An Idea to Factor In
When You Need Funds
Receivable Financing can increase
cash flow and profitability!
For many growing
companies, a large percentage of working capital is tied up in accounts
receivable. Some businesses that extend credit have as much as 20
percent of their annual sales outstanding. Of course, receivables help
to grow your company's balance sheet but they're not much use when you
One way to get a quick infusion of cash is
to turn to a little-known service called "factoring." With this
company sells its accounts receivable to a bank or financing firm and
it assumes the risk of collection.
Count the Benefits
An immediate cash flow increase.
o The ability to meet your bills and demands. You no
longer have to wait for invoices to be paid to increase production or
o The possibility of reducing or abolishing your
accounts receivable department. This savings could more than offset the
fee charged by the factor firm.
o The potential to eliminate the risks and expenses
of bad debt. (However, some factoring relationships are established
with only partial recourse.)
The best part: Your
company gets money almost immediately, within 24 hours in some
cases. Compare this with the 30 days or longer that your company
usually waits for customers to pay.
is not a new financing technique. For those of you who are
financial history buffs, its been around since the
Mesopotamians came up with the concept 4,000 years ago. The first
widespread, documented use of it in North America occurred in the
American colonies down south before the revolution.
In its modern formulation, it works basically the same way
as accepting a credit card. Your company
receives the money right away and the factoring company waits
Typically, the factoring company pays your company an advance of
between 70 percent and 90 percent of the face value of the invoices.
When the customers pay, the factoring company takes out its fee and
pays your company the balance.
The fees range from three per cent to five per cent of the invoices,
based on sales volume, the creditworthiness of your customers
and the average invoice size. So factoring is more expensive than most
other forms of finance. But, your company saves by not having to do the
credit functions itself and if the money you get brings in new
business, it can be fairly easy to justify the costs.
Moreover, you aren't adding debt or diluting equity, and
as your company's working capital builds up, it
can reduce the amount it factors, carrying more of
its own accounts and eventually becoming completely
The process is especially appealing to young and rapidly
growing companies since it shortens the cash cycle. Please call me at (856) 665-2121 or Email me to discuss
financing for your business.
your company in the market for a loan?
Keep in mind that many
bankers are willing to negotiate some of the terms of their loans in
order to get your business. Since the decline in home values and
commercial real estate has resulted in less related mortgage loans,
bankers are now seeking business borrowers.
Debts to Trim Interest Costs When
interest rates are falling, take advantage of the dip to
refinance your existing business debt and put more dollars in your