Articles by
Dr. Anthony F. Cicone
The Benefits of Consumer Contract Financing
by Dr. Anthony F. Cicone,
CFS 10/23/2009
Have you considered the possibility that consumer contract financing (consumer receivable financing) could very well be the tool you have been looking for to expand your business? Consumer contract financing could well be your preferred conduit relevant to accessing the enhanced cash flow environment you have been striving to achieve. Consumer receivable financing provides a continuous cash flow without the requirement of periodic payments or interim pay-offs.
For example, should you decide to acquire financing for your retail installment contracts you would immediately be able to more readily access capital. You could "
cash "
your retail installment contracts rather than receiving monthly payments over a period of a year, two years or even three years. At the same time, you would be creating greater flexibility for your company, while positioning yourself to cut down on the red tape and paperwork required by traditional financing sources. In addition, by financing your retail installment contracts, instead of seeking other avenues of financing such as venture capital, you would not lose any equity in your business.
Some business owners may have reservations about factoring consumer contracts (consumer receivables). Those who are unfamiliar with factoring consumer contracts tend to compare its cost with the cost of a traditional bank loan. In so doing, they are considering only one of the benefits of factoring consumer receivables - the "
use of money."
A more precise assessment of factoring consumer receivables can only be made after analyzing the "
true cost."
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In order to measure the true cost of factoring consumer contracts for a particular company, we should look at all the benefits of factoring consumer receivables and how those benefits can impact your company.
There are many benefits associated with factoring consumer notes. In this week's article I will introduce three:
1. Bad Debt Elimination.. A non-recourse funding source (factor) will assume the risk of bad debt, thereby eliminating this expense from your income statement. Every good funding source that works with consumer notes also provides a professional collections service. The funding source makes it their business to handle collection work in a mutually beneficial and proficient fashion.
2. Cosumer Contract Processing. Funding Sources handle virtually all of the work associated with processing consumer contracts. This includes mailing, posting invoices, depositing checks, entering payments and producing regular reports. You can rest assured that you can greatly reduce your current overhead costs by having a qualified funding source handle this aspect of your business.
Likewise, by factoring your consumer notes you can offer credit terms to your customers without negatively impacting your cash flow. Thus, you can expand your business by making it easier for your customers to buy from you.
3. Meet Increasing Demand. Factoring consumer notes is the only source of funding that actually grows with your sales. As your sales increase, more capital becomes immediately available to your business, and so enables you to constantly meet increasing demand.
This article is the first in a series of articles relevant to the benefits of consumer contract financing.
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