Invoice Factoring: Helping Small Businesses Leverage Health Care Costs

BETHESDA, MD — The Interface Financial Group (IFG), North America’s largest alternative funding source for small business, suggests that until the nation’s health care reform has been resolved, small business owners look to accounts receivable factoring. Small businesses are the engine of the economy, creating at least seventy percent of all new jobs, In the United States small businesses employ more than half of all private sector employees, pay 44 percent of total U.S. private payroll and have generated 64 percent of net new jobs over the past 15 years.

The cost and availability of health insurance is one of the nation’s small business owner’s primary concerns, typically driven by insurance premium and administrative costs. A 2007 Kaiser Family Foundation study confirmed the connection between the size of a firm and whether it offers health insurance, showing that about half of businesses with fewer than 10 workers offer health benefits to their employees.

According to the president of the National Small Business Association (SBA), Todd McCracken, "Congress hasn’t approached health care reform from a small business owner’s standpoint."

Current legislation before the House includes the fact that businesses with payrolls as low as $250,000 would pay a two percent tax if they didn’t provide health insurance for employees. What’s more, the number rises to eight percent with a payroll of $400,000. In early Senate legislation, firms that employ 25 or more workers would have to insure them all or pay per-employee penalties — all points that are certain to discourage the growth of small businesses.

The problem was addressed in July as the Senate Committee on Health, Education, Labor and Pensions amended its version of the bill to exclude a firm’s first 25 employees — not just firms with 25 or fewer — from an annual fee of $750 per worker. This means that placing a 26th employee on the payroll would trigger only one $750 fee — not 26.

Currently corporations and big businesses can offer deluxe insurance tax-free, which helps them with recruiting and retaining employees. Many small businesses would like a tax on premium insurance which would generate necessary funding for healthcare reform, limit plans that cover unnecessary procedures and level the playing field. Congress could grant self-employed taxpayers the same healthcare deductions as businesses. Some entrepreneurs would like to see the federal government put a cap on the value of tax-deductible insurance.

Another issue that is being addressed by Congress is giving small business owners and the self-employed the right to form insurance purchasing pools, because they don’t have the bargaining power of bigger corporations. It was during when 2008 a bipartisan group of lawmakers introduced the Small Business Health Options Program (SHOP) bills to allow pools.

Standard accounts receivable factoring has been around for more than 4,000 years, while today IFG is finding that single invoice factoring is a popular new tactic allowing companies to factor one invoice at a time. Invoice factoring benefits businesses that do not get paid for 30 to 60 or 90 days by advancing up to 90 percent against invoices. IFG looks at the creditworthiness of the client’s customers and can fund within as little as 24 hours. The company does not expect to buy 100 percent of a company’s receivables, and there are no minimum or maximum sales volume requirements.

"Many small business owners are afraid that their priorities are getting lost and that the government is taking too long to recognize their needs. But other small businesses are finding invoice factoring, useful to bridge the gap, resolving the current cash flow problems due to the economy," said IFG’s Chief Executive Officer George Shapiro. "Accounts receivable factoring leverages the funds that a company expects to have coming in 30, 60 or 90 days out, providing cash to cover payroll and other business expenses including their employees’ insurance."

Accounts receivable factoring differs from traditional bank loans in that bank loans involve two parties, while factoring involves three parties. Banks base their decisions on a company’s credit worthiness, whereas factoring is based on the value of the receivables. Factoring is not a loan — it is the purchase of financial assets, or receivables.

IFG looks at the creditworthiness of a client’s customers and pays within as little as 24 hours. IFG does not expect to buy 100 percent of a company’s receivables, and there are no minimum or maximum sales volume requirements. IFG’s professional rates are competitive because each client’s circumstances vary, which may have an impact on the fees charged. The program allows choices of invoices to be factored, enabling customers to retain most of their money, while spending the minimum fees to guarantee adequate cash flow.

The factoring process begins with due diligence that typically takes one to two business days, and after this has been completed the client is at liberty to offer invoices to IFG for purchase. Upon receipt of invoices, IFG checks the credit of the debtor named on the invoice and makes sure that the sale represented has been satisfactorily completed. Once this is done the debtor is advised of the purchase by IFG and the client receives their funding.

About The Interface Financial Group (www.ifgnetwork.com)
The Interface Financial Group (IFG) is North America’s largest alternative funding source for small business, providing short-term financial resources including invoice factoring (invoice discounting). The company serves clients in more than 30 industries in the United States, Canada, Australia, and New Zealand, and offers cross-border transaction facilities between the U.S. and Canada. With more than 140 offices across North America and over 35 years of experience, IFG provides innovative invoice factoring solutions by offering short-term working capital to growing businesses. Single invoice factoring, or spot factoring, is an extremely fast way to turn receivables into cash.

IFG was founded in 1972 to provide short-term working capital to help small to medium sized businesses grow. The IFG organization operates on a local level, providing clients with local knowledge and experience and business expertise in numerous diverse areas in addition to accounts receivable factoring, including accounting, finance, law, marketing and banking.

Sources: U.S. Dept. of Commerce, Bureau of the Census and International Trade Admin.; Advocacy-funded research by Kathryn Kobe, 2007 (www.sba.gov/advo/research/rs299tot.pdf) and CHI Research, 2003 (www.sba.gov/advo/research/rs225tot.pdf); U.S. Dept. of Labor, Bureau of Labor Statistics; National Federation of Independent Business; Kaiser Family Foundation.