FREQUENTLY ASKED QUESTIONS
Mark Miller is the head of underwriting and is extremely involved in our marketing and contracts management. With the company over a decade, he can well communicate our benefits and is able to convey the fair business manner that sets us apart from other funding companies. In many banks and funding organizations, unseen underwriting or credit people are really the ones calling the final shots, and you are never able to communicate with them. If Mark is ever the first point of contact for you, it would be followed up with a call from the CEO, Steve Capper (or on rare occasion by his business partner CFO Steven Elias.)
In the normal course of business, we do not notify your customers that we are in the picture. We do not call your customers every week to verify every single invoice and we do not collect from your customer. Outside of the normal course of business, when unusual situations develop, we retain the right to notify and verify.
This is an unlimited credit line, regulated by the amount of receivables. The cost of an ABL credit line tends to be less expensive than payroll factoring programs. You may borrow the exact amount you need, at your discretion and your accounts receivables remain on your balance sheet as an asset of your business.
Factoring is technically a purchase and sale of your invoices. You may fund an account that you select, provided it is approved for credit. Once you have selected an account for funding, the invoices from that account must continue to run through the factoring company (until the factoring company agrees otherwise). Factoring does generally include notification to the customer/account debtor that the invoices are funded, and verifications of invoices. Notification and verification allows factoring companies to handle more risky situations, such as heavy customer concentration. Flexible Funding does a lighter and less intrusive form of factoring for staffing agencies; call for details. If and when we ever fund any businesses outside of staffing, we tend to prefer the factoring model.
The bottom line with Flexible Funding is that we MUST remain extremely competitive in the payroll funding arena. Competitive pricing is virtually guaranteed because we do not have a long term contract. If somebody finds better pricing, they are free to move on to another funding source, without any penalties.
If a bank is in the picture with a prior first-position claim to the accounts receivables, it will slow things down to the speed at which the bank will cooperate with everyone. If things are relatively straight forward, we can make decisions quickly, and if necessary, will work into the evenings and on weekends to help.
Our own company, Flexible Funding, was built by the current principals from scratch, brick by brick, so we can surely understand the hopes and early efforts toward an independent successful future. There are always a lot of questions for any startup. We would like to know that there is a well thought out plan. We are interested in your markups and margins, staffing industry experience, what contract you may be using with your customers, and whether there could be a problem with a former employer as to stealing customers, temporary workers or any information that could be considered trade secrets. Flexible can provide resources and/or answers for some of these issues.
In some other cases, we fund more than 90% for periods of time, depending on the health of the company. Staffing company payroll funding companies will often tell you that they have a wonderful advance rate of 90% or 90+. What tends to be ignored is that most of the programs require that you must borrow 90%, or more, at all times over the life of a long term contract. In these programs, you cannot borrow less. On Flexible Funding’s programs, if you don’t need the money for some period of time because you are profitable, or just want to save money by borrowing less, you can fund less at any time.
Many other funding companies will get an application in the door first thing as quick as possible. In a lot of cases, this is done so the salesperson will look like they are doing their job–getting in applications for consideration. One problem with a quick application is that it allows the funding company to run a personal credit report on you. If they then find something wrong with your accounts, or prospect accounts, your credit score will be knocked down for an inquiry into your personal credit. If your accounts look reasonable, we’ll have you fill out a 1-page “Short Form” application. After receiving the Short Form, we’ll conduct some standard due diligence (i.e., run credit checks on the company Principals, web research, corporate registration, UCC search, etc.)
If a Principal or the Agency itself has any bankruptcies or tax liens, it’s helpful to share that up-front. If any questions arise regarding the stability or financial condition of the agency, we may request standard internally prepared accounting reports (Income Statement, Bal. Sheet, etc.) Down the road we may also need to see some of the contracts with your customers. We usually do not need to see business tax returns, personal tax returns, accounts payable aging summary, CPA reviewed statements or audited statements.
Many people do not really know how to take a number of proposals and truly make them apples-to-apples; it’s difficult when you don’t have everybody’s fine print. You have to be well aware that one funding or factoring company may be giving you a proposal of terms that are a firm commitment, and another company may only be giving you a proposal of terms that are subject to unseen credit and underwriting people approving the terms later on–after they have spent weeks looking at your company data. What happens is that one may be teased by a limited-information low rate proposal into choosing a funding organization. The business consumer then waits in complacency for weeks until the contract is delivered–when the fine print has been altered to effectively increase the rate or reduce availability/account eligibility. And by then, one may urgently need the funding to point that they cannot wait any longer and must accept the terms.
There are dozens of variables that determine the real cost that you pay. One company may be quoting a rate that is charged on the invoice amount and another company may be quoting their rate charged on the amount borrowed. One payroll funder may return monies to you once a week, where another may make your monies available to you every day. There can be large costs that are triggered by certain events. For instance, if during the term of the funding contract you do not meet one of the defined minimum standards of operational criteria–known as covenants–then the cost may be substantially more (than anything referred to in the proposal), whereas another company like Flexible Funding may not charge more for the same situation.
Enormously expensive contingent legal costs of some companies are not referred to in proposals see our article on legal expenses. We have seen a number of payroll funding companies that have a prime rate cost component in their proposals. An example of a prime rate cost component would be 3 1/2% (three and a half percent). However, in their final contract fine print they state that the prime rate component is subject to a minimum floor…”at all times the prime rate shall be no less than 5%.” A company may offer a proposal with “up to 90” funding, which according some definitions, is not the exact same thing as (a firm) 90% funding. There can be major non-price trade off advantages/disadvantages no matter how the pricing looks between two companies. For instance, two companies could appear to be the same price, but one company’s processes may be a very intrusive on you and your customers, whereas the other company may be easier to work with.
From the above, you can see why we don’t like to send out term sheets/proposals quickly. If we know that the competitors in the deal have a tendency to mislead in their proposals, or if we understand that the shopper has a limited knowledge of finance, we prefer to educate first.
We ask if you have rattled the cage– complained to the funding company about the issues. It is often determined that the cage has been rattled with the wrong person at the funding company and (as we have a lot of friends in the industry) we may be able to suggest a more influential person for you to contact to get your problems resolved. In a few cases, with full permission, the CEO of Flexible has even called other friendly funding companies to get the message through that the customer is unhappy…with a positive resolution. The funding company may not be able to handle your problems because of their funding structure, and cannot handle exceptions to the rules. If they are willing to let you go we can work out a quick and easy transition.
On the other hand, we know the basic contracts in our industry quite well and if the funding company is playing hardball with ironclad provisions that will keep you tied, we would honestly be able to tell you that the only thing for you to do is patiently wait it out until the end of the contract term. In one case we financed or loaned the amount of the penalty exit fees.
If the staffing agency’s customer, or potential customer is able to provide financials, then payroll funding companies like Flexible Funding can sometimes do more. If you have been working with the customer for quite some time and have a solid history report of invoice dates and related payment dates, and maybe even some cleared checks, we may be able to do more. If the customer account debtor signs your contract when there is an added UCC Uniform Commercial Code security clause –which allows you to be a secured creditor–then we may be able to do more. Call us for details on UCC clauses. In some cases, payroll funding companies are able to stretch when there is credit insurance on an account, however, be aware of 20-30 page policies that make it difficult to qualify for payment on a loss.
This form of asset/liability listing is important if you are ever to be evaluated down the road by a bank for an actual bank line, although be aware that banks effectively fund only around 64% of your accounts receivables and will further establish a lower cap on the credit line amount. When you choose to do factoring which is a purchase/sale of your receivables, or are limited to factoring because of certain risk factors in your organization or your account debtors, then the accounts receivables will not remain on your balance sheet as an asset.
Whether you do ABL or factoring, you can invoice your customers through Quickbooks. Flexible Funding get copies of the invoices easily because you can turn them into a PDF with one click. Flexible has also developed programs that allow payment collections from your customers to be posted automatically, so that you do not have to do it manually all year long.
Any small reserve that is maintained in our program is simply a portion of your accounts receivables that we have not funded. They are not cash in our bank accounts. They are reflected in your accounts receivables…portions of amounts owing from your customers.
Some other companies have two or three page guarantees, or tiny print that is three pages long when blown up to a readable size. Banks and bank owned payroll funding companies tend to have the most severe guarantees, and would be more likely to enforce them if something goes wrong. See the white paper on the Risk of Banks. The primary purpose of our guarantee is to deter fraud on the part of the staffing agency owners and management. Flexible Funding has never lost money for credit or bad debt reasons, and is quite supportive in credit and collections when needed or requested.