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Listings of Bank Foreclosures from Failed Small Banks 0

Jan26

Listings of bank foreclosures continue to grow as the number of collapsing small banks continue to rise. According to the Federal Deposit Insurance Corporation, it has just shuttered the 100th failed bank in 2009.

While the country’s largest banks were rescued by billions in taxpayer money, failing small banks were closed and their deposits and other assets were transferred to other banks.

According to bank analysts, the number of failed small banks is still considerably low compared to the overall number of smaller banks throughout the U.S., but the bank closures show the divide between smaller banks and the country’s biggest banks like U.S. Bancorp, JPMorgan Chase and Goldman Sachs, which are growing stronger and bigger.

Analysts cite the high number of bad real property loans as the major factor for the failure of most, if not all, of the 100 banks that have failed so far this year. They expect more small banks to fail and to release more listings of banks foreclosures into the market because of these toxic real estate loans.

The rising number of bank failures has wiped out billions from the FDIC, which has been paying the depositors of failed banks. FDIC said that its over $50-billion fund as of 2007 is now below the safe level. To replenish its fund, it has asked stronger banks to make their insurance payments earlier.

Communities served by small banks are also now feeling the adverse effects of the failure of their banks. Although their deposits are paid by FDIC and their other assets are transferred to the acquiring institutions, they have lost their strong relationships with their bankers and they are now facing new bankers bent on cutting costs and eliminating previous incentives.

Some acquiring banks have closed branches, terminated high-interest deposit accounts, cut off several lines of credit and ended loan programs with favorable terms.

FDIC Chairwoman Sheila Bair explained that bank closures are painful to communities, but failing banks needed to be shuttered early so assets can be preserved, consumers can be protected and financial stability is sustained.

The FDIC expects more bank failures over the coming years, particularly in the Southeast and Midwest where banks made big loans to house builders and developers of strip malls, housing subdivisions and office buildings.

According to Foresight Analytics, around $870 billion of the $1.8 trillion worth of commercial property loans in the U.S. were provided by smaller banks that lack the trading strength of bigger banks, putting them closer to failure and their assets to listings of bank foreclosures.

What Is Online Banking And How You Can Benefit From It 0

Dec5

The internet has become an important part of our lives. There are many of us who rely on the internet to communicate with our friends and family. Online shopping is also making buying new and used merchandise easier. If you enjoy using the internet to communicate with those that you know or to shop, you may also enjoy banking online. Online banking is rapidly increasing in popularity. If you do not already participate in some form of online banking, it is likely that you will in the future.

When it comes to online banking, there is often some confusion. Many individuals, maybe even yourself included, feel that online banking involves a bank that does not have a physical branch location. There is such a thing as an online bank, also sometimes referred to as a virtual bank, but that is not all that online banking is about. You can also participate in online banking with your local bank. In fact, this is the most popular type of online banking.

If you are interested in participating in online banking, you will first have to determine whether or not your bank offers the service. A large number of banks do, but not all of them. You will find that many national or statewide banks offer online banking. Smaller banks, often only consisting of five or so branches, do not always offer the service. Even if you have never heard of online banking being offered at your local financial institution, you are still encouraged to ask about it. You never know, but if enough customers are interested in it, your local bank may decide to start an online banking program.

Online banking means different things to different financial institutions. You may find that different banks offer different online services. Despite the difference in services, you will find a number of common services. These services are likely to include the online paying of bills, the online ordering of a debit card or checks, or the altering of your bank account information. Perhaps, the feature that most enjoy is the ability to pay bills online.

Most banks offer online banking free of charge, but you may find a financial institution that charges you to use this online service. If you have yet to choose a bank to do business with, you may want to keep this potential fee in mind. If your bank will charge you a fee, you may want to consider whether or not online banking is right for you. As with all other services, online banking does have its advantages and disadvantages.

As previously mentioned, the greatest advantage of online banking is being able to do a number of things right from your home. If you are looking for an easier way to pay your bills, you will enjoy online banking. Instead of having to pay for postage or write a check, you can simply use the click of a mouse to pay your bills. There are also banks that offer online calendars. Combined with quickly being able to pay your bills, you may find that an online calendar will help to eliminate any late payments.

The biggest disadvantage of online banking is having your information online. There are many individuals, maybe even yourself included, who are concerned with the security of the internet. As long as your bank’s website is hosted on a secure website, which most are, you should experience no trouble at all. Aside from getting over the issue of trust, there are very few, if any, disadvantages to banking online.

Before making a decision as to whether or not you want to participate in online banking, you are encouraged to speak with a bank representative. You may be surprised just how convenient and easy it to use the internet to do your banking.

Nigerian Banking Crisis: From irrational market exuberance to regulatory exuberance 0

Nov12

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Home Page > Finance > Banking > Nigerian Banking Crisis: From irrational market exuberance to regulatory exuberance

Nigerian Banking Crisis: From irrational market exuberance to regulatory exuberance

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Nigerian Banking Crisis: From irrational market exuberance to regulatory exuberance

By: Anthony Osae-Brown

About the Author

Finance and communication specialist with experience in banking, research and financial analysis and media. Academic qualifications include an M Sc in Banking and Finance, a Bachelor’s Degree in Finance and professional affiliation to the Chartered Institute of Stockbrokers (CIS level I) and the National Investor Relations Institute (NIRI) United States. Good computer skills- Microsoft Excel, Access and Word-. Won four different merit awards in financial journalism

(ArticlesBase SC #1172041)

Article Source: http://www.articlesbase.com/ – Nigerian Banking Crisis: From irrational market exuberance to regulatory exuberance

Since Friday August 14, the Nigerian banking system has not been the same. What started as a rumour that some bank chiefs were about to be sacked became real. The CEOs of Intercontinental Bank, Oceanic Bank, Finbank, Union Bank and Afribank went to the office as CEOs in the morning and returned home early and jobless and with the real prospect that they were also on the verge of losing their stakes in the banks they have sat on as owner managers for close to two decades.

The Central Bank of Nigeria (CBN), the apex regulatory organ for Nigerian banks had taken the decision to wield the biggest stick in the Nigerian banking industry. Sacking five CEO’s, three of whom before the sack, were considered among the top five banks in the country, have been described as the Nigerian banking tsunami.

Justifying its action, the CBN facts are convincing. The five banks according to CBN had given out loans of close to N2.8 trillion of which close to 50 percent were classified as none performing. The five banks, said the CBN, had become virtually illiquid accounting for 90 percent of inter bank borrowing over a seven month period, first through the CBN expanded discount window and then when the window was closed and the interbank market opened, they borrowed from the interbank window to pay down their debts at the EDW. This, no doubt was a clear sign that these banks had run out of money to meet their day to day operations and will collapse like a pack of cards if they are not able to borrow short term funds from the interbank market.

Besides, their desperation at the interbank market was also distorting rates at that window where the CBN was doing all it can to reduce the lending rates. As long as these big banks engaged in desperate borrowing from this window, the CBN efforts to bring down interbank lending would be fruitless. It was obvious that these banks could only survive their critical liquidity challenges with a fresh injection of equity or debt capital.

But considering the state of both local and international capital markets, it was obvious that any attempt by these banks to raise fresh capital may be like a camel going through the eye of the needle.

So the CBN was left with the option of injecting its own capital, arranging a bail out of the banks like it happened in America. In its wisdom however, the CBN felt that, it would not pump in capital and allow the same managers, which by their action and inaction allowed their banks to run into this state of illiquidity to continue to sit at the top of management. Most importantly, it is obvious that the CBN felt that it was time, that it sent a strong message out there that poor banking practices in the industry will no longer be allowed.

But in the process of sending out this message to the industry has the CBN “over killed.” It is obvious that Sanusi Lamido Sanusi, riding on his strong reputation as a risk manager, may have unduly focused on curtailing poor credit risk practices in the industry without taking into consideration reputational risk. So in an attempt to pluck the loop holes created by poor credit risk practices, the Sanusi may have left the banks exposed to reputation risk damage that the concerned banks may never recover from and the banking industry at large may take a long time to overcome.

Was there a better way to effect the significant changes required in the practice of banking in Nigeria without creating all the drama that is currently prevalent in the Nigerian banking industry? Many have argued that the CBN could have forced all the banks to make the required provisions, declared their losses and take the hit on their capital that would have invariably resulted and demanded the recapitalization plans from the board of the banks. Where they were not in a position to recapitalize, the CBN will move in with its new capital and as the new majority owner, sack the board and effect the necessary changes.

This may have taken a longer time but no doubt the process would have been more tidy and transparent. The haste with which CBN has sacked the MD’s has been overtly populist. Surprisingly, the CBN sacked only the MD’s leaving the board, whose responsibility it is to ensure proper banking is enshrined in their institutions, intact. It is not clear why the CBN sacked the MD’s and left the boards intact. If there has been a failure in these institutions, it was a failure of the board rather than executive management. Leaving the board intact is an endorsement of poor corporate governance and the continuation of board negligence and inactivity which has primarily been the course of recurrent bank failures. If the CBN really wanted to change the way banking is done in the country, sacking the board would have be the best action as it would sent the strongest signal that sitting on the board of a bank comes with its privileges but it also comes with huge responsibilities which must not be taken for granted.

Regulatory exuberance is further displayed in the CBN action with its hasty publication of the list of bank debtors without even allowing the new management it had put in place in the banks it had taken over to settle in. Basically, the CBN action has removed the greatest tool the new management has in collecting these loans, that is the threat of “Name and Shame” the debtors. Having lost this tool, they have now resorted to the lame tool of threat of arrest.

This is a lame threat considering that lending is not a crime neither is borrowing. Lending without collateral is an offence under BOFIA but there is no definition what collateral is and besides no bank lends without a form of collateral. And still in the spirit of regulatory exuberance the EFCC goes ahead to ask debtors to pay within seven days by issuing a draft in favour of the Federal Government. The first question is, did the Federal government lend money to these so called debtors? So why should they pay money to the Federal Government?

Then where will the alleged N774 billion owed by the debtors come from? Is it from the supposedly healthy banks in the system? How many of the supposedly healthy banks survive the removal of N774 billion from their vaults in seven days? This order does not only smack of regulatory exuberance but also strong ignorance of how the financial system works. And the truth is that if the banking system had N774 billion lying around in its vaults, there will not be liquidity crisis, neither will interbank and lending rates be hitting new highs.

The most dangerous aspect of the current regulatory exuberance however is the current attempt to criminalize lending and borrowing. Since 2005, the Nigerian economy has been able to sustain a growth rate of six percent and above and this period also marked the unprecedented growth in bank lending to the private sector. The link between economic growth and bank lending is not coincidental as many economists will tell you. This is where the danger lies in the current CBN/EFCC joint efforts to criminalize the act of lending and borrowing.

There is a real possibility that this may result in a credit freeze to the economy. First banks may become averse to take the risk of lending to the vulnerable sectors of the economy that usually have a higher risk of default why entrepreneurs will also become averse to borrowing. If this happens, the impact will be disastrous to the economy. The already high unemployment rate will get worse and poverty will be intensified.

There is no doubt that following years of carefree growth; the banking industry needed an urgent dose of sanity. But sadly, the way the CBN has gone about it will harm the Nigerian economy in the long run. The CBN under Sanusi has effectively replaced irrational market exuberance with its own regulatory exuberance.

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(ArticlesBase SC #1172041)

Anthony Osae-Brown -
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Source: http://www.articlesbase.com/banking-articles/nigerian-banking-crisis-from-irrational-market-exuberance-to-regulatory-exuberance-1172041.html

Article Tags:
nigeria, banking, intercontinental bank, finbank, union bank, oceanic bank, afribank, sanusi lamido sanusi, debts, crisis, irrational exuberance, oil, capital market, non performing loans, efcc, central bank of nigeria

Banking Industry for Bank Guarantees from POME by Gautam KOppala 0

Oct14

Banking Industry for Bank Guarantees:

Definition of a Bank:

The definition of a bank varies from country to country.

Under English law, a bank is defined as a person who carries on the business of banking, which is specified as:

conducting current accounts for customers
paying cheques drawn on a given person, and
collecting cheques for their customers.

Examples of statutory definitions:

“banking business” means the business of receiving money on current or deposit account, paying and collecting cheques drawn by or paid in by customers, the making of advances to customers, and includes such other business as the Authority may prescribe for the purposes of this Act; (Banking Act (Singapore), Section 2, Interpretation).
“banking business” means the business of either or both of the following:
receiving from the general public money on current, deposit, savings or other similar account repayable on demand or within less than [3 months] … or with a period of call or notice of less than that period;
paying or collecting cheques drawn by or paid in by customers[2]

Since the advent of EFTPOS (Electronic Funds Transfer at Point Of Sale), direct credit, direct debit and internet banking, the cheque has lost its primacy in most banking systems as a payment instrument. This has lead legal theorists to suggest that the cheque based definition should be broadened to include financial institutions that conduct current accounts for customers and enable customers to pay and be paid by third parties, even if they do not pay and collect cheques.

Wider commercial role

However the commercial role of banks in Projects is wider than banking, and includes:

issue of banknotes (promissory notes issued by a banker and payable to bearer on demand)
processing of payments by way of telegraphic transfer, EFTPOS, internet banking or other means
issuing bank drafts and bank cheques
accepting money on term deposit
lending money by way of overdraft, installment loan or otherwise
providing documentary and standby letters of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures
safekeeping of documents and other items in safe deposit boxes
currency exchange
sale, distribution or brokerage, with or without advice, of insurance, unit trusts and similar financial products as a ‘financial supermarket’

Law of banking

Banking law is based on a contractual analysis of the relationship between the bank and the customer. The definition of bank is given above, and the definition of customer is any person for whom the bank agrees to conduct an account.

The law implies rights and obligations into this relationship as follows:

The bank account balance is the financial position between the bank and the customer, when the account is in credit, the bank owes the balance to the customer, when the account is overdrawn, the customer owes the balance to the bank.
The bank engages to pay the customer’s cheques up to the amount standing to the credit of the customer’s account, plus any agreed overdraft limit.
The bank may not pay from the customer’s account without a mandate from the customer, e.g. a cheque drawn by the customer.
The bank engages to promptly collect the cheques deposited to the customer’s account as the customer’s agent, and to credit the proceeds to the customer’s account.
The bank has a right to combine the customer’s accounts, since each account is just an aspect of the same credit relationship.
The bank has a lien on cheques deposited to the customer’s account, to the extent that the customer is indebted to the bank.
The bank must not disclose the details of the transactions going through the customer’s account unless the customer consents, there is a public duty to disclose, the bank’s interests require it, or under compulsion of law.
The bank must not close a customer’s account without reasonable notice to the customer, because cheques are outstanding in the ordinary course of business for several days.

These implied contractual terms may be modified by express agreement between the customer and the bank. The statutes and regulations in force in the jurisdiction may also modify the above terms and/or create new rights, obligations or limitations relevant to the bank-customer relationship.

Types of investment banks

Investment banks “underwrite” (guarantee the sale of) stock and bond issues for the Projects, trade for their own accounts, make markets, and advise corporations on capital markets activities such as mergers and acquisitions.
Merchant banks were traditionally banks which engaged in trade financing. The modern definition, however, refers to banks which provide capital to firms in the form of shares rather than loans..

Both Combined:

Universal banks, more commonly known as a fnancial services company, engage in several of these activities. For example, first bank (a very large bank) is involved in commercial and retail lending, and its subsidiaries in tax-havens offer offshore banking services to customers in other countries. Other large financial institutions are similarly diversified and engage in multiple activities. In Europe and Asia, big banks are very diversified groups that, among other services, also distribute insurance, hence the term bancassurance is the term used to describe the sale of insurance products in a bank. The word is a combination of “banque or bank” and “assurance” signifying that both banking and insurance are provided by the same corporate entity.

THE BANKING LIASON TO PROJECTS SECTOR

Account party:

The party which addresses the bank for the issue of a letter of credit , e.g. the account party can be an importer, a buyer, a construction contractor or a supplier bidding on a contract.

Interbank Offered Rate (IBOR):

Also known as the interbank rate, this is the interest rate applied on short term loans between banks and which serves as a reference rate for other types of loans, including buyer credit or supplier credit. The interest rate terms are calculated daily and determined according to the length of and currency of the loan. A number of financial centres offer an IBOR, including London (LIBOR), Paris (PIBOR), Singapore (SIBOR), Zurich (ZIBOR), etc. The US Federal Funds Rate is also an example of an interbank rate.

Guarantee credit:

A bank credit not involving the actual provision of funds by the bank, but rather the bank’s assumption of liabilities or obligations on behalf of its customers, e.g. bill guarantee, acceptance or surety credit.

Interbank market:

A market where banks borrow and lend to each other, usually for very short-term periods.

Interbank transactions:

Foreign exchange or lending transactions between banks as opposed to transactions between banks and non-bank clients.

Interest arbitrage:

A type of artbitrage consisting of investment in interest-bearing instruments in different currencies, with the aim of earning a profit by taking advantage of existing or expected interest rate and exchange rate differentials.

Interest charge:

Interested charged i.e. negative interest.

Interest during construction (IDC), Pre-commissioning interest:

Interest on loans accruing during the performance of the supply contract, which are in general capitalized and added to the principal amount outstanding

Interest make-up agreement (IMU):

An arrangement involving an export credit agency or an EXIMBANK whereby these make possible the granting of a concessional fixed rate loan to support exporters.

Interest rate:

(1) The rate at which interest is due on any obligation, or is paid on interest bearing assets.

Interest Rate Coverage:

Coverage against adverse fluctuations in interest rates

Interest rate differential:

The spread between two different facilities or between spot and forward rates. (An indicator of future changes in the spot exchange rate).

Interest Rate Equalization: Subsidization :Make-up.

A service offered by Export Credit Agencies or EXIMBANKS providing commercial banks with the difference between the subsidized rate payable on the bank’s ECA supported loan and the bank’s market cost of funds, plus an agreed interest spread.

Intermediation:

An activity performed by banks and other financial institutions, aimed at matching the financial needs of certain companies with the financial surpluses of other companies. Banks can purchase direct claims from deficit units, while issuing secondary claims to depositors. Opposite: disintermediation.

Intermediate consignee:

The bank, forwarding agent or other intermediary, acting as agent in the foreign country on behalf of the exporter, purchaser or ultimate consignee, charged with the delivery of the exported merchandise to the ultimate consignee.

Investment bank: Merchant banks.

A financial intermediary specialised in offering a variety of services, such as acting as a broker in share and bond deals, underwriting new security issues, facilitating mergers and other corporate reorganizations, providing long-term loans and/or equity capital, etc., rather than in lending out its own funds. More specifically, the term refers to US banks like Merrill Lynch, Goldman Sachs and Salomon Brothers which underwrite and deal in securities and do not take deposits directly from the public.

Investment Fund:

A holding company usually managed by an investment banker which collects savings from investors to be used to acquire participation in agreed sectors and countries.

Investment paper:

Securities which are particularly suitable for long term investments.

Investment risk guarantee:

A guarantee scheme, usually government-operated, covering part of the risks connected with investments abroad.

Invisibles/Invisible trade:

Non-merchandise trade, including transport services (freight, shipping, etc.), most types of services (banking, insurance, tourism etc.) and investment.

Issuing bank:

A bank which opens a letter of credit, thereby assuming the obligation to pay the beneficiary or the correspondent bank if the documents presented are in accordance with the terms of the letters of credit.

Advising bank:

Also known as the notifying bank. This is the bank operating in the exporter’s country which handles letter of credit on behalf of the foreign bank, by notifying the exporter that the credit has been opened in his favour and informing him of the terms and conditions of the letter of credit. It does not necessarily have responsibility for payment.

Term loan:

A business loan with a final maturity of more than one year, payable according to a specified schedule.

Tied aid credit:

This refers to the practice of providing a grant and/or a concessional loan, either alone or combined with an export credit, which is linked to an export sale from the donor country.

Tied loan:

A loan made by a government agency whereby the foreign borrower is required to spend the related financial resources in the lender’s country.

Authorized bank:

A bank allowed by a country’s public authorities to process the decentralized payment transfers.

Aval:

A form of guarantee, generally given by a commercial bank, on a negotiable instrument. An aval is usually an unconditional guarantee of payment and is not affected by the terms of the underlying transaction. Avals are recognized only in certain countries (mainly European), though usually not in countries with an Anglo-Saxon legal base.

Bank(er’s) Acceptance; Bank bill:

A draft or bill of exchange whose acceptor is a bank.

Bank commission:

A bank charge for special services (credit commission) or for risk coverage, added to the interest on loans extended to its clients.

Bank discount rate:

The rate at which a bank discounts notes. A rate quoted on a discount basis understates bond equivalent yield. This difference must be calculated when comparing the return on yields on a discount basis and equivalent coupon securities.

Bank draft:

An international transfer of funds through an instrument very similar to a cheque.

Bank for International Settlements (BIS):

An international bank based in Basel, Switzerland, serving as a forum for monetary co-operation between several European central banks, the Bank of Japan and the U.S. Federal Reserve System.

Bank guarantee:

A guarantee, issued by the bank of the foreign purchaser, to pay the seller/exporter up to an agreed percentage of the value of the goods shipped in case of default by the purchaser.

Bank-issued medium-term note:

A medium-term certificate of indebtedness, issued by a bank on demand, with maturities ranging between 2 to 8 years.

Bank release:

A negotiable time draft drawn on and accepted by a bank, which adds its credit and standing to that of the importer.

Banker’s Bank:

A bank established by consent by independent and unaffiliated banks as a clearing house for financial transactions.

Banker’s draft:

This is an order from a buyer/importer to his bank to make a payment to the bank of the seller/exporter.

Balance

the difference between credits and debits in an account.

bank charges

money paid to a bank for the bank’s services etc

branch

local office or bureau of a bank

checkbookUS

book containing detachable checks; chequebookUK

checkUS

written order to a bank to pay the stated sum from one’s account; chequeUK

credit

money in a bank a/c; sum added to a bank a/c; money lent by a bank

credit card

(plastic) card from a bank authorising the purchasing of goods on credit

current account

bank a/c from which money may be drawn at any time; checking accountUS

debit

a sum deducted from a bank account, as for a cheque

deposit account

bank a/c on which interest is paid; savings accountUS

fill inUK

to add written information to a document to make it complete; to fill outUS

interest

money paid for the use of money lent – interest rate n.

loan

money lent by a bank etc and that must be repaid with interest.

overdraft

deficit in a bank account caused by withdrawing more money than is paid in

pay in

to deposit or put money in to a bank account

payee

person to whom money is paid

paying-in slip

small document recording money that you pay in to a bank account

standing order

an instruction to a bank to make regular payments

statement

a record of transactions in a bank account

withdraw

to take money out of a bank account – withdrawal n.

Gautam Koppala,

POME Author

Getting Financing From Banks For Real Estate Investing 0

Mar14

People investing in real estate look for capital providers, who will offer the level of capital they need as well as the rate, term, pricing, closing time frame, exit and prepayment options, and recourse provisions. These must suit their individual needs, as well as any value added features on the offer. Choose a capital provider with whom the individual can develop a good, long lasting, working relationship as well as providing the broadest access to the much-needed capital. Those who are experts in dealing with real estate investments are ideal capital providers. There are direct, indirect, and hybrid lenders that provide capital to real estate investors. Banks are direct lenders.

Dealing with Banks to Get Finances for Real Estate Investing
Banks are the most preferred capital providers as they have excellent staff and have expertise in the local real estate market. Most of the loans offered by banks are short term, full recourse loans that are not competitive by nature. Banks are acknowledged to be the best source for procuring capital needed for investing in real estate.

It is necessary to prove to the loan officer of the bank that your investment is a low risk one, by carefully presenting the application for the loan. All your achievements and your track record of good investment strategies will help in showing you are a low risk investment for the bank. Having a good credit profile as well as a good credit report are added advantages. Having a well-drafted business plan of how you are going to develop and implement the plan, including the cash flow forecasts in case you are in the construction sector, using an asset as collateral, and having confidence in your venture, will help in securing the loan at interest rates that are not too harsh. Select a bank that has expertise in your area of real estate as they may have value added services that can benefit you.

Developing a good relationship with the bank, making payments on time and repaying the loan will help, as they will be ready to finance you in future should there be a need for it. Having a good action plan to make your real estate investment pay good returns and a firm commitment to repay debts are what loan officers look for in any applicant. You can seek the help of the bank in planning your strategies and finding out if there is any means by which you can cut costs using the banks team of experts to guide you. When the bank is actively involved in planning, greater project profitability can be expected as well as aid in utilizing the borrowed money to get maximum results. Dealing with banks to get finances for real estate investing is an important aspect of this sector.

Additional Help
There are firms that offer help to new businesses investing in real estate. These firms offer services and software that shall aid you in the process of obtaining real estate and making money from it.

Factoring Financing – How Canadian Companies Can Benefit From Factoring 0

Jan21

Waiting 45 days to get paid by your customers can be painful, especially if you own a new and growing company. Business clients, especially medium sized and large companies, always insist that you give them credit terms. That means they will pay 30 to 60 days after delivery.

Trying to negotiate a quick payment usually doesn’t work. Especially, with larger clients that have established vendor payment policies that they follow to the letter. This creates a substantial problem for the business owner. You have expenses that must be paid now, such as employee salaries, supplier expenses and taxes. However, cash flow is delayed by clients.

Is the solution to go to the bank for a business loan or line of credit? Perhaps, though Canadian banks seldom offer business financing to small companies. They have stringent financing requirements that must be met – without exception. However, there is a solution to this problem that has been gaining popularity in Canada. It’s called invoice factoring.

Factoring provides you an 80% quick pay advance on your invoices. This gives you the necessary funds to pay employees, suppliers and taxes. The remaining 20%, less a small fee, is paid to you as soon as your client pays the invoice, usually 30 to 45 days after issuance. Factoring financing provides the funds you need to operate your business and capitalize on new opportunities.

One of the biggest advantages of receivables factoring is that is much easier to qualify than bank financing. The most important requirement is that you do business with reputable and credit worthy customers. The whole transaction hinges on your customer’s ability to pay their invoices on time.

As a solution, factoring invoices is very popular with staffing and transportation companies. Freight bill factoring and staffing agency factoring have been gaining substantial traction in Canada for the past few years. However, factoring can benefit any company that has good commercial customers and a need for operating capital.

Having Bad Credit Doesn’t Prevent You From Financing A Car 0

Sep28

The author has written additional articles on bad credit loans and entry level finance jobs.

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