Advantages Of FactoringThere are many advantages of factoring for small and medium-sized businesses: - In this economy, lenders, like loan companies and banks, shy away from taking any risk at all – so much so that they have restricted their lending criteria to the point that they are not even lending to profitable, good-risk businesses, much less, businesses on the margin. So, firms, companies and manufacturers turn to alternative funding sources like invoice factors to get the capital they need to meet payroll, expand operations, pay bills, acquire new equipment, etc. Accounts receivable factoring allows companies to convert their invoices to cash. Instead of funds being tied up for weeks or even months in receivables, businesses can cash out quickly to meet their business needs. - Other advantages of factoring: Cash from factoring can be used to take advantage of payment discounts offered by vendors. Sometimes, vendors will offer discounts to those customers who can pay cash for goods and services, instead of those having to use credit. This way, these vendors receive their money immediately, instead of having to wait weeks or even months to get paid. Particularly in this economy, businesses know that cash is king. However, getting that cash is sometimes difficult. Factoring accounts receivables is one of the quickest ways a business can get the cash it needs. For those companies that choose to take advantage of factoring, they will ultimately reap the benefits of having cash on hand to take advantage of the numerous cash discounts many vendors make available. - When a business chooses to align itself with an accounts receivable factor, it positions itself to receive many benefits. These benefits include, but are not limited to, fewer delinquencies resulting in lower collection costs; increased cash flow; improved control over accounts receivable management; reduced operating costs; increased sales to slow paying accounts; and improved customer service. - Other advantages of factoring: As the economy continues to struggle, many businesses are finding it harder and harder to collect on their accounts receivable. Their customers are having a hard time making money. So, they tend to pay late, and, increasingly, not at all. In factoring their accounts receivable, businesses are ridding themselves of a financial headache. They get 80 - 85% of their receivable amount upfront AND place the task of collecting the accounts receivable on the factor’s back. - Factoring offers great speed. Accounts receivable factoring will not require a business plan or tax statements. Even getting a new factoring account set up can be relatively quick — usually a matter of a few days. It is not uncommon for a new business to have a newly established account set up and operating, and the business owners with cash in hand within the matter of days. - Other advantages of factoring: Factoring offers a business owner ultimate flexibility. When a business client no longer needs or desires to use a factor, that business client can then operate per normal as they had prior to enlisting the aid of the factoring company. However, should the business client need the services of the factor once again, it can easily re-engage the factor’s services. This built-in flexibility of the factoring process is critical in successful businesses maintaining profitability over time. This ability to switch back and forth provides them the optimal opportunity to increase or maintain their cash flow. - All accounts receivable factors will perform due diligence on new clients. Performing due diligence costs money. However, many factors will waive these fees for long-time clients. This means the private investor won’t have to pull credit reports on debtor accounts or clients. No due diligence fees means a higher return on investment. - Given today’s economy, as traditional lending sources continue to tighten their lending requirements, more companies turn to factors to fulfill their capital needs. Factors have proven themselves easier to deal with than traditional lending sources. - Other advantages of factoring: Factors operate in an environment where there is less red tape. They are not governed by state regulators. This allows accounts receivable factors the ability to be more flexible with their business clients and to move much more quickly than traditional lending institutions. - Factoring greatly increases the likelihood that your business will never run out of cash. Because it depends upon your accounts receivable and not your credit, you will be able to sell your receivables and retrieve your cash immediately – whenever you wish to do so. - Other advantages of factoring: Factoring eliminates the constant worry associated with not knowing what your cash balance is be in the near future. Most businesses struggle on a day-to-day basis with cash flow issues. However, factoring offers a real option for those businesses to settle their cash flow problems once and for all. In so doing, business owners relieve themselves of many sleepless nights worried about their business’ cash flow problems. - Many factoring clients report improved relationships with their vendors because they no longer bang on their doors demanding that their past dues invoices be paid immediately. All businesses - from time-to-time - become delinquent in paying their bills. Invoice factoring can eliminate this eventuality by providing a steady stream of cash flow. - Other advantages of factoring: Using factoring, a business owner will be able to see cash flow problems long before they can happen. Each factoring client knows the amount of accounts receivable they must sell as well as the amount of money they will receive from the sale of these invoices. And finally, they know the bills they must pay. So, they are able to determine when their cash flow will not be adequate to meet their financial obligations. Once business owners are able to determine this information, they will be better able to plan their cash flow. - Factoring does not involve the borrowing of any money. Unlike borrowing money to meet cash flow needs, factoring does not create debt. A loan requires collateral security which you will repay with interest. So, no money ever need be repaid. Neither does it involve any interaction with traditional lending institutions. Rather, when a business receives money from a factor, it is the business’ money, which need not be repaid. - Other advantages of factoring: Because no money is loaned or borrowed, factoring involves no interest payments. This is important because all the money the business receives from the factor can used as part of the business’ cash flow to pay bills, meet payroll, buy supplies, etc. - One of the biggest advantages of using accounts receivable factoring is to outsource a business’ accounts receivable management. Instead of having office personnel manage accounts receivable, businesses essentially use factors to perform this service. By doing so, they free-up personnel to perform other, more, income-producing tasks, such as sales and business development. - Other advantages of factoring: Factoring frees up working capital. Many companies have the majority of their working capital tied up in accounts receivable, invoices and inventory. Accounts receivable factoring provides a means by which businesses can free up this capital. - Factoring allows a greater diversity of businesses to receive the cash they need to continue operations. Let’s face it, many businesses and business owners do not possess the credit worthiness needed to get traditional financing. Since the basis for factoring is the underlying credit worthiness of a business’ debtors and not the business or business owners themselves, a greater number of businesses can now get the steady stream of working capital they need to survive and thrive. - Other advantages of factoring: Factoring can increase a business’ cash flow. Far too many businesses deal with slow-pay or no-pay customers. This means that money is tied up in accounts receivables and not going directly from their bottom line. Unfortunately, many of these accounts may never pay. The business may not have the staff to continually contact these debtor businesses to recoup their monies. Enlisting the assistance of a factor can dramatically change the equation. This is a service factors perform, and since they do this on a daily basis, they are usually much better at it. They engage debtor businesses and get them to pay up. The more they collect the more money their clients receive. - Once a business engages the services of a factor, that factor will also actively participate in screening new vendors. This is an invaluable service. You see, not all business is good business. The factor will help determine whether the potential client is a good risk or not. The factor will investigate whether this business has paid its bills on time in the past. This, in turn, will provide an indication whether this company will pay his bills on time in the future. Depending upon what the factoring company discovers, the business may decide not to take on this company as a potential client. This due diligence by the factoring company could save its clients thousands of dollars in uncollectible invoices. - Other advantages of factoring: In establishing a factoring relationship, there are no application or set up fees. Setting up this business relationship is free of charge. Additionally, factoring funds can be wired directly into the client customer’s bank account. - The factoring client determines which accounts and how much of each account to factor. There is no a minimum funding requirement or any requirement to factor all invoices. The factoring client remains in charge of the factoring relationship.
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