With the credit markets tightening up everywhere, businesses are finding it difficult get customers approved for financing through their current consumer finance programs. Many of the big banks that are players in the retail finance industry are also players in the mortgage industry as well as other sectors that are not performing to par. This has forced them to tighten up on credit and take a much more conservative approach when deciding who to approve and in what markets they want to continue to offer financing in. This is bad news for businesses as less approvals means less sales and revenue and for many businesses no financing means NO REVENUE.

Fortunately there are solutions to this problem. This situation has created an excellent opportunity for smaller finance companies as well as indirect lenders and other debt buyers to step in and fill the void. Typically these institutions find it difficult to compete with the big boys on pricing so they typically take on the role of a 2nd look option for a business's customers. Many of these small finance companies and debt buyers aren't regulated the same ways as the big banks like GE, Citi, Wells Fargo, Chase, etc so they can remain versatile and can approve a wide arrange of credits even in tough economic times.

Using smaller finance companies and debt buyers will solve a businesses approval rate problems and can provide great consumer finance programs but not without a price. These institutions have a higher cost of funds then the big banks and usually higher overhead so the programs are more expensive in terms of discounts. However, it is far less expensive then having a customer walk out the door because you can't get the financing for them.

Our office has been flooded with calls from businesses experiencing consumer financing trouble, but fortunately we are able to help them. No one knows how long this credit crunch will last. The businesses that survive will be those who find acceptable alternative finance solutions until the big banks bounce back.

For further information about these alternative financing sources visit www.eastbridgefunding.com.

I found this article posted on Article City and I thought it was well written. It explains real benefits of receivables management and why it is important.
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CFOs Need To Know the Fallacies Behind “Business as Usual” for Accounts Receivable
by: Kevin Calhoun

Introduction

The title, "CFOs Need To Know the Fallacies Behind 'Business as Usual'" is an installment of a series of white papers focusing on Business Process Improvement. This installment highlights:

•The vital role Accounts Receivable plays within a business environment

•Enormous hidden costs associated with generating Accounts Receivable documents

•Accounts Receivable vs. Receivables Management

•Proven real world solutions to eliminate these skyrocketing costs

The goal of this white paper is to enlighten CFOs that "Business as usual" is not always efficient business.

Defining Statement

"US businesses are paying over 200% too much per invoice transaction" - IDC

Business As Usual

Over the past decade, business has primarily focused on improving core business processes: Manufacturing, Distribution and Enterprise Resource Planning. In these areas, companies are rapidly automating processes, cutting costs and boosting productivity. At the heart of every business flows its lifeblood – CASH!

It can be argued that revenue generation is the most critical function of any company. Management of these receivable assets is a demanding task. Converting these receivables into cash though requires a substantial level of involvement.

The staff and processes that manage receivables assets:

•Manage 100% of a company’s revenue

•Act as a service touch point for virtually all customers. (Only Sales and Customer Service speak more with customers.)

•Incur thousand of dollars of hard and soft costs in processing receivables

•Injure or enhance customer service and satisfaction, leading to an increase or decrease in revenue

Management of the receivables assets is a complex task. It addresses the ramifications of practices outside the control of the responsible manager. It requires balancing opposing priorities. It is affected by the state of the domestic and global economy, interest rates, foreign exchange rates, banking regulations and practices, business laws, and other factors.

Excellence in receivables management is a combination of art as well as science; it involves business processes, technology tools, staff skills, motivation, corporate culture, change of behavior in customers and coworkers, organization structure and metrics, incentives, and flexibility to deal with changing external influences.

Management Expectation

Even though the process to manage receivables is very involved the management’s expectations for success are extremely high. If answered truthfully, most companies expect a Days Outstanding of 30 days or less and only tolerate a bad debt of less than one tenth of one percent. All of this is to be accomplished for a cost equal to about two or three tenths of a percent of revenue.

Are these desires real? Yes, but are they realistic? To find this out, we must analyze the environment that has been established for the management of our receivables. Kevin Craine, Author of Designing a Document Strategy said it best, "The way we manage documents says a lot about how we manage business." The question to ask is, "Does this traditional accounts receivable environment promote success or failure of the above desires?" As necessary as receivable processes are to a business, the associated costs are not.

Manual Steps for Invoicing

•Paper orders come into the company via mail or facsimile
•File folder is used to start order packet
•Order is entered in the system
•Paper order acknowledgement is mailed or faxed back to the customer
•Paper pick ticket is generated, then sent to the warehouse to pull the product
•Multiple copies of bill of lading is printed for shipment
•Signed copy of the bill of lading is returned to the company
•Paper invoice is mailed or faxed to the customer
•Order packet, which includes the customer order, order acknowledgement, pick ticket, signed bill of lading, and a copy of the invoice is physically filed in a filling cabinet that consumes valuable office space

Efficient Business

Today's business leaders are more compelled than ever to streamline their business processes in order to cut costs and improve efficiency. If an organization's core business is to produce product "X", its second line of business is to manage the documents that control the flow of that product. Unfortunately, market research firm eMarketer Inc. estimates that "84 to 98 percent of all business-to-business receivable processes still involve a large volume of paper costs." This means that organizations have achieved only a fraction of the opportunity to cut costs. These costs include:

• Printer wear and tear
• Toner
• Paper
• Pre-printed forms
• Envelopes
• Postage (which went up 5.4% in January 2006)
• Cover pages
• Facsimile charges
• Copies
• Filling supplies
• Cabinet space
• Office space
• Labor time to manage and move these invoices

Companies have the ability to make great economic strides by implementing a document management solution. By transforming paper based invoicing processes into electronic creation, distribution, and storage processes. Gartner Inc. believes that companies should expect to lower the typical cost of producing a paper invoice from $5 to $1.65. This would be achieved by reducing labor, postage, paper, office space and equipment costs.

Electronic Steps for Invoicing

• Order is received electronically at desktop and never printed
• No physical folder is need
• Order is entered in the system
• Order acknowledgement is automatically customized with an electronic form and electronically distributed back the customer
• Pick Ticket is generated with a bar code. When the completed copy is scanned back into the system it is automatically indexed
• A Bill of Lading is generated with a bar code. When the signed copy is scanned back into the system it is automatically indexed
• An Invoice is automatically customized with an electronic form and electronically distributed to the customer, then filed electronically
• There is no need for a physical filing cabinet.
• The electronic order packet includes the customer order, order acknowledgement, pick ticket, signed bill of lading, and the invoice. It is accessible to anyone with the correct security clearance on demand

10 Benefits of Receivables Management

• Improved cash flow
• Higher margins
• Reduced bad debt loss
• Lower administration costs
• Enhanced customer service
• Added value to existing ERP investment
• Improved control and compliance
• Enhanced security
• Smoother audits
• Reduce administration burden on sales force

What Are You Waiting For?

As you can see, fallacies behind the phrase "business as usual" are not immediately apparent. When companies take the time to look for ways to improve business, these problems are discovered, especially when it comes to Accounts Receivable.

Managing documents will make your business run more efficiently. Moving from a manual process to an electronic process leads to a better managed, more profitable business. What are you waiting for? Let us help you uncover your hidden document costs.

What Next?

Cornerstone Communications has helped over 800 CFOs streamline their document processes. We do not know your specific situation or if we can help you. Contact us today to explore how document management might affect your company's Accounts Receivable process.

Career Colleges and their enrollment rates have grown rapidly over the years and so has the need for creative student financing programs. Most schools face the same problem when it comes to financing students; that is, a good number of students have zero or very little credit or poor credit at the time they are applying for financing for a student loan. Banks, Financing, and other Lending institutions will not lend money to students with these kind of credit histories. So what other options do schools have to get these students financed?

Many schools have government programs that enable sub prime students to get the financing they need. Schools that don't have these government programs usually turn to in-house financing by where they place the student on a retail installment contract or promissory note to pay for the tuition in monthly payments. The school then tries to collect the payment from the student each month. These kinds programs are rarely successful because School Operators and Managers usually do not have any kind of receivables management experience making it hard to create the cash flow needed from the receivables.

Here are some tips for Schools that are using or plan to use an in-house financing program.
1. Make sure you are using the proper financing documents
This is VERY important. It amazes me to see schools with hundreds of thousands of dollars worth of loans on the books written on poor promissory notes or contracts. Make sure you use a solid retail installment contract, as well as a good credit application. The more information on the credit application the better.

2. Meet with an attorney
You need to know the laws in your state regarding lending including usury laws and collection laws. Meet with an attorney who specializes in finance and receivables. They can also advice you on what type of retail installment contract to use.

3. Hire a receivables management company to manage the portfolio.
Receivables management companies can service the portfolio and collect the payments for you for a nominal fee. And they will collect much better then you can. A school trying to collect receivables is like asking your banker to teach you massage therapy or nursing.

4. Strive for higher graduation rates.
Students who graduate are MUCH more likely to repay a student loan than students who don't.

5. Place student payments on EFT or Auto Debit.
This will draft the monthly payment directly out of the students checking account and Will result in much higher collection rates.

6. Make sure payments are affordable.
Try to keep the monthly payment between $100, and $200 per month.

7. Get a Down Payment
Aim for at least 10% of the tuition price. Students who are serious about their education who find a way to come up with the 10%.

Implementing these tips will defiantly increase the productivity or you student receivables portfolio.

Many businesses selling goods or services that retail for $300 or more experience the same problem; trying to get financing for customers with less than perfect credit. It is heartbreaking when someone is eager to purchase your product, only to find out they have no way of paying for it. When that customer walks out the door, potential revenue follows them.

Finding solutions to this problem can be difficult. Sub prime consumer loan programs aren't easy to find. Most banks typically steer clear of sub prime unsecured lending. Many businesses often resort to financing these customers in house which is time consuming and expensive to manage and doesn't deliver immediate cash like typical consumer finance programs or credit cards do. So what other options do businesses have?

Installment contract funding is an answer that many industries have successfully turned to for years. In these programs, businesses sell their newly generated receivables to finance companies for immediate cash on a weekly, bi weekly, or monthly basis depending on volume. The program works much like any A credit financing program would. The customer fills out a credit application. If they are denied by the businesses first look option, they are then sent to the second look option for approval. The second look program is designed to accept a good number of those consumers who the A credit lender deemed "unworthy". The second look option will underwrite the loan and if it passes predetermined criteria, the lender will purchase the loan from the business, giving the business immediate cash for the receivable and then collecting the debt from the consumer just like the A credit lender does.

Because the second look option accepts a lesser credit class of consumers, it can not fund the business 100% of the principle balance like the A Lender. The default rate on the portfolio will be much higher for the second look option as well as the overhead. It is much more expensive to collect from sub prime debtors as it is from good credit debtors. To offset the higher default rate and overhead, lenders will charge the business a discount fee. It works much like the fee credit card companies charge and it is usually determined by the expected default rate on the portfolio. The more approvals you want (meaning the deeper the finance company will approve credit) the more it will cost because the default rates will raise as you move lower into FICO scores. The discount fee also enables the lender to charge a more competitive interest rate so that your customers will be happy. Discounts can vary greatly from as low as 5% to as high as 50% or more.

A typical loan purchase might look like this:
- Product/Service sells for $2,000
- Business receives a down payment of $500
- Finances $1500 to consumer
- Second Look option approves loan for purchase at a 15% discount ($1275 is funded)
- Lender funds business $1275 - Customer put $500 down - giving the business $1775 in cash for the $2000 product/ service.

From this example you can see that the business was able to make the sale and generated $1775 in cash from the transaction as opposed to the customer walking out the door and the business receiving $0.

Because discounts make these programs work, they are best used in industries that have high product margins so that they can comfortably absorb the discount and still make a sizable profit. Generally you need a markup of 40% or more from what the product or service actually costs you to deliver. Service based industries are perfect matches for these programs. Here is a list of industries where this type of financing and receivables management works well:

- Trade / Vocational Schools
- Seminars
- Travel / Vacation Clubs
- Funeral Services
- Timeshares
- Campgrounds
- Computer Sales
- Consulting Services
- Fitness / Health Programs
- Medical Procedures
- Cosmetic Surgery
- Hair Transplantation
- Infomercial Sales
- College Prep
- Lasik
- Pool/Spa

If you own or run a business that has a product or service that sells for $300 or more, chances are that you have searched for second-look financing or other ways to provide your customers a method of payment to purchase your product or service should they not have the cash, room on their credit card, or are denied by your primary financing option. Nothing is more frustrating then when a customer is ready to buy your product and gets denied for financing. It is like revenue flying out the window.

The best way to solve this problem is with the use of installment contract funding or sub prime programs programs. Generally these terms can be simply defined as financing for customers that have credit scores in the low 600's and below. Every first look lender has different criteria for approval and it can vary greatly depending upon the product or service being sold.

Second-look consumer financing or installment contract funding programs that work for your business can be tough to find. You can't just apply for them at your local bank and most primary consumer lending institutions do not do business in the subprime world. In addition to being tough to find, each company can vary greatly when it comes to how they structure their programs and what industries they do business in.

Here are some tips to help you find sub prime lenders:
1. Search for "debt buying companies" as opposed to "finance companies". Many of today's debt buyers have consumer financing programs and are used to dealing with subprime debtors.

2. Talk to other businesses in your industry. One of your "friendly" competitors may already have a successful program in place.

3. Contact billing or servicing companies. Many billing or servicing agencies collect paper for debt buyers or other finance companies that deal in second look finance. They might refer you.

4. Ask your first look lender for a recommendation on what to do with turn downs. They may partner with sub prime companies on other deals they are doing and these companies might work with your deal.

5. Work with a receivables management consulting firm like East Bridge Funding who can build a customized program working with their network of second look financing lenders. Generally these firms earn fees from lenders so the work they do for you costs you nothing and you get much better results in a much shorter time frame.

6. Check with your local banker in charge of commercial accounts. Commercial bankers get asked all of the time by their customers about consumer finance programs which they typically don't do. He or she may have a referral for you.

In the near future I will discuss some of the important factors involved in working with a lender, once you have found one, to get the best program that is right for your business and your customers.