Have You Ever Wanted to Factor Your Nonprofit Receivables
They say that everything you have ever wanted is out there, just waiting for you to ask for it. For example, you may have wanted to factor your nonprofit receivables but don’t know whether it’s a good idea. Asking the right questions will make all the difference.
If you have ever wanted to factor your nonprofit receivables, you first need to know the advantages and disadvantages. That’s the only way to decide if it’s a wise move for your business.
Understanding Nonprofit Receivables
Some people believe that nonprofits don’t have accounts or receivables. The truth is that not for profits have many of the same aspects as for profit businesses, including account receivables.
Nonprofit receivables are any money that you expect to receive at a later date. For a 501c3, this might encompass donations, membership dues, government grants and program registrations. Some of these also come with stipulations, such as the requirement that you raise matching funds or bequests where you must wait until someone dies. This could present a problem since the value of the money at the time of the bequest might be different many years into the future.
It’s also an accounting issue. If you don’t record nonprofit receivables correctly, it could get you into trouble with the IRS. You will also incur additional scrutiny for not making payroll. IRS woes may also affect other not for profit funding you may receive, since no one wants to give money to an organization that is not in control of its finances.
In the for profit world, customers typically have 30, 60 or 90 days to pay. However, for nonprofits, the issue can be especially uncertain.
For example, a donor might make a pledge in August to become payable in January of the next year. In addition, there might be a payment schedule in the works, where they will pay the money in stages. These types of delays are becoming more common. Companies and grant funding organizations are stretching out payments longer and longer as a way to keep their own cash and to ensure you are performing as expected.
While you may not be able to factor these gifts, it is yet another way to tie up your cash. Without cash, you cannot make payroll, pay bills or purchase supplies.
This means that you will have money coming in on a consistent basis, which is great. On the other hand, it’s difficult to know when you record the gift.
Of course, you can only use money when you have the cash in hand. Vendors and other businesses won’t accept future pledges or just your word as payment. They expect to be paid now.
What you need is a reliable supply of cash you can draw upon when necessary. For many nonprofits, the answer is a line of credit to tide you over while waiting for other funding to come in.
Is it Ever a Good Idea to Factor Your Nonprofit Receivables?
Nonprofits often turn to factoring because they are unable to qualify for a nonprofit bank loan. Quite frankly, not for profit businesses find it next to impossible to get satisfaction from a traditional bank.
For one thing, banks will hold you to the same standards as a for profit business. This means that they expect you to have tons of collateral. Also, most bank representatives just don’t understand the nonprofit business model. As a result, they will deny your application.
Even if they do approve you for a fast not for profit business loan, there will still be strict rules and regulations to follow. For instance, they will dictate exactly how you can spend your money. Also, they have long repayment terms that will take you years to pay off.
Fortunately, there are numerous types of 501c3 funding options. You may use some of these others yourself. This is how you get the cash flow necessary for you to operate. However, many of these choices are either difficult to obtain, use questionable methods, or are just not right for your business.
Therefore, not for profits turn to factoring receivables. In most cases, this can be done without a lot of paperwork and questions about your creditworthiness. In factoring, it’s the solvency and financial stability of your customers that’s most important. Still, there are numerous disadvantages as well.
How Do You Factor Nonprofit Receivables
Many nonprofits have ups and downs in cash flow. This is often due to delays in reimbursements or funding. Expenses still need to be paid on time so when there is a delay in funding, it can wreak havoc on a budget.
One of the oldest forms of business financing is called factoring. That is when your nonprofit sells its receivables to a “factor” who gives you the money up front. Then, the factoring company collects the money you are due to receive directly from your client.
Also called accounts receivable financing, factoring is not common in the nonprofit world because most state and federal governments will not allow it. In addition, factoring is expensive. It’s also typically a move made in desperation because they can’t see another way out of their cash flow dilemma.
Is There an Alternative to Factoring Your Nonprofit Receivables?
As an alternative, Financing Solutions (www.financingsolutionsnow.com) has been providing a line of credit specifically for nonprofit organizations. This allows you to have a ready supply of nonprofit business funding you can turn to when there is a cash flow issue due to delays in funding or a surprise expense.
Best of all, there are no restrictions on what you can use the funds for. Also, the line can be paid back at any time.
Many nonprofits will use their line when necessary and pay it back when the funds come in. As a result, it’s a very inexpensive, short term business financing solution to even out cash flow.
At Financing Solutions, they don’t force you to sign lengthy contracts. Even better, you can get your line set up fast, usually in just a few days. They understand the unique challenges facing nonprofits and work hard to get you the cash you need.
Some financing companies nickel and dime you with fees and other charges but not them. The line costs nothing until you use it, making it a great backup plan.
Your nonprofit needs at least $300,000 per year in revenue to qualify. When you want your business to grow and thrive, look for a nonprofit line of credit instead.
How to Get People to Want to Be Involved with Your Nonprofit
Simply put, nonprofits need people in order to be successful. It requires many different types, working in unison, to achieve your mission. But attracting the right people takes several factors.
Employees – finding good people to work on your staff can be challenging. If you provide the kind of work and environment they are looking for, they will stay and remain loyal. Employees want a good work/life balance, decent pay and benefits and to feel like their employer appreciates their efforts. These aspects hold true for all employees, no matter who they work for.
When it comes to those who work for nonprofits, they typically look for something extra, in addition to those things. They tend to also want the opportunity to give back and to feel happy in their jobs.
These issues often matter more than money. If your organization has stable leadership, employee engagement and the proper resources to do the job, you can keep your staff for the long term.
Donors – whether they are prospects, annual donors or corporations, there are basic things all donors want. It mostly boils down to communication and connections. They want to know that your organization is financially sound and legitimate. Additionally, they will want to establish a bond with your mission and see that you are having a real impact in your goals.
How you present this information matters as well. Your reports should be concise. List your data and information in a way that is logical and easy to digest without the hard sell. It’s also worth noting that third party endorsements for your organization are particularly valuable. Give them what they need then let them make up their own minds and level of involvement.
Some nonprofits worry that providing too much information will scare people away. Nevertheless, the truth is that information is power. The more of it they have, the more they will be willing to ride with you through the good times and bad.
Corporate sponsors and financial institutions – everyone wants to associate with a good cause that is making a difference. Corporations and finance companies are no exception. When they can provide you with not for profit financing and promote the fact that they are helping you with your mission, it’s a win-win.
First, you should have the financial and organizational data at your fingertips to answer any potential questions or for completion of forms. Then, find a financial provider that supports and goes the extra mile for nonprofits. For many, the answer is Financing Solutions. They are a top provider of finance for nonprofits and they want to help your organization succeed right now. Just give them a call.