Accounts Receivable Financing – The Weight

Cash flow is essential for every business. Cash flow is an accounting term that refers to the amount of money received and spent by a business during a specific period of time. Working capital is a similar but different financial term that is based on the daily operating liquidity available to a business. To calculate working capital, an accountant for the company takes current assets and subtracts current liabilities. A company may have substantial working capital but little liquidity because the working capital is either spent or owed in matters of accounts receivable, inventory or accounts payable.

Cash flow is necessary to a company’s survival, especially for those companies with limited access to financing. In particular, a company’s accounts receivable and inventory may be like a weight preventing growth and expansion. The Merriam-Webster Online dictionary has eleven different definitions of the word weight when used as a noun. As used in this article, the word “weight” pertains to four of these meanings:

“4 a: something heavy: load b: a heavy object to hold or press something down or to counterbalance;

5 a: burden, pressure b: the quality or state of being ponderous;

7 a: the relative importance or authority accorded something b: measurable influence especially on others ;

8: overpowering”

Inadequate cash flow is a heavy load and a heavy burden that holds down growth and productivity. Illiquidity creates a ponderous situation, such as whether or not to accept a new order, which bills to pay or is the survival of the business at stake? For instance, consider the example of a company that invented a weight training machine.

After years of research and development the company obtained a patent on a weight training machine that was designed for professional use at gyms. The machine includes a main frame, a lever carriage mechanism, an adjustment linkage and a stop mechanism. A lever carriage mechanism is pivotally connected to the main frame. The lever carriage mechanism includes a weight carrying portion adapted to carry at least one weight. An input mechanism is connected to the lever carriage mechanism. The adjustment linkage is connected between the lever carriage mechanism and the main frame and is configured to selectively adjust an arc of rotation of the weight carrying portion of the lever carriage mechanism about the main frame such that the weight carrying portion may selectively traverse each of a plurality of predefined strength curves in response to movement of the input mechanism by a user.

The machine has a catchy name; let’s call it the Flexigym. It works to burn calories, make muscle and it is very popular with users. Suddenly, orders are overwhelming the company/manufacturer. The irony is success is a weight on the business and if the invoices for the Flexigym are not paid promptly this wait period is a serious burden to liquidity and growth. What are the options for improving cash flow for Flexigym?

Payments for inventory, sales commissions and accounts payable may be delayed. Manufacturing plant maintenance may be deferred. Professional fees to attorneys or consultants may be deferred. Most of these options may have negative consequences.
There may be a positive solution. If the company sells its product or service to other businesses accounts receivable financing may be the solution.

Accounts receivable financing creates instant cash for working capital. If Flexigym cannot wait 30, 60 or 90 days to be paid, a commercial finance company will purchase the accounts receivable and the wait for cash will be over. The process is relatively simple.

Flexigym agrees to terms with a commercial finance company. The customers of Flexigym are notified of this arrangement and instructed to send their payments to the financing entity. After the Flexigyms are sold and delivered, the commercial finance company verifies that delivery was satisfactory. Many finance companies use an internet based system; some use fax. In either case, upon receipt of the invoice and verification of satisfactory delivery 80% to 90% of the accounts receivable monies due will be wired to Flexigym’s bank account. The weight is lifted, the wait is over, and cash flow is available for exponential growth. If accounts receivable financing is not sufficient for cash flow needs, purchase order financing may be employed to further increase cash flow.

“The Weight” is the title of a song by The Band which was very popular in 1968. The Band backed Bob Dylan on many occasions. The song is a good example of a silent title record where the title never appears in the lyrics. Accounts receivable financing is not obvious either unless you are educated regarding the merits and details of this financial technique. Here are the lyrics to The Weight:

Why Early-Stage Startup Companies Should Hire a Lawyer

Many startup companies believe that they do not need a lawyer to help them with their business dealings. In the early stages, this may be true. However, as time goes on and your company grows, you will find yourself in situations where it is necessary to hire a business lawyer and begin to understand all the many benefits that come with hiring a lawyer for your legal needs.

The most straightforward approach to avoid any future legal issues is to employ a startup lawyer who is well-versed in your state’s company regulations and best practices. In addition, working with an attorney can help you better understand small company law. So, how can a startup lawyer help you in ensuring that your company’s launch runs smoothly?

They Know What’s Best for You

Lawyers that have experience with startups usually have worked in prestigious law firms, and as general counsel for significant corporations.

Their strategy creates more efficient, responsive, and, ultimately, more successful solutions – relies heavily on this high degree of broad legal and commercial knowledge.

They prioritize learning about a clients’ businesses and interests and obtaining the necessary outcomes as quickly as feasible.

Also, they provide an insider’s viewpoint and an intelligent methodology to produce agile, creative solutions for their clients, based on their many years of expertise as attorneys and experience dealing with corporations.

They Contribute to the Increase in the Value of Your Business

Startup attorneys help represent a wide range of entrepreneurs, operating companies, venture capital firms, and financiers in the education, fashion, finance, health care, internet, social media, technology, real estate, and television sectors.

They specialize in mergers and acquisitions as well as working with companies that have newly entered a market. They also can manage real estate, securities offerings, and SEC compliance, technology transactions, financing, employment, entertainment and media, and commercial contracts, among other things.

Focusing on success must include delivering the highest levels of representation in resolving the legal and business difficulties confronting clients now, tomorrow, and in the future, based on an unwavering dedication to the firm’s fundamental principles of quality, responsiveness, and business-centric service.

Wrapping Up

All in all, introducing a startup business can be overwhelming. You’re already charged with a host of responsibilities in which you’re untrained as a business owner. Legal problems are notoriously difficult to solve, and interpreting “legalese” is sometimes required. Experienced business lawyers know these complexities and can help you navigate them to avoid stumbling blocks.

Although many company owners wait until the last minute to deal with legal issues, they would benefit or profit greatly from hiring an experienced startup lawyer even before they begin. Reputable startup lawyers can give essential legal guidance, assist entrepreneurs in avoiding legal hazards, and improve their prospects of becoming a successful company.

Think Twice Before Getting Financial Advice From Your Bank

This startling figure comes from a recent review of the financial advice offered from the big four banks by the Australian Securities and Investment Commission (ASIC).

Even more startling: 10% of advice was found to leave investors in an even worse financial position.

Through a “vertically integrated business model”, Commonwealth Bank, National Australia Bank, Westpac, ANZ and AMP offer ‘in house’ financial advice, and collectively, control more than half of Australia’s financial planners.

It’s no surprise ASIC’s review found advisers at these banks favoured financial products that connected to their parent company, with 68% of client’s funds invested in ‘in house’ products as oppose to external products that may have been on the firms list.

Why the banks integrated financial advice model is flawed

It’s hard to believe the banks can keep a straight face and say they can abide by the duty for advisers to act absolutely in the best interests of a client.

Under the integrated financial advice model, there are layers of different fees including adviser fees, platform fees and investment management fees adding up to 2.5-3.5%

The typical breakdown of fees is usually as follows: an adviser charge of 0.8% to 1.1%, a platform fee of between 0.4% and 0.8%, and a managed fund fee of between 0.7% and 2.1%. These fees are not only opaque, but are sufficiently high to limit the ability of the client to quickly earn real rates of return.

Layers of fees placed into the business model used by the banks means there is not necessarily an incentive for the financial advice arm to make a profit, because the profits can be made in the upstream parts of the supply chain through the banks promoting their own products.

This business model, however, is flawed, and cannot survive in a world where people are demanding greater accountability for their investments, increased transparency in relation to fees and increased control over their investments.

It is noteworthy that the truly independent financial advisory firms in Australia that offer separately managed accounts have done everything in their power to avoid using managed funds and keep fee’s competitive.

The banks have refused to admit their integrated approach to advice is fatally flawed. When the Australian Financial Review approached the Financial Services Council (FSC), a peak body that represents the ‘for-profit’ wealth managers, for a defence if the layered fee arrangements, a spokesman said no generalisations could be made.

There are fundamental flaws in the advice model, and it will be interesting to see what the upcoming royal commission into banking will do to change some of the contentious issues surround integrated financial advice.

Many financial commentators are calling for a separation of financial advice attached to banks, with obvious bias and failure to meet the best interests of clients becoming more apparent.

Chris Brycki, CEO of Stockspot, says “investors should receive fair and unbiased financial advice from experts who will act in the best interests of their client. What Australians currently get is product pushing from salespeople who are paid by the banks.”

Brycki is calling for structural reform to fix the problems caused by the dominant market power of the banks to ensure that consumers are protected, advisers are better educated and incentives are aligned.

Stockspot’s annual research into high-fee-charging funds shows thousands of customers of banks are being recommended bank aligned investment products despite the potential of more appropriate alternatives being available.