WHEN SHOULD FACTORING BE USED BY BUSINESS OWNERS?

In April 2009 the Federal Reserve found that over one third of the banks reported a decline in credit lines and credit card limits for businesses.

How are business owners surviving? Meeting payroll? Paying Suppliers? Funding their next project? These are just a few of the challenges facing businesses in today’s economy.

Accounts Receivable Factoring is the solution that many business owners are turning to. This provides cash advances on outstanding invoices. Since it is the sale of an asset at a discount rather than a loan, it does provide a viable financing option as banks continue to tighten their business lending.

Three ways to know if your company can benefit from discounting invoices to a Factor:

1. Your conventional financing is no longer available – The past two years banks have tightened lending practices, and raised requirements to qualify for lending and diminishing collateral scales. When the banks say NO or you’re existing credit lines dry up the only alternative is the funding factoring provides.

2. Need for Quick Short Term Working Capital – When payroll is looming, suppliers are demanding payment, your outstanding invoices can be used to accelerate your cash flow. Once an account is established, (avg 4 – 5 days), most factors will transfer cash direct to your business bank account in as little as 24 hours.

3. Potential Growth Profit Outweighs Cost – When a business has the opportunity to take on a new customer, larger contracts, additional staff & materials are required. When company XYZ provides a new service to a company and its profit margin is 18% to 25%, the 2.5% to 5 % cost of factoring the company receivables far outweighs the cost on NOT performing on the new contract.