Thursday, December 1, 2011
What Factoring Will Do For You
I must admit, when I first began my career in the finance business, I had very little knowledge as to what a factoring company actually did. After quickly learning the basic concepts, I discovered how invoice factoring can be such a valuable tool for small businesses that are still getting their feet wet and more importantly for those companies looking to grow.
Money is tight at the initial launch of a business. When customers are buying products and services on credit, your money is often locked up between the time you sell your products to your customer and time you receive payment (usually between 30 and 90 days). This is where an invoice factoring company can solve common cash flow problems.
A factoring company will purchase your invoices for their face value (less their fee). You will receive a percentage of the invoice amount within 24 to 48 hours and the balance amount after full payment from your customer is received by the factoring company. Factoring fees range from 1.5% on up. New factoring prospects must be aware as to how many days that fee is good for. Sure, you might find a screaming deal at 0.59%... but if it's only good for 10 days and your customer pays in 42 days, your fee may jump up over 3% depending on how the program is structured.
Many will choose an invoice factoring company for their rate but they offer so much more. In addition to improving your cash flow you will also get regular collection statements and receivables statements. They have become an extension of your business. This full credit department is working for your company to make sure you are working with good people in the business.
Efficient and courteous factoring companies have become valuable assets since they improve collections from customers and present a professional face to your customers.
It is important to do your homework and know what you are getting into. Are you being deceived by the rate you've been quoted? Are restricted by which customers you can factor? Most importantly, are signing up for a long-term contract? Don't get stuck for 12 or even 18 months with a company that you may become less content with after 90 days.
An invoice factoring company will work for you and with you to assist in cash flow improvement, handle your collections and to act as or support your existing credit staff enabling you to post positive sales.