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– Are You Monitoring Your Business correctly?

Many executives of growing companies are too busy to monitor their business’ financials on a monthly basis at the level needed because of the many pressures from clients, maintaining sales, human resources, and even daily cash flow.

Executives that are running hard and fast can still keep the financial pulse and monitor their business by reviewing the following numbers on a monthly basis.

Gross Margins. Sales is a given number that all executive officers look at constantly, but they sometimes fail to monitor the Gross Margins or the better known as the difference between the sales price and the cost of goods (COGS). Different industries have different percent margins, but on average, a business should have Gross Margins equal of 15% or more (importers or special industries may have smaller margins so don’t immediately worry as margins vary quite dramatically depending on the product, industry, and market).

Accounts Receivable (aka A/R). Accounts Receivable are the sales or invoices that are open and to be paid on your Balance Sheet. The number varies from business to business, but as an executive, is your A/R turning over at the industry standard. For example, if you are a supplier of food and your A/R is not turning within 15 day average then there might be an issue; however, if you are a supplier for general merchandise to Walmart then 30-60 day turnover for A/R is expected. Make sure to bench mark your average A/R and your average pay for A/R on a customer level as well so you do not find yourself with all your cash flow stuck in you’re A/R and nothing to pay the rent or payroll (however, there are financing solutions when this kind of thing happens through factoring invoice companies like 1st PMF Bancorp).

Accounts Payable (aka A/P). Accounts Payable represent the credit for product given by your suppliers and this number is often overlooked by busy executives. I know this number is not always easy to manage but it is extremely important you keep your eye on this number for the following reasons. One, if it gets too large and payments to your suppliers are even a little late, the suppliers will often not increase credit when needed, and may even reduce available credit. Also, I use a general rule that if your A/P becomes more than 50% of your A/R, then it could indicate you are leaning toward too much leverage and there is not enough capital in the business. We are not all blessed with a trust fund so running lean and leveraged is not a choice, but if your A/P equals or is larger than your A/R, then there is a problem.

Inventory. Most executives review this number quite closely, but it is not the number that is most relevant for our discussion as different businesses based on size and industry will have different inventory levels they must maintain. The key numbers concerning inventory that should be monitored by executives on a monthly basis are the turns on the inventory. There is no magic turn rate / number, but turns of at least 4 times a year on your inventory should be achieved (which means you are rotating your inventory 100% every 90 days at least), while 6 to 12 turns a year are very healthy. Don’t panic if your inventory is not turning this well, but it is a goal to shoot for. There are many benefits to keeping inventory moving such as more sales, better rotation of product, improved cash flow, financing pushed to the supplier, a happier lender, and countless other benefits.

Retained Earnings. This is the excess profit that your business makes during the year and that you keep in the business in order to build your working capital base. By even saving a small portion of the profit each year in the company, one will realize a substantial equity base built after several years. This does not translate to many executives as immediately beneficial, but it will allow your business to more easily grow in several ways. The obvious way is that there will be more working capital in the business, but this is still limited. The less obvious benefit will be that you are creating a historical precedent of profitability year after year, and bankers and investors will pick up on this subtle but very important detail.

These 5 seemingly small financial items related to your Profit and Loss and Balance Sheet if monitored and managed correctly can have a very positive affect in shaping your future growth.

Contrary to our first thoughts, “Where did my working capital go?” is often the question that a “Successful” business owner asks.  Most people look at a successful business and immediately think that the business must be loaded with cash.  Unfortunately, this is not the case for most midsize businesses.  Having a successful business is a wonderful thing, but it is also a cash hog in many cases.  Take a moment to think about businesses such as a wholesaler, a manufacture, or even a doctor’s office.  All these businesses can be very successful if managed correctly, but they also take working capital to run so your money tends to disappear very quickly when the businesses are in growth modes.  This article will describe how working capital problems frequently occur, the planning & preparation needed to manage it, and the financing & factoring invoice strategy as a solution…

So you get your tax return and there appears to be a nice profit (and a nice tax bill as well), but your bank account does not show any more money, and potentially could show less than the previous year.  So, where did your money go?

The simple answer is that your money is not gone as long as you have been profitable…  The two biggest areas that money or working capital tends to disappear is inventory and receivables.  Monitoring your balance sheet on a monthly basis is a great way to watch your inventory and invoice trends, but this is not always as easy as it sounds so let’s discuss some practical examples.

A successful entrepreneur that has achieved the next level of sales can sometimes best be described in cliché terms as a “victim of their own success.”  Let’s analyze a company’s need for working capital through the following examples.  A company that has sold goods with total annual sale of $1 million or less often can use their own resources, but when sales move to the next level such as $2 or $3 million per year, a whole new level of working capital and management is often needed.  Technically, if your customers are ordering $100k per month with 30 day terms, then sales of $1 million per year can be typically maintained with approximately $200k in working capital (a little more is needed for other items as well but these numbers can manually added).  In our example, $100k is used for current invoices and the other $100k is used for production of incoming goods (aka inventory) for the following month.  Now, if sales move to $2 million per year, then $400k in working capital would be needed.  And with $3 million in sales, one would need $600k in working capital at minimum.  Now, let’s say your customer(s) needed 60 or 90 day terms to pay their invoices, such as Walmart, Pepboys or other larger retailers.  This would double or triple the estimated working capital needed.  For example, selling Pepboys $3 million per year with 90 day terms would require approximately $1.8 million in working capital.  Therefore, growing sales from $1 to $3 million can be very painful if the right amount of working capital or financing is not in place.

Often, a small to medium size business does not have enough working capital to meet its fast growth needs, so how does it tackle this issue.  Factoring invoices can be a suitable solution to provide working capital for a fast growing business.  Factoring is the process of converting invoices into cash.  So based on our Pepboys example above, the $1.8 million working capital requirement to sell to Pepboys could be reduced by $1.5 million.  Therefore, the entrepreneur selling to Pepboys could reduce its need from $1.8 million to $350k.   There are other financing tools that commercial lenders that can provide such as purchase order financing that could further reduce the business’s working capital needs to approximately $100k.  The take home message of this story is that if the right commercial lender is used, then a company could grow to $3 million in sales using approximately same amount of working capital that a company doing $1 million in sales uses.  This is the efficiency and power of alternative financing not found at banks.  There are few specialty commercial lenders such as PMF Bancorp that offer all of the working capital tools like invoice factoring, purchase order financing, lines of credit, and credit protection which are all the tools needed to grow sales by 3x without needing more working capital.

How to Raise the “Right Money” for Your Business….

I have seen my business clients raise money in many ways to grow their companies, but they have made many mistakes. Having been a commercial lender for 20 years and being focused on helping companies from typically $1-20 million in sales raise capital, I can provide special insight on how to raise the “Right” kind of money. Raising Equity is really a decision for the owner to make and is very subjective so let’s focus on raising money through various loan products common in the market.

Here is how to start finding the “Right Money” for your business….

Finding the “Right Money” from Banks. Having an A+ Credit score definitely helps, but does not guarantee you will raise the “Right” kind of money or loan. Many good companies look at SBA (or aka the Small Business Administration program) loans which are loan programs that many banks use. These loans are supposed to be easier to get because the US government is guaranteeing 90% of the loan; however, banks still underwrite these loans with their same strict criteria so unfortunately these loans are still tough to qualify for.

The SBA has a 7A loan product which is typically based on a business’s cash flow and the 504 program which is typically an SBA loan based on real-estate. So you are thinking, if I qualify for the loan, then I am set…right? No, wrong. It is important to get the “Right” money and the “Right” loan for your business. The SBA is designed for a small, relatively stable business that grows in small increments. If your business is set to grow quickly, you need to look at another financing product or the SBA loan could really damage your business. There is nothing worse than getting a loan that is too small for growth and ties all your assets up…this is what an SBA loan is. For the faster growing companies, we need to look for the “Right” money. Large lines of credit for larger companies have more flexibility, but these kind of loans are set aside for A+ credits where the company is doing at least $10-$20 million in sales per year.

Finding the “Right Money” from a Cash Advance Company or a Small Business Loan Lender

For a small business with limited credit, there are good alternatives to a traditional bank loan, but there are pitfalls here too. Merchant Cash Advance or Small Business Lenders that offer money overnight are good in the sense that you can get a quick sums of $50,000 to $200,000, but the impact on improving your cash flow can be very temporary. Merchant Cash Advance will lend against your credit card sales and typically ACH money out your account daily to repay the advances. The Small Business Lenders lend against your ongoing operations, but their repayment schedule really hurts cash flow as they take money every day out of your checking account via ACH. Loans that have heavy repayment schedules are typically not the “Right” money for a business because most businesses need a better cash flow solution, whether they know it or not.

Find the “Right Money” from Invoice Financing (aka Factoring invoices)

Small and large businesses can often benefit from a factoring company’s services if they have invoices and customers they sell to, with 30 or 60 day terms. Factoring your invoices is actually the process of selling your invoice for cash for a discount. The discount is typically much less expensive than the Merchant Card Advance or small business loan that the overnight lender’s charge. Raising the “Right” money from factoring accounts receivable are predicated on your business having accounts receivable. Large to small businesses use a/r financing (or aka factoring) because it provides large amounts of money right away and it does not hurt cash flow like the other business lenders such as Merchant Card Advance or Small Business loans.

The reason invoice financing works more smoothly is that you receive a high advance rate on your collateral and there is no ACHing your bank every day. Additionally, the factoring company is repaid only when your customer(s) pays so you don’t have to worry about scheduling a repayment to the factoring company for any of the money your business was advanced. Factoring is also a great way to raise cash without increasing your debt. Yes, it’s true that when you factor an invoice, there is no extra debt or loan booked … your factored advances can be shown as an increase to your cash without the liability to your balance sheet. Factoring with a flexible commercial lender can also bring many other lending products to a growing business like trade financing, inventory, PO finance, and more due to the maturity of the industry.

At the end of the day, I have learned as I have underwritten 1000s of companies that each business, even when in the same industry, have their own unique issues and solutions so taking your time to understand where to find the “Right Money” will pay huge dividends in the future. Just remember that Cash Flow is King and your goals is to build your enterprise value (aka sales & organization infrastructure)…if it costs a little on the way up, then you are in good company with the thousands of other successful entrepreneurs in the U.S. Best of Luck!

Stephen Perl, CEO/CFO
1st PMF Bancorp
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Almost all businesses know when they need working capital or a loan, but unfortunately, there are only a few that know where to go to find money. This is not only a problem for your small businesses, but this is an issue that plagues larger companies with sales of $1, $5 and $20 million in annual sales as well. There are 5 factors that can immediately help you to greatly narrow down and select the right lender without wasting a lot of time….

1. Be realistic:
   For example, if you are a small company and you have been in business less than 3 yrs with limited or no profitability, then a traditional bank is not going to be a good source for a loan or ar financing. If you are a sizable company (but still under $10 mill in sales), you need to have well kept financials… but even with ok performance, you are in what I call in “No Man’s Land” (this is an idiom that of course refers to both Women and Men for my intended use). “No Man’s Land” is where your loan size is too big for the easy to qualify small SBA loan, and too small for the traditional bankers who are mostly interested in loans greater than $4 million. Again, most of America falls into this “No Man’s Land” area so knowing non-traditional bank lending sources is a great way to make sure cash flow is maintained for growth. Knowing about alternative lending sources like factoring companies, a/r financing, invoice factoring, and /or inventory purchase order financing is really important. Most businesses in the US and abroad have little experience with alternative bank sources.
2. Evaluate Your Collateral:
   Is you collateral real-estate, accounts receivable, inventory, WIP, Letters of Credit, or some other item? For example, if you have a combination of receivables and inventory, then it is recommended to have an Asset Based or ar financing Line which is ideal for providing flexibility during growth periods. If your company has been profitable for at least 3 yrs and has sales above $3 million at least, then an Asset Based Line is the way to go. If you have sales under $1 or $2 million and your credit is good, then an SBA is your best route if your company is not expecting large growth and is free from liens. If you have real-estate then there are many choices if there is at least 30-40% equity in the property. If your company is not profitable, but growing, then you need a non-traditional bank lender that can provide an alternative financing structure like factoring invoices, ar financing, accounts receivable factoring, inventory financing, etc. 1st PMF Bancorp has offered these types of non-traditional invoice factoring or inventory financing lines for years.
3. Evaluate the Bank Closely:
   Many bankers will gladly welcome your small business to complete a loan application, but few loan applications make it to the finish line so let’s save some brain damage by selecting our bank accordingly. If you have a small community bank that you know or have a currently relationship in the form of a bank account, then they should be the most likely candidate to provide flexible terms to smaller businesses. They will not offer alternative lending like invoice factoring or purchase order financing; however, they will often have SBA programs. These SBA programs often require you to pledge all your collateral and provide a personal guarantee. A personal guarantee is typical but you should get assurances that if they make a loan that you can have your accounts receivable subordinated to another lender for additional working capital as you grow because 99% of banks cannot increase SBA loans significantly to meet a company’s sales when grow expands rapidly. 1st PMF Bancorp has been advising its clients to make sure their receivables are not permanently collateralized when SBA loans are made so PMF can provide additional working capital lines for growth. Finding a non-traditional bank like 1st PMF Bancorp that can provide the ar financing and a traditional lender is optimal for a small business’s growth as it gives the business a layer of longer term debt as well as the shorter term invoice financing / working capital debt that can be used to quickly expand for new customers or opportunities.
4. Relationship verse Price:
   Everyone I speak to today has a lender pricing story where they brag about how they received a 1/2 percent less from their lender verses the going market rate; however, there is so much more than pricing to a loan or an ar financing line. For example, business loans or account receivable factoring at the lowest rates are great if you can get them, but if your borrowing base or covenants are so strict, then you might end up with the best priced loan that you are never able to use (or that the loan is so limited it does not really help). How good is a cheap $1 million line of credit where you can only draw down $100k? Also, getting a lender with 1/2% less in cost per yr sounds great, but if they don’t lend on inventory (or they are limited in this area), then how does this help your company grow? Remember, 1/2%,1%, or even 3% difference in pricing is really not material to many companies with 30-40% gross margins…just get the money to grow when you need it and then find a better source later. Don’t get stuck in an “Accountant’s World” where a dollar saved on interest is more meaningful than the big picture of growing your company, and increasing its enterprise value which only translates. Often a factoring company charges a little more, but offers a greatly expanded opportunity to increase sales and your company’s enterprise value which far outweighs immaterial extra interest costs you may spend in a year. Alternative bank lenders like 1st PMF Bancorp offers ar financing, invoices factoring and other lines of credit for growth. Start building a relationship that is valuable with the right lender now.
5. Know Where Your Company is on the Food Chain:
   If your company is a larger firm, then larger lines with more flexibility are in order, but if you are a smaller company, then you need to look to smaller banks and lenders. If your priority is growing sales, then finding a commercial lender with limited credit covenants that can lend on receivables, inventory, and equipment like 1st PMF Bancorp so you are not capped by traditional bank limits and their regulations; however, if you are a smaller company with good credit that is looking for just a small loan, then an SBA Express Loan or SBA 7A loan are great if your needs are fixed and your business is not set to expand too quickly. Banks like Bank of America and small community banks can process SBAs quite well…just remember to ask them for a covenant in your loan that states if you are in good standing that your loan can be subordinated for future additional working capital needs, and then you will be in perfect shape.

Good Luck loan hunting!  For more updates on getting loans and finding the right lender follow us on twitter @pmfbancorp or PMF Bancorp on Facebook

Website: http://www.cantonfair.org.cn/en

The 117th Canton Fair will be held from April 15 to May 5, 2015.

Canton Fair boasts an exhibition area of 1,160,000 square meters, 59,500 standard Booths, more than 200,000 buyers, and tens of Billions of US dollar business value in every session. Each Session of Canton Fair created boundless business opportunities. The 117th Canton Fair is coming soon. You are welcome to share or search global cooperation opportunities. You also can get more information in official website of Canton Fair www.cantonfair.org.cn/en ; www.e-cantonfair.com

Phase 1 (April 15-19, 2015)
Electronics & Household Electrical Appliances, Lighting Equipment ,Vehicles & Spare Parts, Machinery, Hardware & Tools, Energy Resources, Chemical Products, Building Materials, International Pavilion

Phase 2 (April 23-27, 2015)
Consumer Goods, Home Decorations, Gifts

Phase 3 (May 1- 5, 2015)
Office Supplies, Cases & Bags, and Recreation Products, Food, Medicines, Medical Devices and Health Products, Textiles & Garments, Shoes, International Pavilion

For Buyers Registration, please visit
http://invitation.cantonfair.org.cn

There are many ways to improve your cash flow, but how and who you sell may be the most important way you can control your cash flow. We all know and love those clients that pay COD, but they are far and few between. The reality is that larger customers in the US almost always take commercial terms (i.e. 30 to 90 payment terms). When selling to larger customers, many feel they are forced to take anything they are offered, but there are ways to get paid faster and better control your cash flow….

1. Negotiate Vendor Agreement(s) – Even if your large customer says their terms are 60 days without exception, there still can be items that they can do to assist your company with its cash flow. They can often add a clause for early payments such as a 2% discount for a payment within a 10 day term…however, bringing your own independent financing through a factoring company can often save you a lot of money and provide more flexibility.
2. Negotiate Terms of Delivery with Larger Customers – Better logistics equal better cash flow. For example, if you can have the larger customer pickup FOB China, then your billing can start sooner and a 60 day term can feel more like 30 days because you are not carrying the product as inventory. Often, using larger customers’ logistics can also save you money and time.
3. Better Logistics Equates to Better Financing – When a business has better financing, it has better cash flow by default (in most cases). Logistics that is fast and without long holding periods for inventory is easier to finance. If you think of your inventory as a “Hot Potato” and hold it as little as possible, you will find better financing, profitability, and cash flow.
4. Make Deals with Suppliers – Chinese Suppliers are tough, but if you take the time to visit and build a relationship with your factory, they will most likely support your company with some terms after the first year if your business has been smooth. Suppliers can be a great source of extra credit and relive strains on your cash flow, especially when selling to larger customers.
5. Selling Smart – When selling to a large customer, we all dream of the big orders. These orders can just as easily become a dream as a nightmare. Start by selling small amounts by selling regions of retailers or via their online presence before rolling your product to all their stores. Even though buyers are looking for margin and product wins…you need to be able to win too. Sell smart.
6. Visit Your Buyers – Good communications with you buyer(s) is essential and meeting up with your buyers for face to face meetings at least twice a year is even more important. This way you can establish a real connection and credibility that you are really working with them as a partner. They will, at least, feel motivated to give you a chance to compete if they are thinking of going with another vendor. Remember, without a real relationship, you are like the morning trash…ready to be taken out at any time.
7. Get the Right Financing – Yes, we all think we should have a big credit line with the major bank across the street for at a half point over prime. Again, the faster you realize what financing is meant for your company, then the faster you can move on to selling and growing sales. Many small to medium size businesses need working capital to buy more products and to hire for staff…one does not need to beg a bank for a line to grow. Commercial lending banks that specialize in lending to businesses like PMF Bancorp can setup lines of credit, AR financing, trade financing and many other types of financing without the brain damage that the major banks cause. How? By looking at your good customer base and basing the line on the future sales growth and product, not past profits and tax returns which give little indication of future performance in many cases.

After more than 30 years of lending to businesses, PMF Bancorp has seen many methods to improve cash flow and profitability. It is cliché, but the old saying that “Cash is King” is actually not far from the truth. As you know, even if your profits are large, without cash flow to pay the rent, you are out of business. This is the blessing and the curse of doing business with and selling to large companies as they take forever to pay. It is almost an unwritten right that large corporations expect credit or terms to pay their invoices. Well, PMF has 7 simple ways to increase your cash flow and profit that can be implemented easily as follows:

1. Review: your Invoices (accounts receivable) should be monitored on a weekly basis;

2. Collections: If your business is carrying accounts receivable greater than a typical employee’s salary then you should have a person dedicated to their management (a soft collector);

3. Make a Deal: Don’t be afraid to talk to your customers (even the bigger ones) to get them to pay early for a small discount (this is common and these funds can be arbitraged to potentially pay suppliers early for a discount as well);

4. Relationships: Visit your largest customers once a year at minimum and twice if possible as they can pull strings during a lean period or if processing your invoices is delayed;

5. Credit Monitoring: most companies evaluate credit once and forget it…this is wrong as credit on larger customer should be monitored at least annually to make sure no adverse changes occurred which could impact your sales and your invoice repayment;

6. Common Sense: don’t sell customers that are too big as you will run out of cash. Even if you complete the order, what will happen if payment is delayed or another good customer needs material…grow with common sense (i.e. doubling size in one year is a red flag for you and most lenders);

7. Financing & Invoice Factoring: Make sure to have financing lined up and set when you DON’T need it because I guarantee you it won’t be around when you do need it.

Financing is really essential to a small to medium size business that is growing. Owners and executives of these companies are always optimistic and in many cases try to put off needed financing to save costs; however, this is not the right mind set. The owners and execs should make sure to have a financing deal already signed and on the shelf ready to use. Even borrowing a little from the line facility and testing out the process when it’s not absolutely necessary is useful to make sure everything is ready to rock when the big sales start to arrive. PMF Bancorp has been providing invoice factoring, lines of credit, trade finance, and other short working capital solutions for businesses to grow for over three decades. Often, smaller businesses are rejected by the traditional banks as not having enough credit, profit, equity, etc., but PMF Bancorp has developed special programs that still provide a business with the lines of credit they need.

California businesses are in the wholesale mecca and trade port hub of the U.S. There are literally tons of products being imported into our regional ports in California to feed this insatiable wholesaler appetite for product to sell. There are many opportunities in this trade zone where dreams can be made, but there are also financing issues that can bring nightmares for the inexperienced or faint of heart as well. Financing inventory can be a dream or nightmare, but lucky for you…this article will explain unique a trade financing platform that can help, called, “The Supply Chain Plus Financing™ Program” which can be used in conjunction with AR financing to really propel a growing business.

Before we go in to the details of one of the most flexible and economical ways for a California wholesaler to finance their inventory, we need to build a case to describe the typical scenario that many wholesalers and importers face.

The typical wholesaler is forced into importing goods to reduce their costs and increase their margins to remain competitive. For even the most experienced business that imports goods, there are many issues before financing such as quality control, working with a foreign factory, monitoring progress of order, etc. There are numerous instances where foreign suppliers ship good containers for a period, and then suddenly send a bad container where quality control had failed. What is your recourse on a foreign corporation that you have already paid? Most have no solution, but there are answers.

The Supply Chain Plus Financing™ Program provides a wholesaler with an easy to use solution. The Supply Chain Plus program provides an infrastructure and safety net to support an importer’s supply chain and capital at the same time for more inventory to grow sales.

The Supply Chain Plus Financing has 5 basic parts that it adds to a company’s supply chain:

1. Expert Financial Review of foreign factory’s credit;
2. Quality Inspection support & reporting to strengthen process;
3. Letter of Credit and mobilization to support production;
4. Cash flow ( AR financing) support to provide better cash flow;
5. Credit insurance on sales can guarantee payment when customers can’t pay.

Before the financing can begin, there has to be a qualified 3rd party review of your foreign factory for a number of reasons. Most obvious reason is that one wants to make sure that your factory is strong enough to supply your short to midterm growth needs. Many businesses have also been surprised that after this type of review that their factory is not the actual factory making their products (this is common in China). A fact that is not so obvious is that your factory needs to be strong credit wise in order to really work with a Letter of Credit financing program (more on why this is important later in this article).

The Supply Chain Plus Financing™ Program also as a unique service that integrates it’s financing into a company’s quality control program or even creates a quality control program for the wholesaler based on its experienced staff and Asian practice. Having a team to review the pre-production & mid production provides a much safer way to control quality because it detects issues with manufacturing before all the goods are made which is typically when most inspections by small companies occur. Of course, companies like Apple, Sony, etc. do not wait until goods are finished to inspect which is a statement in itself.

The Supply Chain Plus Financing™ Program’s main support for most companies comes in the form of financing inventory. Wholesalers are often hit with seasonal needs and large clients making inventory demands. How does a wholesaler meet the cash flow need when there are so many other working capital needs. They can use their Purchase Orders (POs) as collateral and then utilize AR financing. In this instance the Supply Chain Plus Financing™ Program provides a number of solutions. The Letter of Credit (LC) solution is the tool of choice for international financing of inventory because it provides the safety of product being made to specs and on time before payment is rendered. There are many other conditions that can be placed to further secure delivery of goods, but in order to make the letter of credit “clean” and financeable on the sellers’ side, one needs to stick with conventional parameters. If your foreign supplier is not financially strong then they will often not accept LCs. The main reason is that their bank cannot provide financing support. Smaller factories cannot buy their raw materials or pay for production if they elect to accept an LC in many instances, so like poker, you can easily call their bluff in how big their factory is by offering an LC for payment. In most cases, you should only working with factories that can accept LCs as it is a key “tell” to their strength and credit quality.

The last key to the financing puzzle is to be able to finance your sales once the goods are imported and delivered to your client(s). California wholesalers and others are often required to play the role of the bank with their customers that often require invoice terms. The ironic part of this situation is that the customers that require the invoice terms are often larger than most banks (i.e. Costco, Walmart, Target, etc.). AR financing in this instance is an absolute must and the Supply Chain Plus Financing ™ program also offers this as well. Accounts receivable financing allows a business to finance its own invoices which is also sometimes referred to as invoice factoring.

The last portion of the Supply Chain Plus Financing™ Program is about creating a financial safety net after the sale. The wholesalers are often smaller than their customers and one customer not being able to pay would undoubtedly cause pain. Therefore, the Supply Chain Plus program has a credit insurance program built in where companies can submit their invoices for a small fee to be guaranteed for payment. Too many large companies are getting terms and with the economy on a roller coaster, credit insurance for invoices is always a great financial option to have available with a single phone call.

So one might ask, “Who offers the Supply Chain Plus Financing™ Program?” Simple. 1st PMF Bancorp.

For more information, please click here.

Hot Money has long been a problem for China and can create major problems for commercial lenders and factoring companies financing trade as part of their portfolio. In some instances, factoring invoices are often derived from an up stream trade transaction that is also financed by the factoring company. Wu Ruilin, China’s Deputy of its State Administration of Foreign Exchange (commonly known as SAFE), has uncovered over $10 billion of fraudulent trade financing transaction especially with product flowing through 24 provinces including the Qingdao port (per Wall Street Journal Sept. 25th, 2014). Companies or entities that are transferring money in or out of China through trade transactions without the permission from SAFE are considered to be making “Hot Money” transactions. For example, the trade shipments involved in this type of “Hot Money” problem typically claim certain value on their shipping documents, but the actual value is not correct. Therefore, the trade financing or funding connected to this trade transaction is transferring far too much money for the actual value on the documents. This process allows money to be transferred across boarders without currency controls. China blames much of the real estate appreciation in the last 10 years to be due to money from these areas. Companies that are factoring invoices related to trade need to perform proper due diligence by having their own independent physical inspection at the port of origination to ensure the validity of the shipping documents.

A commercial lender or factoring company can take preventative measures to guard against Hot Money which is actually the process of laundering money in and out of China without the Chinese government’s approval. A lender’s major tool to prevent the financing of Hot Money trades is to have their own set of due diligence practice for any type of trade financing. First, a lender should have their own employees in China or boots on the ground. By having your own staff to inspect the goods at the port or point of origination, one have a high certainty that the collateral on the shipping documents match the value being financed. Also, basic KYC (aka Know Your Client) practices allow you to meet the requirements of the Patriot Act required by US law. I would suggest taking this a step further and make sure you have done your due diligence on the factory or supplier as well. Having knowledge that your factory and your client are both reputable entities and without major issue in the US and/or China adds a much greater level of security that your transaction will be successful.

Frequently in our due diligence practices, 1st PMF Bancorp (USA) and 1st PMF Capital (Hong Kong) use Hong Kong and Chinese government databases to review our foreign customers and their suppliers. We also have our own underwriting team comprised of bankers and CPAs that visit the larger transactions and require financial info in order to even provide a proposal. Having a good working knowledge of your local business and legal practices is key when financing in other countries. Hopefully, this info will add light to your future trade financing and invoice factoring deals. I can be emailed if there are more detailed questions.

Stephen Perl, CEO

1st PMF Bancorp – invoice factoring worldwide

Author: Secrets of Doing Business with China: Dancing with the Dragon

Stephen M. Perl, MS, MBA is the CEO of 1st PMF Bancorp, a leading US commercial bank lender, and the founder and CEO of ChinaMart® Los Angeles, a platform that assists Chinese companies in their investment in the USA.

Mr. Perl has successfully grown 1st PMF Bancorp’s lending portfolio to one of the largest private, short-term business lenders in the US with specialty in factoring and trade finance to company with annual sales from $1 to $50 million. He designed PMF Bancorp’s, “Supply Chain Plus Financing Program™ ” to provide the most comprehensive supply chain financing platform in the US for small to medium sized companies doing business between the US and China. Mr. Perl established the first private US lender in China in 2004 and has recently published a book called, “Dancing with the Dragon: The Secrets of Doing Business with China” (2012) as an executive’s guide to doing business with China.

Why is it that business I speak with so often say, “…We have been with our bank for so many years, but they won’t make us a loan.” Large traditional banks are designed in most cases for retail banking and corporate lending. There is not much money to be made by making small loans at 5% per year to 1000 small customers. Frankly, the larger banks rather lend one large corporate client $100 million at 3% than a 100 smaller loans. So, how does a smaller commercial bank lender make smaller loans when the larger banks cannot? There are clear reasons why smaller lending institutions can lend to smaller businesses more successfully. Here are some of the secrets to why and how businesses qualify for money.

First a small business owner must rate their business in the A, B or C credit categories in order to know what they qualify for and where to look. This the secret to finding a successful bank lending relationship.

A small business in the A credit category would have a company that is profitable, been in business 2 or more years, has a strong equity position on its balance sheet, and a strong principal guarantee with a credit score of +720. This business would be a good candidate for an SBA loan from $100k to $1 million with sales of approximately $1 to $10 million with not too much difficulty at a smaller, more specialized bank. Traditional loans are typically not available to small businesses even at this level without an SBA guarantee to support their loan.

A small business in the B credit category usually lacks one of the above criteria that an A credit has (as listed above). This places the business in the area of receivable financing (aka invoice factoring) or some other form of collateral based lending (i.e. 2nd TD on business property, inventory financing, etc.). These loans are typically with recourse or limited non-recourse and are highly structured. If your customer base is strong and there is payment records to support trends, then this form of lending can very helpful to growing and graduating to the A credit category.

A small business in the C credit category is missing several items from an A credit criteria and often has other items like tax or lien issues that complicate the lending scenario. A seasoned commercial lender can still place creative financing together. The price will obviously be higher due to the higher risk, but if a small business has cleaned up its act and is on a good sales trajectory with descent margins then seeking this type of lending is a great move to maintain stable working capital and cash flow while the business continues to grow so no sales momentum is lost.

“Providing working capital to businesses that have had a few bumps in the road, but are still growing is challenging for traditional banks. Smaller more aggressive lenders are much better suited to actually lend in this area and they can provide a surprising array of products like receivable financing, inventory financing, invoice factoring, trade financing, PO financing, etc.” states, Stephen Perl, CEO of 1st PMF Bancorp.

By Stephen Perl, CEO

1st PMF Bancorp (USA)

1st PMF Capital (HK)

Author of “Dancing with the Dragon: The Secrets of Doing Business with China” (2012)

www.pmfbancorp.com