The Capital Update

A Year of Growth

rmpcapital — Thu, 12 Jan 2012 22:59:05 +0000

2011 was a year of growth for RMP Capital. Hopefully that growth not only reflects on RMP but the economy as well. As our economy continues to recover and stabilize, it’s always nice to reflect on what individual companies have done as the New Year rolls around.

As banks continue to face strict regulations on their business lending, many companies are in need to find outlets in order to finance their operation so they can begin to flourish again. Fortunately, for the factoring industry, we are able to step in and help these companies overcome the struggles of not being able to secure traditional lending. Individually, RMP Capital saw an increase of 53% of new clients from 2010 to 2011. That is not only a positive sign for RMP but for the businesses we were able to help so that they can feel the growth as well with their new access to capital.

Now that 2012 is under way, RMP Capital is looking to build and expand upon our growth from 2011. We are excited to offer our full service factoring to most commercial industries, along with our specialties in transportation, public works contracting/construction and lines of credit to small factors. We also welcome working with brokers, with referral fees, and participations with other factoring companies. RMP Capital is able to fund companies across the US and Canada along with our Export Factoring Program for foreign receivables. Hope everyone has a great 2012!

Eric Grozenski, Assistant Vice President

Happy New Year from RMP Capital!

rmpcapital — Thu, 29 Dec 2011 00:23:08 +0000

Thanks to all our readers who followed our blog in 2011. The Capital Update increased by 139% in views since 2010. We appreciate everyone who stopped by to see what’s happening at RMP Capital. Hope everyone has a great 2012 and thanks for following our writers!

Why Would a Business Use Accounts Receivable Funding?

rmpcapital — Mon, 19 Dec 2011 16:27:47 +0000

In working with banks and providing an Accounts Receivable Funding Program through RMP Capital’s Community Bank Program, the question that is asked or implied most often is: “Why would a business use Accounts Receivable Funding?”

Accounts Receivable Funding is primarily for companies who cannot qualify for the amount of money they would like to borrow with a traditional working capital line of credit. This is because they do not have enough collateral to be approved for the line amount requested, they are a start-up, or they have credit issues – concentration, nature of business, too much exposure, etc.

But the key to whether or not a company is a fit for our program is what they do with the money. For instance, a company doing $2.4MM in sales with a 50-day average turn on receivables will likely have approximately $330K in A/R at any given point in time. We advance at a typical rate of 80%, meaning 20% of the receivables are a hold-back or in “reserve.” So in this example, I could ask a business owner: “If I could put approximately $240K on your desk tomorrow…What would you do with it?” If he says, “I would buy a new company car, make some repairs to the building, take a vacation, and put the rest in the bank”…he is not a candidate for our program. But, if he says, “I would pay off my existing line of credit to get out of debt, purchase two more vehicles to put two more sales people on the street, pay down my payables and take advantage of existing trade discounts, increase my inventory and offer new products to grow my business to its full potential, etc.”…he would be an excellent candidate for Accounts Receivable Funding. The reason this company is a good candidate is that, by taking advantage of the aforementioned opportunities with improved cash flow, it will more than offset the higher cost fees with increased profits as result of achieving a higher growth level. Also, the company is no longer making monthly debt payments and has the ability to reduce cost of goods sold (COGS) by taking advantage of early pay trade discounts or bulk purchases. And, the business owner no longer has to worry about how to “rest the line” for 30 days, which is a typical requirement by most banks offering a line of credit.

Occasionally, we find a business owner that likes to use our program for peace of mind, no longer having to worry about cash flow. Now, collection calls can be done as a good business practice rather than panicking for payroll or other obligations. The business owner no longer needs to gauge his day by what the mail brings. Some business owners, regardless of where they are or what they are doing, want to know what checks came in so he or she can plan on who gets paid that day. Accounts Receivable Funding eliminates this stress on a business owner.

RMP Capital Corp., headquartered on Long Island, NY, provides a hybrid, turnkey Accounts Receivable Funding Program for banks to offer their customers and prospects at no risk or cost! Accounts Receivable Funding is an alternative to traditional bank financing, specifically to increase cash flow and fund growth. Give us a call to see how RMP’s Community Bank Program can work for your bank.

Chuck Stover, Manager of Bank Relations

Season’s Greetings from RMP Capital

rmpcapital — Thu, 15 Dec 2011 17:23:16 +0000

Contractors’ Boost Only Works if They Learn Finance

rmpcapital — Tue, 29 Nov 2011 18:59:13 +0000

Earl Harper had the opportunity to write about contractor financing and how it relates to President Obama’s intentions about putting contractors and subcontractors “back to work”. Below is Earl’s opinion that was published in statesman.com:

President Barack Obama has made several major announcements about his intentions to “put construction and building tradespeople back to work.” He specifically mentions using independent contractors and subcontractors, a number of them family-owned small businesses, for public works opportunities.

Unfortunately, the president is raising false hopes and expectations because he is not addressing a serious disconnect under current economic conditions. Many of these contractors and subs are not prepared or qualified to handle these public works projects at present because they lack working capital.

In large measure because of the conditions they have endured over the past few years, resulting in a lack of work that caused a lack of income, many contractors have exhausted their working capital.

Compounding the problem, they may not meet individual credit score standards required to secure adequate financing. Additionally, their companies may now have weak, problematic financial statements. Most bankers are not willing to accept this risk — especially during this period when new government regulations prohibit banks from putting these loans on their books. The credit issues and lack of working capital also result in the contractors not being able to qualify for the surety bonds necessary to participate in most publicly funded projects.

I have been asked where my data and proof come from. No bank will admit that it is unwilling to finance these contractors and subs.

Typically, the banks go through an application exercise with these prospective customers to act politically correct. This is the “AIDS or HIV of financing,” which everyone is afraid to confront because of stigma and embarrassment.

To exacerbate the situation, banks are able to borrow money today from the Fed while paying almost no interest. They are now able to buy treasury notes, generally paying about 3 percent with no risk. So why would they want to involve the bank in a loan at enormous risk— especially when the reserve requirements and penalties they would face, thanks to the Dodd-Frank laws, are so severe?

The Obama administration may be creating a huge paradox by opening up all of these public works project opportunities only to find that there are no contractors and/or subcontractors suitable to take advantage and participate. There’s a solution for contractors who want to work on these public-sector projects if their banks will not able to provide them with working capital.

Contractors should jointly work with nontraditional, commercial finance companies that specialize in providing working capital to pay job costs through the factoring of the contractors’ project receivables.

Those specializing in this area of high-risk finance also provide critical ancillary services such as funds disbursement programs, initial plan and estimate reviews, ongoing inspections, and more. Additionally, the contractor with this necessary working capital available should now have the financial strength necessary to qualify for surety bonds.

A capable, experienced, profitable contractor would have no problem going through the underwriting process to qualify to participate in this program. And, since the projects are publicly funded, the factor will have no problem approving the project owner, a public entity, for credit as the “account debtor.”

Obama’s back-to-work initiative for the construction industry needs an education effort. Contractors must learn how they can gain access to capital through nontraditional means and these forms of financing must be accepted throughout the construction and related financial service industries.

Harper is senior vice president of RMP Capital Corp. and president of the Austin Chapter of Construction Financial Management Association.

Puzzles and Projects

rmpcapital — Thu, 03 Nov 2011 15:18:58 +0000

Construction projects consist of very specific puzzle pieces
all required to complete the intended picture.

Is one piece more important than another? Guess it
depends on who you ask…

The boarder pieces that represent the Estimate/Bid are
the easiest to identify and review as we sort thru the pile. Hopefully history
helped to identify hidden pitfalls …. Areas such as labor/engineering processes
and materials were adjusted to compensate.

My daughter likes to make a pile of all the pieces of
the sky next. It is very important to have a clear understanding of insurance
requirements and limits in line with all the bid specs. Ensuring coverage dates
fall well past job requirements, eliminating questions and potential interruptions
to the milestones if access to the project is refused because coverage dates
have expired.

Next are all the pieces of the structure…. Funny how
communication seems to make these pieces combine so easily.

Finally all the other pieces that tie the rest of the
picture together. These are the essential elements of participation on the job
site. I have been on hundreds of sites and those projects where Supervisors
were detached; where clerical duties held him captive in the trailer…. Job
harmony suffered. This harmony is critical to achieve all milestones, and
overcome unforeseen conditions. Seeing
and understanding conflicts with real-time resolutions can save tens to
hundreds of hours of rework.

Identifying safety issues before the need to fill out
accident reports can save not only lost time but thousands of dollars in fines
and claims.

Active site presence also re-affirms those assurances
that quality, harmony, and professionalism are displayed and demanded to ensure
all milestones and deadlines are achieved.

Once the puzzle is completed and you are able to
proudly enjoy the fruits of your labor; however…. your task is far from
complete.

Now it is time to assess the project.

- During the estimate- what should have been included, how did the overall numbers pan out?

- Any insurance issues? Did the policy dates track the project? Were the limits correct for all
the change notices? Any issues with the bond; were change orders priced to
include the bond premium increases?

Participation-

Did we have any issues with other trades or vendors?

Would we consider using the same crew or subs on the
next project?

What were the contributing factors for why we missed
milestones or deadlines?

What could/would we do differently?

Could setbacks have been avoided with pre-planning;
using different engineering methods; or re-evaluating job site logistics?

Congratulations on your completed puzzle. Hope your
participation brought you hours of enjoyment and satisfaction. Please use care
as you return the pieces back into the box; the next owner is relying on you to
identify every puzzle piece to ensure quality promised; as you enter into your
next unique construction project!

Bob Beattie, RMS Division Director

All Aboard!!

rmpcapital — Tue, 01 Nov 2011 15:29:01 +0000

RMP Capital will be sponsoring the Open Reception at the Commercial Finance Association Annual Convention on a very unique venue. That’s right, “on” a very unique venue, the 67^thCFA Convention Opening Reception will be aboard the Intrepid Sea, Air & Space Museum in New York City. It should be a very interesting experience for people within the financial industry to network on one of America’s leading historical and cultural museums.

The event will be held on November 16^th to kick off another successful CFA Convention. Click here to learn more about the experience of The Intrepid. Hope to see everyone there!

Time Is Money!

rmpcapital — Thu, 06 Oct 2011 16:45:20 +0000

To a business owner, nothing could be further from the truth. The more time and effort a business owner puts into his/her business likely means more money and success will be achieved. But sometimes a business can reach a point of diminishing returns, through no fault of their own.

Take a typical small business scenario: A business experiences growth; cash flow becomes tight as working capital becomes tied up in inventory and receivables; the business gets a line of credit; the business continues to grow with increased dollars tied up in inventory and receivables; cash flow again becomes a problem; the business cannot pay down the line of credit as required by the bank; the line of credit is converted into a term loan; the term payments make cash flow worse; ongoing cash flow problems cause the business to miss supplier discounts and other opportunities to grow and increase profitability; growth and profitability slows down or declines; the business still has cash flow problems; the business borrows more money; the cycle repeats, and; the business never gets out of debt! Does this happen to every business? No! But does it occur in most businesses at some time or another when they are under-capitalized? Yes! So, is the answer always more money? Maybe, but maybe not!

In the past, banks have found innovative ways to lend more money, such as asset-based lending, which is lending on receivables and inventory to collateralize a loan. Although, usually done with larger businesses with 15+ million in sales, it is starting to become common today for banks to offer it to smaller businesses with good credit. But, the above typical small business scenario can still occur in asset-based lending. There is only one business financing tool that can break this vicious cycle…true accounts receivable financing or factoring. RMP Capital Corp. offers a similar program through our Community Bank Program called Accounts Receivable Funding. What’s the biggest difference between asset-based lending and RMP Capital’s Accounts Receivable Funding Program? Time! And, in this instance, time is money! Asset-based lending does not accelerate cash flow. It just adds more debt to invest more working capital into inventory and receivables. Sometimes it works and sometimes it doesn’t.

Only Accounts Receivable Funding, the purchase of accounts receivable invoices and converting them into cash, decreases the life cycle of the working capital dollar. Here is a mathematical approach to prove the point.

When a typical business invests $1.00 of working capital, it generally takes about 45 days until a product or service is sold and an invoice is created. And, it generally takes about 45 days or longer in today’s environment, until that invoice is paid. Therefore, in this example the life cycle of the working capital dollar is approximately 90 days. Divide 90 into 360 (one year) and the working capital dollar is turning four cycles per year. If the sales price of that $1.00 working capital investment is $1.67 and assuming a gross profit margin of 40%, then (1.67 x .40) = gross profit of .67. Four cycles x .67 = cumulative gross profit of $2.68.

With Accounts Receivable Funding, the invoice is converted into cash within 24 – 48 hours after it is created. That means, now the life cycle of the working capital dollar is 45 – 60 days. Let’s use 60 days to be conservative. Divide 60 into 360 (one year) and the working capital dollar is turning 6 cycles per year. Assume the fee for providing cash within 24 – 48 hours for a 45 day collection period is 2.75% or (.0275 x 1.67) = .05. Therefore, adjusted gross profit is .67 – .05 = .62. Six cycles x .62 = cumulative gross profit of $3.72. A 39% increase in gross profit!

This works as long as the business can increase sales and fulfill those new orders with the increase in cash flow alone (fixed costs such as office space, equipment, admin, phones, etc. do not increase in the short term-thereby utilizing previously unused sales and/or production capacity).

So, even without considering the advantages of other opportunities, like early pay vendor discounts, bulk purchase discounts, extended payment terms to their customers, funding a retirement plan, paying off an existing line of credit, etc., a business can quickly become more profitable by achieving its full growth potential. The cash flow problem is solved because the business now has a permanent source of working capital that accelerates equal to sales growth, which we like to call “Turbo-charging Your Working Capital Dollar.” RMP’s professional Bank Consultants are experts at showing your bank customers and prospects how to remove the burden of time (waiting for payments) off the back of a business to increase profitability. Now, less time is more money!

RMP Capital’s Community Bank Program provides a hybrid, turnkey Accounts Receivable Funding Program that banks can offer their customers and prospects at no risk or cost! It is an alternative to traditional bank financing specifically designed to increase cash flow and fund growth companies. It’s a great way for community banks to grow deposits and generate recurring fee income revenue! Give us a call to see how
RMP’s Community Bank Program can work for your bank.

Chuck Stover, Manager of Bank Relations

Export Factoring

rmpcapital — Thu, 29 Sep 2011 15:01:55 +0000

In 2010 US companies exported $1.28 trillion in goods, according to a release by the US Department of Commerce Bureau of Economic Analysis. For some companies, the process of exporting goods and services can be a daunting process. From checking the creditworthiness of your customer to funding your operations while you wait for payment, the challenges are many. For others, the ability to obtain bank financing to explore new product lines is limited or plainly non-existent. RMP Capital’s Export Factoring product is designed to help small and medium sized businesses navigate the process from initial credit review to providing piece-of-mind all the way to payment.

Exporting goods is not only for large companies, there are many advantages to exporting your goods and services, the most obvious being increased sales. Also, companies who export their goods find that they are able to increase their competitiveness and supplement for seasonal shifts in their business by providing strong sales in previous slow periods. If you are new to the process, Inc.com, the online portal for Inc. Magazine, has a great overview of the process and provides ideas on how to enter the global market place.

In addition to the ability to fund your export invoices, RMP Capital can also provide the same services on your domestic receivables. Since 2000, RMP Capital has been helping companies fund their operations, explore new product lines, and grow their business through our invoice factoring program.

If you are an exporter of goods and services, or if you would like to explore the opportunity, give me a call today and realize the benefits of factoring your invoices, both domestic and international, with RMP Capital.

Matthew Davis, Director of Credit and Underwriting

631-738-0047 ext. 160

mdavis@rmpcapital.com

Making the Fall Rounds

rmpcapital — Wed, 07 Sep 2011 14:07:38 +0000

Can’t believe that the summer is almost over and the kids are back to school… June and July were great for business and we were looking forward to continuing our robust new business activity into August…unfortunately for us it just never happened…it seemed like we just couldn’t get anything funded…it wasn’t just the normal vacation problems… it seemed bigger than that to me…the economy was in a real funk…there was just too much negativity in the markets and I believe that too many small business owners didn’t know what to do…so they did nothing…I’m expecting an increase of activity to begin shortly (or maybe it’s just positive thinking).

I know that I’ll be busy the next few months meeting with my colleagues in the finance community…In September I’m off to Washington , D.C. for the Commercial Finance Association’s Advocacy Conference, were they will be addressing the Legislative, Regulatory and Legal issues facing our Industry…in October I will be attending the International Factoring Association’s Small Factors Workshop…RMP Capital will be sponsoring the formal dinner on Thursday night for the principals/ owners of about 40 small Factoring companies with businesses located throughout the United States…this will be the fourth year that RMP is sponsoring this event and offering our Rediscount Line of Credit Program for growing factors… it is a well-attended workshop and it gives me a real close and upfront perspective on what is happening financially within the small businesses community…in early November the Commercial Finance Association will be holding their 67^th Annual Convention here in New York City at the Marriott Marquis which is located in the heart of the theater district…I’m on the Executive Committee of the CFA and RMP Capital will be once again sponsoring the Key Card that will be given to all hotel guests upon registration…this Convention promises to be one of the best attended events of the past few years…it’s a great place to meet the movers and shakers of the finance community…and in what better place than in the “Big Apple”

So before we all know it December will be here and we will be closing out the year … RMP Capital will have definitely increased our Net Funds Employed for 2011 and we will all be looking forward to a profitable 2012…I’ll keep in touch and let you all know what happens…in the meantime I welcome your thoughts …comments …and ideas

Jim DiCamillo, Executive Vice President