Spongetech Delivery Systems Inc (fka SPNGQ)

[harvard homeboy]

Factoring 101.

Here's a statement from another guy who I've been having this debate with elsewhere.

I have factored off many Walgreens invoices. I don't mind giving up $1400 on a stack of invoices totaling over 30k as long as my margins are strong. It is no different than paying a 3.5% discount for a credit card acceptance. Actually, my agent out of NYC provides 50% of the cash up front and the remainder on receipt from WG or others. Typically 30 days for WG and 45-60 for Walmart.

Okay and $1,400/$30,000 = 4.67%

And if those receivables are typically net 30, as this guy just said, he's paying [4.67 x (365/30)] = 56.8% per annum for his borrowings.

The fact that Spongetech is now forced to borrow at the kind of interest rate that would violate the state's usury laws -- the kind of rate that only guys who are completely clueless think is a reasonable way to raise cash and finance a business -- is good news for those of us who have been skeptics about this company all along.

Personally, I'm glad to see Moskowitz and Metter embrace the absolute worst business practices in America, while the stuckholders cheer them on from the sidelines and suggest this is some kind of a business breakthrough, which it isn't.

These guys are using their VISA card to pay off their MasterCard. Keep it up, guys.