One of the questions we are frequently asked is, “what were businesses using before they came to Kickfurther”? With so many working capital solutions out there for businesses, we can't explore them all at one time. Today we will be comparing the consignment opportunities offered by Kickfurther to the traditional methods of accounts receivable factoring. This comparison will examine the ability of each method to help product brands scale.
To start, we need to address what accounts receivables factoring (A/R factoring) is. Often product businesses sell to major retailers that impose payment terms on them. This means the product businesses can deliver the inventory on January 1st, but if they have Net-30 payment terms, they won’t get paid by the retailers until February 1st. Once the product businesses have delivered the inventory, they now have an asset which is called an accounts receivable (A/R). The A/R is essentially an IOU from the retailer for the payment on the inventory. Even if the product businesses can’t collect the payment for 30, 60 or even 90 days, the account receivable has value.
For businesses who are looking for help financing a purchase order from a major retailer, there are A/R factoring firms who offer to buy those accounts receivables at a discount. So if Target owes you $10k in two months from now, the A/R firm will buy that asset from you for $9k in cash today. Then after 60 days, as the new owners of the A/R, the A/R factoring firm will go to the retailer and collect the full $10k.
Now the key difference between A/R factoring and Kickfurther is that A/R factoring firms work as a discount on the sale price, whereas Kickfurther works as an increase on the cost of goods. What this means is that with a 50% margin, a 10% profit offered on Kickfurther is equivalent to a 5% discount offer from an A/R factoring firm in terms of how much it costs the business. See below for examples.
The important thing to note is that at a 65% margin, a 10% Kickfurther consignment opportunity is less than one-third the cost of a 10% AR factoring offer. As you can tell from the table, when the margin increases, Kickfurther becomes more attractive in comparison to AR factoring.