Benjamin Zander and his wife wrote a book entitled: “The Art of Possibility; Transforming Professional and Personal Life”. Their idea is that “you can create a passionate energy permeating The Art of Possibility that will be a true force in your life. You can make your own rules.” Their book is inspirational. You will be inspired if you buy and read it. The question is: how does this pertain to accounts receivable financing?

It’s all about attitude, enthusiasm and point of view regarding how to conduct your business. Can you make your own rules regarding how banks, commercial finance companies and other financial entities operate? Of course not. Can you make your own rules regarding how you utilize the financial recourses that are available to finance your business? Absolutely!

Here are three examples how to harness the power of accounts receivable financing sometimes with other types of financing to grow your B2B business.

Case Study One:

A Solar Energy Company that designed and supervised the installation of renewable energy systems was unable to obtain bank financing. They were one of the area’s lowest cost providers of solar panels, system design and supervision. One of their biggest assets was State Solar Tax Credits that are paid to homeowners who install the solar energy systems. An obligation from a State to a consumer is not within the definition of an account receivable. In other words, it could not be financed because it was not an obligation to a business. Using the art of possibility, the homeowners were persuaded to assign their solar tax credits to the Solar Energy Company. This transformed a consumer receivable into a commercial accounts receivable. Voila! The Solar Energy Company received accounts receivable financing it needed to grow.

Case Study Two:

An individual purchased an Importing Company that had been financed with a bank’s SBA loan. As collateral for the loan, the bank placed a UCC1 filing on the accounts receivable and inventory of the business. UCC refers to the Uniform Commercial Code in effect throughout the United States of America. In some respects, it simplifies the process of lending, selling and borrowing nationally. In other ways it is very complex. A UCC1 filing by a bank usually prevents any further financing because there is no collateral left to be financed. It is similar to a first mortgage loan on a house. If you have a 95% loan on your house, no other financing is available on the house because there is no equity to lend on. Using the art of possibility, the Importing Company was successful in convincing the bank to subordinate their UCC1 filing to another commercial lender’s UCC1. The Importing Company convinced the bank that it would be mutually beneficial to lower the bank’s UCC1 lien to a secondary position to allow a commercial finance company to offer new accounts receivable financing and inventory financing. Voila! The Importing business has a new credit line available for growth. It is now more profitable and the bank is more likely to be repaid. This is a win-win situation.

Case Study Three:

A start-up Clothing Company involved in manufacturing, distributing and designing T-shirts landed a substantial purchase order for their product. The product was to be made in China, and the Clothing Company lacked sufficient funds to pay for the costs of manufacture and distribution. Using the art of possibility, the Clothing Company obtained a letter of credit to guarantee the Chinese factory of payment, purchase order financing to pay for the T- shirts upon delivery, and accounts receivable financing to pay the purchase order company upon delivery of the goods to the customer in the US.

Accounts receivable financing can help your B2B business realize the art of possibility for growth and profits. Voila!

Copyright © 2007 Gregg Financial Services

www.greggfinancialservices.com

Borrowing money is as American as apple pie. Americans borrow money to purchase houses, to finance automobiles, and to pay for luxury items on their credit cards every day. It is a rare individual that can pay all cash for their house, their car, or their credit card bill every month. The U.S. economy thrives on credit because of the recycling of cash when these purchases occur. America is an economic powerhouse, partly because collectively we borrow so much money to have things today, instead of saving the cash to buy these items some day, if ever, in the future. Economic theorists are of the opinion that when you purchase a house, the cash recycles about seven times: to the realtor, to the title company, to the mortgage broker, to the lender, the butcher, the baker and the candlestick maker, and so forth.

We live in the land of opportunity. You do not need a college degree or pedigree to become an entrepreneur. All you need is the ability to organize, manage, and assume the risks of a business with a sufficient amount of cash to fund the business.

Borrowing money is the American paradigm for success for individuals and for businesses. According the American Heritage Dictionary, a “paradigm is:

1. One that serves as a pattern or model.

2. A set or list of all the inflectional forms of a word or of one of its grammatical categories: the paradigm of an irregular verb.

3. A set of assumptions, concepts, values, and practices that constitutes a way of viewing reality for the community that shares them, especially in an intellectual discipline.

Usage Note: Paradigm first appeared in English in the 15th century, meaning “an example or pattern,” and it still bears this meaning today: Their company is a paradigm of the small high-tech firms that have recently sprung up in this area. For nearly 400 years paradigm has also been applied to the patterns of inflections that are used to sort the verbs, nouns, and other parts of speech of a language into groups that are more easily studied. Since the 1960s, paradigm has been used in science to refer to a theoretical framework, as when Nobel Laureate David Baltimore cited the work of two colleagues that “really established a new paradigm for our understanding of the causation of cancer.” Thereafter, researchers in many different fields, including sociology and literary criticism, often saw themselves as working in or trying to break out of paradigms. Applications of the term in other contexts show that it can sometimes be used more loosely to mean “the prevailing view of things.” The Usage Panel splits down the middle on these nonscientific uses of paradigm. Fifty-two percent disapprove of the sentence The paradigm governing international competition and competitiveness has shifted dramatically in the last three decades.”

For more dictionary information please see: The American Heritage® Dictionary of the English Language, Fourth Edition Copyright © 2000 by Houghton Mifflin Company.

Published by Houghton Mifflin Company. All rights reserved.

What does this have to do with accounts receivable financing?

Banks exist primarily to loan money to people and businesses, on a safe and sound basis according to federal banking regulations. The banking paradigm for businesses involves offering checking and savings accounts to take money in, and offering various types of business and personal loans to “get the money out”. Their goal is to make a profit on your cash for the bank. To qualify for these loans you have to prove, to the bank’s satisfaction, that you have the clear and present ability to repay these loans. If you are a startup company, a company that is growing very rapidly, or an established company that is affected by a sudden negative event, the banking paradigm may not work for you. Perhaps, you need to think differently; perhaps your perspective is “inside the banking paradigm box” and you need an alternative.

What is inside the box thinking? According to ‘Thinking Outside the Box’? By Ed Bernacki Published April 2002:

“Thinking inside the box means accepting the status quo. For example, Charles H. Duell, Director of the US Patent Office, said, “Everything that can be invented has been invented.” That was in 1899: clearly he was in the box!

In-the-box thinkers find it difficult to recognize the quality of an idea. An idea is an idea. A solution is a solution. In fact, they can be quite pigheaded when it comes to valuing an idea. They rarely invest time to turn a mediocre solution into a great solution.”

Mr. Bernacki distinguishes “inside the box” thinking vs. “thinking outside the box” as follows:

“Outside the Box

Thinking outside the box requires different attributes that include:

• Willingness to take new perspectives to day-to-day work.

• Openness to do different things and to do things differently.

• Focusing on the value of finding new ideas and acting on them.

• Striving to create value in new ways.

• Listening to others.

• Supporting and respecting others when they come up with new ideas.

Out-of-the box thinking requires openness to new ways of seeing the world and a willingness to explore. Out-of-the box thinkers know that new ideas need nurturing and support. They also know that having an idea is good but acting on it is more important. Results are what count.”

If your B2B business does not have enough bank credit to expand at the rate you need, or if your B2B business cannot take advantage of growth opportunities because of lack of funds, you may need to think differently: think outside the box. Think of using the virtually unlimited financing that is available from accounts receivable financing.

To think differently, you may need to overcome the two most common “inside the box” concerns regarding accounts receivable financing.

Objection: “Our customers will not want do business with our company if they know we are dealing with a commercial financing company to finance our accounts receivable”.

Think Differently: Accounts receivable financing allows you to offer credit terms, like the bank. Many businesses prefer to resell your products or services and earn a profit before they have to pay you for your product or service. Accounts receivable financing generally involves notification to your customers of the arrangement to “manage” your receivables; and verification from your customers that your product or services were “satisfactory”. From your customer’s point of view, someone in their account’s payable department is changing the “pay to” portion of their check to the address of a commercial finance company. Usually the check is cut payable to you and sent to a P.O. Box of the commercial finance company. In certain situations, notification may not be required at all; this is called non-notification factoring.

Objection: “Accounts receivable financing is too costly”.

Think Differently: Accounts receivable financing is a paradigm for success; you will have the necessary working capital you need to fulfill larger orders by accelerating your cash flow. You will need a gross margin of 20% or more, in general, for this type of financing to make economic sense. There is an inverse relationship between the cost of financing and the size of your credit facility: the larger the credit facility, the lower the cost. In other words, the fees and rates will be less for $500,000 per month than for $25,000 per month.

The bottom line: Accounts Receivable Financing- Think Differently! is intended to help you think “outside the box” and become more profitable. One tried and true paradigm for achieving this result as an entrepreneur with a B2B business is accounts receivable financing.

Copyright © 2007 Gregg Financial Services

www.greggfinancialservices.com

The word “hot” has over forty different meanings, according to the Merriam-Webster Online Dictionary. As used in this article, the word “hot” is used to mean:

“6 a : of intense and immediate interest b : unusually lucky or favorable c : temporarily capable of unusual performance (as in a sport) d : currently popular or in demand e : very good ”. The words eager, zealous and fresh are second place synonyms for the hot idea of accounts receivable financing.

When a B2B business suddenly needs financing fast, it is hot. It is hot because it is on fire with potential business: money is needed to power this growth.

According to the Wikipedia, “”Money (That’s What I Want)” was a 1959 hit single by Barrett Strong for the Tamla label, distributed by Anna Records. The song was written by Tamla founder Berry Gordy. It became the first hit record for Gordy’s Motown flagship label.” The song was hot. It has been recorded by over twenty different artists; it reached number 23 on the Rhythm and Blues Charts. The lyrics to “Money (That’s What I Want)”, as recorded by the Beatles, go like this:

“ The best things in life are free

But you can keep ‘em for the birds and bees

Now give me money (that’s what I want)

That’s what I want (that’s what I want)

That’s what I want (that’s what I want), yeah

That’s what I want

Your lovin’ gives me a thrill

But your lovin’ don’t pay my bills

Now give me money (that’s what I want)

That’s what I want (that’s what I want)

That’s what I want (that’s what I want), yeah

That’s what I want

Money don’t get everything, it’s true

What it don’t get, I can’t use

Now give me money (that’s what I want)

That’s what I want (that’s what I want)

That’s what I want (that’s what I want), yeah

That’s what I want…”

The Beatles were hot. It is an interesting fact that it took the Beatles many years to personally make substantial money even though they were the hottest band on the planet. For years they sold more records than any other group, but the profits did not find their way into the individual Beatle bank accounts. When in the course of a B2B business’ development does the business get “hot”? Here are a few examples:

1) A video game developer labored for years to create novel technology and interesting new types of multi-player games for the internet. They were almost put out of business one year when a burglar broke into their office and stole all of their computers and office equipment. A major corporation in the video game business offered them a contract to develop a new game; substantial progress payments were offered for meeting the contract milestones; the challenge was to meet a very tight production schedule. All of a sudden, the business was hot; they needed to hire thirty new game developers. How could they meet the increased payroll requirements and accomplish the goals in the contract?

2) A small distributor of novelty products from Australia established a California corporation to sell their products throughout the United States. They introduced their product to many major department stores. After of several years of marketing they landed several new contracts for five times their previous year’s sales. All of a sudden, the business was hot. How could they pay for the product and provide the items to the department stores?

3) A manufacturer of products for the military struggled to survive for five years. They invented a terrific product. Unfortunately, they were involved in patent litigation and other disputes that burdened them with substantial attorney’s fees. After years of struggling, the disputes were settled and the attorney’s were paid. The manufacturer was “cash poor”. They negotiated an order for their products that was several times their previous year’s sales. All of a sudden, they were hot. How could they manage their cash flow to take advantage of the new opportunities?

If these businesses could sing, “Money (That’s What I Want)” could be their anthem. Accounts Receivable Financing may be the answer to their universal cash flow issues and requirements for substantial growth. Time is of the essence because these businesses, all of a sudden, are hot.

In five to ten working days, or less, accounts receivable financing may be obtained to make these businesses ready for prime time. The process is relatively simple. The business completes an application for financing. They give the appropriate accounting information and details regarding their customers to the finance entity. The finance entity conducts a due diligence review regarding their financial condition, and the strength of their customers. If there are no issues, a process is started whereby the businesses deliver their products or services to their customers and the finance entity advances 80% to 90% of the contract amounts. When their customer pays the finance entity it pays itself back the funds that have been advanced, deducts the agreed upon fees, and the business receives the difference. This accelerates their cash flow. It eliminates the wait of thirty to ninety days to receive payment from their customers.

Sometimes there are other complicating issues such as tax problems, UCC-1 lien priority matters, subordination of pre-existing financing, the need for purchase order financing to pay for costs of production, or letters of credit to guarantee international trade- all in addition to accounts receivable financing to make financing a hot business work correctly. Often these issues will be overcome successfully.

The bottom line: if your business is ready for prime time and your sales are hot, if you feel like singing “Money (That’s What I Want)” like the Beatles, Accounts Receivable financing may be the cash flow solution for your business’s success.

Copyright ©2007 Gregg Financial Services

www.greggfinancialservices.com

Most people intuitively understand the time value of money from first time they received an allowance from their parents. All other things being equal, you would rather get your allowance today instead of having to wait for the weekend. Go to the movies today instead of waiting for the money. Instant gratification.

In business, if you have the money today you are positioned to increase the future value of your business by increasing sales of services or products over a period of time. There are several mathematical concepts to compute the time value of money such as present value, future value, present value of an annuity, and future value of an annuity. These computations are beyond the scope of this article.

Uneven cash flow is a challenge to B2B businesses that have to meet regular obligations such as payroll, rent and supplies. One solution to this problem is accounts receivable financing which is also known as factoring, factoring receivables and asset based lending. With accounts receivable financing you can get cash for your invoices immediately and give terms to your customers to pay you in thirty, sixty or ninety days.

The financial markets today are exceptionally volatile. There are grave concerns regarding a meltdown in the mortgage finance market and several major providers of home mortgages than have declared bankruptcy or exited this market. The secondary market for certain types of mortgage securities has virtually closed the door on securities known as subprime home loan securitizations which makes these types of bonds, not having any liquidity, virtually worthless. Why is this relevant to accounts receivable financing?

A little known fact is that many commercial finance firms that provide accounts receivable financing are not using their own money to fund their transactions. This is sometimes called “refactoring”. Their funds may be available from three sources: bank lines of credit, investor participations and the equity of the firm. Bank lines of credit, or asset based credit lines from major non-bank commercial finance firms are by far the largest source of funds for most firms that offer “refactoring” accounts receivable financing.

These firms are under more pressure from their lenders to make safe and sound loans. The pressure comes from Banks, Federal regulators such as the Federal Deposit Insurance Corporation and the Federal Reserve Banks. This may affect how long it takes to get financing.

There is a process called due diligence which is a pre-requisite to accounts receivable financing. Several components are: analyzing the credit of the borrower; analyzing the credit of their customers, and running a UCC-1 search in each state where the company operates. The UCC-1 search and filing is required to give the lenders the legal right to collect the accounts receivable that are being sold or pledged for the financing. This can take 5 to 10 days depending on the state bureaucracy and how busy they are with such requests. If the UCC-1 report is not “clean” meaning first lien status is not available to the lender, there will be no financing. Tax liens, legal judgment liens, and earlier financing liens can delay financing until they either are paid or subordinated.

When a B2B business is growing rapidly and needs more cash flow for operations the time value of money becomes critical. There is a common answer the question: “When do you need the money?” Answer: “Yesterday”.

John Lennon and Paul McCartney understood the time value of money and more importantly for them, the money value of time. They were the primary songwriters for the group, The Beatles, from 1960 to 1970. The group experienced major cash flow difficulties because of poor financial management of recording contracts, out of control costs of running their record business, Apple, and the pressures that caused them to renounce public performances (which was a major source of income). Some of their greatest songs (and a source of substantial future income) were created while they were on a hiatus to meditate with the Maharishi Mahesh Yogi in India in 1965. In 1970 The Beatles disbanded because of personality differences, the stresses of mass popularity and financial problems. Paul McCartney’s song, Yesterday, is considered to be the most recorded song in the history of popular music, if not the most popular song of all time. Here are the lyrics to Yesterday:

Yesterday,

All my troubles seemed so far away,

Now it looks as though they’re here to stay,

Oh, I believe in yesterday.

Suddenly,

I’m not half the man I used to be,

There’s a shadow hanging over me,

Oh, yesterday came suddenly.

Why she

Had to go I don’t know, she wouldn’t say.

I said,

Something wrong, now I long for yesterday.

Yesterday,

Love was such an easy game to play,

Now I need a place to hide away,

Oh, I believe in yesterday.

Why she

Had to go I don’t know, she wouldn’t say.

I said,

Something wrong, now I long for yesterday.

Yesterday,

Love was such an easy game to play,

Now I need a place to hide away,

Oh, I believe in yesterday.

Mm-mm-mm-mm-mm-mm-mm.

The bottom line: If your B2B business needs money yesterday accounts receivable financing may be the answer to your cash flow challenges.

Copyright 2007 © Gregg Financial Services

www.greggfinancialservices.com

Many a time, it is seen that small or medium business owners find it hard to manage different functions at the same time. They have to deal with regular or even daily needs of funds for various things like paying employees, daily wages, organizational maintenance, transportation and so on. Transport businesses, construction businesses and sometimes even big organizations are faced with this problem of funds when it comes to smooth functioning of their business.

Situations for small businesses, like new trucking companies, become even more difficult as they have to meet recurring expenses like fuel, maintenance, tires etc. They cannot postpone such payments to a later date, just because their customers have engaged their services on a credit period of 30-60 days. Organizations find it very difficult to manage their finances this way. They often find themselves trying to arrange funds rather than concentrate on activities like staffing, routine checks of vehicles, marketing, contacting and dealing with new customers and so on. As funds are unavailable at the time when they need it most, they may miss out on new contracts. Thus the growth that they hope for may be stunted.

The issue that arises with banks, for finance, is that it takes some time to process loans. If it happens to be for new or small businesses, banks are not ready to provide finance for various reasons like their credit ratings, the number of years in business and so on. There are, however, various options available for financing, other than bank loans.

One very popular financing facility is the accounts receivable financing and factoring. These are very similar to each other, differing only in the way that financing is a loan, while factoring is selling the account receivables to the financing company. Very often these two terms are used interchangeably. Other than this difference, other facilities in the two financing options remain the same. The accounts receivable financing is a blessing in disguise for companies who have this asset in hand. The accounts receivables are either pledged or sold to finance companies.

Finance companies provide finance up to a certain percentage, which may be as much as 90% at times. After the amounts are recovered from the debtors the remaining amount is given to the companies after deduction of some fees. The credit worthiness of customers is the main consideration in case of accounts receivable financing. Thus if the company that needs finance is dealing with credit worthy customers or government organizations they can get a good amount from the finance company. When the factoring option is used, the factoring company takes over the risk of collection of accounts receivables from the customers on the given date. Similarly if the accounts receivable financing option is taken then the company itself has to manage and bring about discipline in the operation of finances and other activities of the organization.

Furthermore the factoring or financing option is equally useful for organizations under bankruptcy protection. With the expert services and guidance of finance companies, organizations can tide over tough times with much more ease than they would otherwise without a loan.