In a social setting, I am sometimes asked, “What is it that you do?” I usually reply something to the effect of, “Well, I own a brokerage business in the factoring industry”. I try to keep my explanation as simple as possible. The person to whom I am speaking usually nods their head politely, and we move onto another topic.
However, if the person to whom I am talking is a business owner and sells products or services to consumers, I will ask if he needs financing for his subprime customers. Usually the business owner has financing available through a retail installment contract for his "A" credit customers, or his "A" credit customers can easily find consumer financing on their own. But usually I hear that there is not financing available for his/her less creditworthy customers.
Generally, the business owner is interested in consumer receivable financing for his less creditworthy customers. So then I usually ask, “Would you be interested in not only providing credit for your sub prime customers, but also being able to cash out your retail installment contracts and receive immediate cash rather than slowly receiving monthly payments for the next year or two?” The answer is usually yes.
So when asked, “What is it that you do?” I could say something to the effect of, “I help businesses who sell products or services directly to consumers to realize market liquidity through assets such as their consumer notes.”
Liquidity involves the trade-off between the speed of the sale of any given asset and the actual price which any given asset can be sold. The reason a business owner will answer yes to whether or not he/she would prefer to be paid sooner rather than later is because they understand that by increasing their cash flow, they can increase their profitability. Oftentimes, small business owners are not aware of the possible high degree of liquidity of their consumer contracts.
However, liquidity also implies the concept of selling an asset without causing a dramatic change in the asset’s price. When a business owner chooses to sell their retail installment contracts, they do so at a price. There is a discount charged for the service of assuming the risk associated with waiting to be paid monthly over a period of time. There is sometimes also a refundable reserve which is held back to further mitigate against the possibility of loss to a funding source, who is purchasing the consumer receivable.
An asset such as a consumer note’s market liquidity is a relative term. It is related to the business owner’s perception of whether the discount and reserve associated with the sale of their consumer receivables reduces the price of the receivable a significant degree. Any business owner is the best judge of this question. However, consumer receivable financing works best in an environment where the profit margin is large enough that the business owner is comfortable with the costs of factoring their consumer notes, due to their enhanced cash flow as it relates to profitability.
If you are a small business owner retailing consumer products or services and you are not offering consumer receivable financing to your subprime as well as prime credit rated customers you are at a considerable disadvantage in today’s marketplace. Even as our economy at the time of this writing, is in the eighth year of expansion, the retail industry itself is facing an existential crisis. For example, the parent company of both Sears and Kmart stores, Sears Holdings, said recently that it had ”substantial doubt” as to its survival prospects. This is due largely to the fact that it has lost more than ten billion dollars over the last six years.
What exactly is liquidity and cash flow and how does it relate to consumer contract financing? In a certain sense liquidity has to do with a business’s ability to convert non-cash assets to cash or to otherwise obtain cash to address specific obligations. The prudent entrepreneur is always about the business of appraising current amounts of liquid assets as they relate to future cash flows. Business owners who work directly with consumers, providing products and/or services may not be aware that the consumer notes which they hold, for example, in the form of a retail installment contract, may be in effect, a very liquid asset.
The renegotiation of trade agreements and/or the use of tariffs could result in consumer prices for goods and services increasing dramatically. Unfortunately, this would probably have a greater negative effect on poorer Americans than on richer Americans. It will be interesting to see if there will be a role for wage subsidies, tax credits and retraining programs for those Americans who will have seen their jobs displaced by automation or globalization. Whatever scenario plays out, small and medium sized businesses which offer products or services directly to consumers will have to provide ever increasing creative financing for their customers, as consumer prices are bound to increase as tariffs are employed and as trade agreements are negotiated.
Amazon’s primary objective has been to have a foothold in every aspect of our lives. It’s monumental growth has increasingly brought their objective into clearer focus.
I believe that historical evidence, objectively viewed, clearly illustrates that free-market capitalism best provides economic prosperity. However, in the last eight years our free market economy has been disrupted in a futile attempt to “level the playing field”. Our economic growth continues to meander along at the slowest pace since World War II. The American labor force is suffering from 40 year lows according to major indicators. Our national debt now exceeds our economic output and stands at an unimaginable $29 trillion.
Have you noticed that although consumers account for 70% of the economy, neither Clinton or Trump mention consumers very much? Why is this? Could it be that many of their policies will result in an economic environment that is anti-consumer?
It is a well know fact that Amazon has assisted many start-up small businesses by making available to them a less difficult way to purvey their products and/or services on-line.
Entrepreneurs who provide educational services to their customers should be aware that they are providing an appreciating asset, for which their customers will be regarded as much more creditworthy, than would the same customer applying for a traditional mortgage. A small business owner can offer financing through a retail installment contract, and can then sell that same retail installment contract to a secondary funding source so as to improve their cash flow, and profitability.
However, non-traditional funding sources specialize in unsecured consumer loans. Non-traditional funding sources understand how to work with clients whose customers consume services which are not backed up by a tangible asset.
For example, if a consumer wants to purchase a tractor, or a boat or a recreational vehicle or a car or truck, such loans can be procured through traditional financing sources. A bank will understand that if the payor is delinquent in their payments, there will be a truck, or an RV or a boat to repossess, which can be sold to recapture part of, if not all of the loan amount and so mitigate against the percentage of loss.
However, if you are in a business which does not sell a tangible asset, how are you to find financing for your customers? What if you are providing LASIK surgery, or culinary art classes, or radial keratotomy, or college planning services or orthodontic procedures? There is nothing for a traditional funding source to repossess if the loan goes bad. However, non-traditional funding sources specialize in these and many other types of unsecured consumer contract loans.
Any given consumer with good credit may be able to go to a bank and acquire a loan for their truck; but, when that same consumer goes to the same bank and tries to get a loan for a culinary arts class they will very likely discover that the bank is not interested in dealing with them.
If you are a business providing a viable service to your customers, and if you would like to provide financing both for your “A” credit customers and “B” credit customers contact Access Funding Center.
If you own your own business and are looking for consumer receivables financing (financing for consumer notes,consumer contract financing, or retail installment contract financing) it will be to your benefit to be aware of exactly what type of financing you are looking for as well as being able to provide general information to enable a consultant to direct you to the proper funding source.
For the business owner whose business sells directly to the consumer, consumer receivable financing provides an innovative and non-traditional means of enhancing the cash flow of the owner's business. Consumer receivable financing involves the business owner selling his/her performing consumer accounts receivables.
The consumer receivables (consumer contracts) are purchased at a discount with a bad debt reserve set aside to offset any possible defaults. The advance which the business owner receives is usually about 70% to 85% of the principal balance on the consumer contract. The terms range from twelve months (sometimes six months or even less) up to five years. Usually the maximum amount of the consumer contract would be about $15,000 (although there are situations where this figure might be increased to as high as $25,000).
If you are a business owner whose industry or business is one which traditional lenders have difficulty understanding and relating to, why not consider the non-traditional benefits which consumer receivable financing has to offer. Traditional lenders like to have something they can repossess in order to get comfortable with the transaction, and so they are not comfortable working with a business owner who works off of unsecured consumer contracts. Likewise many lenders are not comfortable with businesses which have consumer customers with marginal credit.
Access Funding Center, Inc. can work with business owners which many traditional funding sources would not be interested in or able to work with. Interestingly, the reality of the consumer finance industry today is that most companies who do purchase consumer receivables will only purchase "A" credit paper. Many times people who have excellent credit do not even need financing. The people who actually do need help with financing are the "B" and below credit score people. It is the "B" and below credit risk people who Access Funding Center, Inc. can help the business owner with. Why let these people walk away from your counter without the benefit of your product or service, when Access Funding Center, Inc. can help you make them profitable paying customers?
After having provided a financing option for the "B" and below credit risk consumer the business owner has the further opportunity of selling the paper to enhance their cash flow position. There are many benefits to selling one's paper either on a month to month basis or selling a large portfolio which the business owner may have been holding in house.
If you are a business owner (or CFO) looking for consumer contract financing (retail installment contract financing,consumer receivables financing or financing for consumer notes) you should be able to provide input relevant to several general questions preceding the actual funding process.
For example, you should have a pretty good idea about what your comfort zone is relevant to discounts, reserves and annual percentage rates. The discount is the fee which the funding source is going to charge for the funding service being provided. The reserve is a hold-back retained by the funding source to mitigate against the possibility of loss. Depending on the funding source, it is generally refunded during the term of the contract relevant to the repay-ability of your customers. The annual percentage rate for most retail installment contract financing transactions (consumer receivables financing, financing consumer notes or consumer contract financing) is generally about 18%. This is paid by the customer during the term of the contract. If you as an owner are not comfortable with this rate, it can be lowered; but, generally this will imply a somewhat higher discount being charged to you the business owner.
On the other hand, if you are like some business owners you may not wish to think about discounts and reserves. You may have in mind a certain number in terms of " cents on the dollar" which you wish to receive. So if you are looking for consumer receivables financing (financing consumer notes, consumer contract financing or retail installment contract financing) and simply want to cash out your consumer contracts for a specific " cents on the dollar" amount this is also a possibility. Likewise, if you wish to implement this option and do not want to have an annual percentage rate written into the contract and charged to your customers, this is also a possibility.
You might also be interested in a tiered purchasing program relevant to financing your consumer notes (consumer contract financing, retail installment contract financing or consumer receivables financing). A tiered purchasing program would involve variant discounts and reserves relevant to the quality of the paper being purchased. For example, the first tier might be for customers with credit scores of 700 and above (A paper). The second tier might be for customers with credit scores from 630 or 640 up to 699 (B paper). There might even be a third tier established for credit scores below 615, or you might opt to simply have customers with this low of credit to be serviced for a period of time until they show a consistent payment history, at which point the paper might then be purchased. The tiered program provides more favorable discounts and reserves for your more credit worthy consumer paper and advantages you as a business owner if you are providing a product or service to customers who tend to have a little higher credit scores than the average.
If you wish to offer different payment terms (for example one year, two year, three year etc.) you may certainly do this. However, if you know you are going to offer the same terms to all your customer, let's say for example a one year term, then you may want to consider the revolver option for your consumer contract financing needs.
These are just a few of the considerations and questions you as a business owner will want to be asking yourself in the initial phase of the funding process. Of course Access Funding Center, Inc. will start to help you to think through these and other questions relevant to your specific funding needs.
Yesterday, I read about a company named Protecht that makes the body guard blankets to help children protect themselves against tornadoes or gunmen while the children are in school. I couldn't help but think of an application that body guard blankets can have for individual households.
For homeowners who are working through a disaster preparation planning, a safe room may come to mind . Depending on size, safe rooms can cost from $2500 to over $8500 or as much as $10,000 and the above mentioned blankets can cost $1000 a piece. While both of these products are great protective devices, individuals may have difficulty in paying companies the full amount up front.
This is where consumer receivable financing or retail installment contract funding can help. Not only can a business offer financing to their prospective customers, they can also offer financing to their sub-prime customers.
Access Funding Center, Inc. provides a consulting service which can enable you to offer a consumer finance program for your customers, as well as a consumer servicing program and collections program.
Call 864-603-3539 for your free private consultation.
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