Installment Contract Financing Turns Consumer Receivables Into Immediate Working Capital Financing
The retail installment contract commonly found in industries such as leisure services, educational products and services, and medical devices and services, can easily be converted into a lump sump payment, giving businesses a badly needed shot in the arm or an ongoing source of working capital financing.
Fredericksburg, VA - December 22, 2010 --
(http//www.smart-business-financing.com) The cash flow industry has long provided business owners a ready alternative to bank loans through the time-tested asset-based finance technique of receivables factoring - the sale of invoices at a small discount to a contract buyer. Because invoices are typically confined to business-to-business transactions, it wasn't until recently that retail companies selling products and services directly to consumers could take advantage of accelerated payment options.
In today's tight commercial lending environment, credit card factoring is catching on as a non-bank option for retailers to obtain working capital financing, but an as yet little known, but equally powerful alternative exists for businesses that finance their sales through consumer installment sales contracts: installment contract financing.
According to Mike Lieber, president of AEGIS Financial Solutions, Inc., and creator of the new business financing web site, Smart-Business-Financing.Com, accounts receivable financing is no longer viewed as just a business lifesaver but since the onset of the credit crunch in 2008, has now moved into the mainstream of commercial finance.
"When the banks clamped down on business credit, companies were forced to search for reliable and sustainable funding alternatives in order to survive," he says.
The process of converting installment sales contracts into cash is very similar to one used in the better-known - and much older - account receivables factoring model:
• A relationship with a contract buyer is established by the company desiring to sell its receivables
• The client company negotiates a sale of a product or service with a customer
• To optimize the sale of the contract, the client company submits it customer's basic income and credit information to the contract buyer for approval and suggested terms
• The client company enters into an installment contract with its customer
• Finally, the contract is immediately assigned to the contract buyer, who then transmits the funding proceeds directly to the client company's bank account
Funding normally occurs once the contract buyer has received the original signed contract or can confirm electronically that the contract has been signed and that the product or service has been delivered to the customer. For most clients, the funds are available within 3 to 5 business days of contract signing.
As is the case with receivables factoring, businesses considering the sale of their consumer contracts should understand that the contracts will be purchased at a discount and that the contract buyer will hold back a reserve to offset defaulted contracts. The discount and reserve amount are both dependent on the credit quality of the end customer; the better the customers' credit quality, the higher the price paid for the contract with less held back in reserve.
One of the first things any business needs to consider is whether its profit margin on sales is high enough to absorb the discount and reserve hold back, while maintaining an acceptable operational cash flow. Ideally, a company that sells its contracts will have a minimum profit margin of 40%, but the higher the better.
Lieber's advice for businesses that are interested in selling their consumer contracts is simple, but sound:
"Look for a well-established and flexible contract buyer, preferably one who can work with all types of consumer credit and one that has the ability to perform instant approvals," he says. "Cherry-pickers will just waste your time, cost you money, and cause you headaches."
About AEGIS Financial Solutions, Inc.: Since 1998, AEGIS Financial Solutions, Inc. has offered uncommon solutions to common problems using the fast, flexible and powerful resources of the cash flow industry and asset-based finance techniques. Helping people solve financial problems and get money when they need it most, without bank loans, is what we do best.
Press Contact:
Mike Lieber, President
AEGIS Financial Solutions, Inc.
88 E. River Bend Road
Fredericksburg, VA 22407
mjl@aegisone.com
PH: (540) 548-2270
###
Fredericksburg, VA - December 22, 2010 --
(http//www.smart-business-financing.com) The cash flow industry has long provided business owners a ready alternative to bank loans through the time-tested asset-based finance technique of receivables factoring - the sale of invoices at a small discount to a contract buyer. Because invoices are typically confined to business-to-business transactions, it wasn't until recently that retail companies selling products and services directly to consumers could take advantage of accelerated payment options.
In today's tight commercial lending environment, credit card factoring is catching on as a non-bank option for retailers to obtain working capital financing, but an as yet little known, but equally powerful alternative exists for businesses that finance their sales through consumer installment sales contracts: installment contract financing.
According to Mike Lieber, president of AEGIS Financial Solutions, Inc., and creator of the new business financing web site, Smart-Business-Financing.Com, accounts receivable financing is no longer viewed as just a business lifesaver but since the onset of the credit crunch in 2008, has now moved into the mainstream of commercial finance.
"When the banks clamped down on business credit, companies were forced to search for reliable and sustainable funding alternatives in order to survive," he says.
The process of converting installment sales contracts into cash is very similar to one used in the better-known - and much older - account receivables factoring model:
• A relationship with a contract buyer is established by the company desiring to sell its receivables
• The client company negotiates a sale of a product or service with a customer
• To optimize the sale of the contract, the client company submits it customer's basic income and credit information to the contract buyer for approval and suggested terms
• The client company enters into an installment contract with its customer
• Finally, the contract is immediately assigned to the contract buyer, who then transmits the funding proceeds directly to the client company's bank account
Funding normally occurs once the contract buyer has received the original signed contract or can confirm electronically that the contract has been signed and that the product or service has been delivered to the customer. For most clients, the funds are available within 3 to 5 business days of contract signing.
As is the case with receivables factoring, businesses considering the sale of their consumer contracts should understand that the contracts will be purchased at a discount and that the contract buyer will hold back a reserve to offset defaulted contracts. The discount and reserve amount are both dependent on the credit quality of the end customer; the better the customers' credit quality, the higher the price paid for the contract with less held back in reserve.
One of the first things any business needs to consider is whether its profit margin on sales is high enough to absorb the discount and reserve hold back, while maintaining an acceptable operational cash flow. Ideally, a company that sells its contracts will have a minimum profit margin of 40%, but the higher the better.
Lieber's advice for businesses that are interested in selling their consumer contracts is simple, but sound:
"Look for a well-established and flexible contract buyer, preferably one who can work with all types of consumer credit and one that has the ability to perform instant approvals," he says. "Cherry-pickers will just waste your time, cost you money, and cause you headaches."
About AEGIS Financial Solutions, Inc.: Since 1998, AEGIS Financial Solutions, Inc. has offered uncommon solutions to common problems using the fast, flexible and powerful resources of the cash flow industry and asset-based finance techniques. Helping people solve financial problems and get money when they need it most, without bank loans, is what we do best.
Press Contact:
Mike Lieber, President
AEGIS Financial Solutions, Inc.
88 E. River Bend Road
Fredericksburg, VA 22407
mjl@aegisone.com
PH: (540) 548-2270
###
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