Tools working capital, and why did they need?

Often hear from clients that factoring is a very expensive product. The first question : "How much does it cost?" And knowing the structure of the factoring commissions and rates, customers immediately translate into an annual interest rate and compared with the interest rate on the loan. The result is that he is not in favor of factoring. To compare factoring and credit is very difficult, because these services are designed to meet the different needs of customers. The first step is to find out what customers really want. Many turn to the bank for factoring, not knowing anything about it, but not even aware of until the end, that they want in the end. If you will be able to understand the customer's needs, we can offer the product or set of products, best, best quality and price meet its needs. One of the first customer-financing working capital. There are several ways to achieve this objective. Let's look at them and compare. Sales on credit (you-provider) you can trade in advance, without providing its customers deferred payment : at first glance, the easiest and cheapest way. This can to some extent overcome the shortage of working capital. But the benefits of these solutions are clear. Competition in the commodity markets and the markets for services is growing with astounding speed and is really tough. Lower prices, better quality goods and services, expanded product range, the free delivery, bonuses, etc., are some of the activities, which forced the supplier today, in an effort to find and retain customers. The listed above should also include the provision of provider delay payment for the goods sold and services rendered. Perhaps it is one of the important tools in the fight for klienta.Tovarny credit benefit all market participants : and the manufacturer and distributor and the retailer. Invest the money in building sales channels, most traders today could increase by claiming sales of the product filling. Commodity Credit now becomes the main instrument of development companies. Therefore, allowing customers to buy goods on credit, you limit your company in sales growth, and hence earnings growth. Commercial loans : ask and ask (you, the buyer), working with suppliers and urge them to apply for commercial credit. The forms of commercial (business) loan vary. He can be predpriyatiyami-kreditorami in cash and cash based on sales contracts, loan agreements, business and financial bills. The advantages of this option are that this type of loan is collateral, and sometimes even free of charge, to the disadvantage is that not all suppliers are ready to stay, and the matters it is only at first glance. According to the law (Article 5. 488 of the Civil Code), unless otherwise stipulated in the contract of sale of goods sold on credit, is a pledge from the supplier until the buyer does not pay. In the case where the buyer is unable, for any reason (including cash because of a gap caused by poor payment discipline accounts) to pay, the seller may demand the return of unpaid goods and the payment of interest. So, you can safely dispose of the goods until payment : it is likely that the supplier will require the return of the goods. This dispute is a free loan. Many suppliers for the opportunity to "pay immediately" increase the price of 1-3%. Overdraft : running short distances third tool is the overdraft. Pledged support for the overdraft facility is not required. You only need to maintain traffic on the current account in the bank, with a much more than the amount that you get in this type of financing. The price is comparable to a short-term overdraft loan, but the size and duration of funding is not tied to your trading. Maximum thirty days you have to return the money. There may be a problem with the temporary unavailability of funds, as well as all receipts from customers go to repay financing. Thus, the task-funded trade (supply) chain running again. Note that for the closure of small volumes of cash and time gaps overdraft, of course, can be used. The harsh arithmetic Credit Credit? Yes, the same, that all potential customers compare factoring. First question : whether the loan to meet your needs? And second : for how long and how much you want to draw resources? Let me remind you that we are considering to finance working capital. So, the size and term of the loan should be comparable to the missing working capital to finance sales cycle : ie, the funds will be required only until such time as money from customers. Let us take the example of a company of a "H". Assume that the company "X" is even shipping at intervals of 10 days. The supply is 100 units. , The deferral period is 30 days, the value of the resources-15%, and time spent on the procurement and delivery of the product is 10 days. Total : at the end of the month, the receivables will be 300 units. Assume that the company "X", involving shipping on January 1, decides to take a credit of 300 units. for the purchase of three shipments to be shipped, respectively, 10, 20 and 30 January. Remove separate tranches of the loan by purchasing each shipment is problematic. This would entail additional costs and inconvenience : it is difficult to accurately predict when it will be shipped and required the purchase of new goods. Hold large stocks of finished goods is to withdraw from circulation resources, which should be profitable. So on Jan. 1 you get a credit of 300 units. For purchases of goods to be shipped on January 10, you will need a total of 100 units. It turns out that the interest on "the remaining 200 units. Credit paid you wasted. That portion of credit you do not use or used for other purposes, and thus ineffective. You overpay! The situation repeated after 10 January, but you will not overpay for 200 units. , And "only" 100. For the calculation of your costs : 100ed. 15% / 365. 10dn. 3 = 1.23 units. is that you should have to pay to meet your real potrebnostey.200ed. 15% / 365. 10dn + 100ed. . 15% / 365. 10dn = 1.23 units. - which is what you have overpaid because of suboptimal choices tool, and an inefficient use of resources. The cost of credit instead of the expected 15% annual rate of 30% per annum. "Biznes-ideya" factoring in factoring services "pitfalls" for other forms of financing can be overcome. You traded with a grace period and not have working capital deficit. Moreover, you pay only for the period during which actually using borrowed money. Constituent factoring fee for the use of money does not exceed that of conventional short-term loan. In addition to not charge you any additional commissions for opening and maintaining accounts for the maintenance and support of the transaction fee (booking) money. You get financing once shipped goods to a buyer, and using them to pay for the actual buyer of a financed. If the buyer decides ahead of time (to maturity of the contract) to pay for the goods, since you will not be charged an additional fee for early repayment of the financing. Let us not forget that serves short-term financing and working capital movement demand is a function of the demand for goods and services and, therefore, varies depending on market conditions or season. If at this moment you do not need to bring additional resources, you can temporarily abandon the fund and not pay a commission. In doing so, you have the opportunity to restore whenever such need. Let's try to confirm this by example. Consider the cost-effectiveness of factoring in the case of the same company a "H" with a monthly sales of 400 units. and a grace period of one month. Assume that the company "X" does not apply factoring. Hidden costs (profits) in providing commercial credit its customers could reach 15%. Assume that the official inflation rate for the year of 12% and will be evenly over the year (the actual inflation with hidden inflation, we can only guess). Consequently, the company "X" pending payment of its accounts receivable for the month lost 1% of turnover. This provided the debtors to pay in 30 days, and payment discipline of our counterparts, usually leaves much to be desired. From 1 to 3% (and in some cases up to 5%), the company overpaid for raw materials. First, the absence of free money "H" could not buy raw materials in advance or on the fact that most often cheaper. So, the company is forced to resort to commercial credit from its suppliers. The difference in price in advance and deferred payment, typically in the range 1-3%. Secondly, the "H" could not take advantage of discounts for the purchase of more goods. That is 1-2% of the cost of raw materials. Assuming that the share of raw materials in cost of production is at least 50-60%, a loss of the company "H" We may add another 2-3% of the monthly turnover. And finally, the third, and perhaps most important component of loss : shifting money out of circulation for a whole month, the company "X" could not invest in their production (purchase) a new shipment, ie missed at least one production or trade cycle. The profitability of 15% of the lost revenue net of income tax is 11.4%. Factoring Factor : The above findings economic attractiveness factoring model is specific (but very common) circumstances. The factoring in the same or similar situation to increase the "financial leverage" and find the best ratio of "financial" and "operating" means. The factoring financing offers additional opportunities for business development through optimization of relations with suppliers and dealers. The choice is. Choose wisely (instead afterword) Other financing might have less effective if properly applied in accordance with your needs. You have to choose a tool or a set of tools working capital. In many ways, this choice will depend on your organization's financial policy, which in turn is determined by credit-ie together to attract funding for ongoing activities and the deployment of surplus funds. Correct credit policy accomplishes several goals. First, it is increasing the profitability of equity capital through borrowing and deployment own the funds. "Companion" challenges the effectiveness of monetary policy, are to minimize the cost of borrowings and lower credit risk (the risk of the borrower and the lender's risk). Attracting credit, temporarily replacing abstract own working capital and increases the mass of working capital, increases the "financial leverage and increase return on equity. Note that the effect of "leverage" has always reflected the acquisition of borrowing for any form, and "operational arm" will be sent only when the interest on the borrowed funds is significant. As one of the aphorisms : "All the advantages of having money is that they enjoy." Factoring is a financial instrument that allows you to use the money now, investing in the further development of your business