for the owner to spend 15-30 minutes each day reviewing what and who was billed that day and making calls to collect payment. This will alert the owner to potential problems so he/she can be proactive, rather than reactive.

If you know you’re not going to be paid on time for a job, reach out to vendors, explain the circumstance and provide a projected payment date prior to the due date. Most companies appreciate the information in advance and are willing to work with a partner who is on top of their business.

Also, If a company is growing quickly or working with mostly slower paying clients, they will often need to find an outside funding source to help them cover the swings in cash flow, even if they are monitoring their cash daily. Lines of credit, asset-based lending and factoring are some of the options available. Each has different credit qualifications, usage requirements, and structures.

Tell me about Cash Flow at Chesapeake Bank and is it right for my business?

Cash Flow at Chesapeake Bank is a program that purchases or lends against a business’ account receivables (invoices) and inventory. The Cash Flow program provides immediate cash (usually same day) to enable a business to run more efficiently. Growing companies, companies that work with slower paying companies, those that need to shorten cash conversion cycles or have challenged balance sheets are the best fit to use Cash Flow.

  • Contact Us

    Fill out this form and someone from Cash Flow will be in touch as soon as possible. Thank you!

  • This field is for validation purposes and should be left unchanged.

The True Cost of Early Pay Discounts

By Reggie Connaughton

The True Cost of Early Pay Discounts

As a business owner, you know all too well that there are times when there is not enough cash to go around. This can happen for many reasons, but for some, it is simply a reflection of the gap between merchandise going out and payments on invoices coming in. Banks aren’t always able to provide enough working capital either, even if a company has good financials.

As a result business owners find themselves creating alternative solutions to get money flowing again; like adjusting the terms of the invoice or offering discounts to get paid before the invoice is due so that they don’t have to borrow from lenders. Usually, this discount is expressed as 2% /10 net 30. Simply stated, you will accept 2% less of the invoice amount if your client pays within ten days. 

While an ‘early pay discount’ may sound good, it can cause a significant loss in funds over time.

Let’s look at the math.

Say that we sell you a box of widgets for $10,000.

Once you receive the widgets, I will issue you an invoice for $10,000 that is due within 30 days.

In that invoice, I state to you that I will accept a 2% discount if you pay that invoice within 10 days.

Effectively, I am saying to you that if you accelerate my cash flow by 20 days (paying early), then I will accept $9,800 as full and final payment. (Reflecting the 2% discount.)

Sounds like a win-win right?

Well consider this:

If your customer chooses to take advantage of the discount noted above, you now have use of the amount of $9,800 for an additional 20 days, which in turn reduces the funding needed from lenders by the same amount.

But let’s say that you’re using the same numbers in this next math equation. Except that we’re going to take the $200 ‘discount’ and break it down in reverse to show you how much the equivalent of that would be as an ‘interest percentage’ IF you would have gotten a loan to get you through that 20 day period.

Interest Rate for 20 days: = $200 (identified earlier as 2%)

Annual Interest Rate = (2% /20 days) x 365 days in a year = 36.5% 

That would be the equivalent of paying 36% interest on the $9,800!

Shocking isn’t it?!

From that angle, it is easy to see that if a business could borrow at a rate which is less than the calculated annual interest rate (shown above), then it would be preferable to do so rather than offer the customer the early payment discount, right?    


Here’s the good news.

Not only can you borrow at a lower rate, our program is designed specifically for this type of situation; offering you two different models for you to choose from. One allows you to borrow against the strength of your invoices, while the other lets you borrow against the strength of your invoices and your inventory. By partnering with us, we can allow you to offer better terms back to your clients while saving a substantial amount of money, and it could even lead to more sales, even though it’s financing.

The bottom line is that if you need extra cash to meet daily expenses or to secure new business, then the Cash Flow Program is for you!

Contact us today!

  • Contact Us

    Fill out this form and someone from Cash Flow will be in touch as soon as possible. Thank you!

  • This field is for validation purposes and should be left unchanged.

IT Staffing Company

Case study #6: On the job for an IT staffing company.

IT StaffingClient: IT staffing company.

Situation: A satisfied past client started a new business with thin profit margins. Recalling the value that Cash Flow added to his previous business, he called on us again.

Solution: A $500,000 accounts receivable facility allowed the new business to take on more clients immediately and to adapt to their largest client’s new, extended payment terms.

Result: The company was able to grow with confidence and take on many more available contracts. Cash Flow will look to increase his credit line within the next several months.

  • Contact Us

    Fill out this form and someone from Cash Flow will be in touch as soon as possible. Thank you!

  • This field is for validation purposes and should be left unchanged.

Tech Staffing Company

Case study #4: Fast cash access for a N.J. staffing company.

Working in New JerseyClient: A tech staffing company in central New Jersey.

Situation: This growing company had an existing credit line with a large national bank but was anticipating accelerated growth and larger contracts coming into the new year. They needed a larger line to manage the anticipated new payroll demands.

Solution: A $750,000 accounts receivable facility, closed in a matter of weeks.

Result: The client was able to ramp up new business and new profits, eliminating the restrictions that their traditional line of credit had imposed on their company.

  • Contact Us

    Fill out this form and someone from Cash Flow will be in touch as soon as possible. Thank you!

  • This field is for validation purposes and should be left unchanged.

Hydraulic Parts Distributor

Case study #3: Partnering with a bank to help a business client.

partering with a bankClient: A machining company and hydraulic parts distributor.

Situation: The majority owner wanted to retire and sell the company to a 29-year employee, the General Manager and Vice President of the firm, whose management style had contributed to the overall success of the business. His loan request was three-fold: 1) $4MM stock purchase of business, 2) $600K owner-occupied real estate, 3) $500K operating line of credit.

The General Manager began to negotiate the purchase and entertained a financing solution with both large and community banks. The community bank that ultimately earned their business realized that the request would exceed its comfort level and partnered with Cash Flow.

Solution: Cash Flow provided a $1,800,000 accounts receivable facility with aggressive pricing and a 90% advance rate. The facility was initially used to fund the buy-out then as an ongoing working capital solution. We also helped solve challenges inherent in the unusual deal, such as: with new ownership, should the company be underwritten as a start-up​ or a continuing business?

Result: By including Cash Flow as a funding partner, their local bank minimized their exposure, provided a complete business solution and received non-interest income from the referral on a monthly basis.

  • Contact Us

    Fill out this form and someone from Cash Flow will be in touch as soon as possible. Thank you!

  • This field is for validation purposes and should be left unchanged.

Machining Company

Case study #2: A million-dollar facility for a machining company.

machining companyClient: A machining company with a varied customer base ranging from small local companies to Fortune 500 companies. Most of their customers have payment terms of 90 days, which created a significant cash gap.

Situation: Their previous factoring company would only fund receivables through 90 days. The company was experiencing high growth due to new product offerings and increased orders from existing customers.

They could not qualify for a traditional operating line due to leverage and equity: they were profitable but didn’t meet a 1.25% debt service coverage ratio.

Solution: A $1,000,000 accounts receivable facility. Cash Flow’s ability to fund longer payment terms and advance 90% helped eliminate the cash gap.

Result: The company improved profitability and can continue to grow without cash constraints, and they saved $50,000 in interest and fees annually over the previous factoring company. The owner and his staff have been very pleased with Cash Flow’s operational ease and they enjoy many of our features and services.

Traditional factoring was not only expensive but very intrusive and the company often received complaints from customers regarding the heavy verifications.

  • Contact Us

    Fill out this form and someone from Cash Flow will be in touch as soon as possible. Thank you!

  • This field is for validation purposes and should be left unchanged.

Staffing Firm

Case study #1: Saving a staffing company $38k a year.

Staffing FirmClient: A permanent placement, temporary, and temp-to-hire staffing firm.

Situation: To maintain cash flow, the business was using a factoring company that specialized in staffing companies. But the business owner wanted to reduce financing and administration cost. A consultant introduced them to us as a possible solution. They chose Cash Flow as their best source of working capital to fund growth.

Solution: A $600,000 accounts receivable facility. Cash Flow established a 90% advance (larger than the previous lender) and frequent reserve releases, enabling the company to reduce payables more quickly and hire an additional sales person to increase growth.

Result: Cash Flow saved the company $38,000 per year in financing costs. Recently the credit line was increased to $1,200,000 due to the company’s growth, and the happy business owner has referred additional business to Cash Flow.

  • Contact Us

    Fill out this form and someone from Cash Flow will be in touch as soon as possible. Thank you!

  • This field is for validation purposes and should be left unchanged.