Factoring Benefits

  • Meet current expenses, including payroll, taxes and other operating costs.
     

  • Procure invaluable credit screening of potential customers.
     

  • Purchase additional inventory to increase sales volume and, ultimately, profits.
     

  • Acquire ongoing professional credit monitoring of existing customers.
     

  • Fund expansion and growth plans.
     

  • Factoring is relatively easy and fast.
     

  • Take advantage of early payment discounts offered by your suppliers.
     

  • Generally, the principals of the company do not have to personally guarantee the repayment of the funding.
     

  • Respond immediately to seasonal demands and opportunities.
     

  • Receive detailed management reports.
     

  • Improve your credit rating by eliminating debt.
     

  • Reduce expenses associated with the Accounts Receivable Department.
     

  • Free up time to concentrate on marketing and expanding your business.
     

  • Early detection of customer service problems.
     

  • Eliminate the necessity of offering early payment discounts to your customers.
     

  • Retain control of the equity in your company.

 

Why Companies Factor
 

The need for cash is common to every business.  Business managers know that it takes cash to pay for growth and a lengthy delay between delivery of goods and collection of the invoice can be crippling.  On the other hand, quick payment can mean even faster growth and higher profits.  Different companies factor for different reasons.  Usually, however, the customer profile is a highly successful, fast-growing business that needs help.  A growth-oriented company will increase sales and profits, but not necessarily have immediate cash on hand to pay for the growth.  The company has to carry higher accounts receivable and inventory to meet the increasing sales.  Factoring rescues these companies by providing them with the liquid assets, or cash, they need to fuel their growth.

 

Most business people are trained to go to banks when they need money.  However, banks have strict criteria when loaning money that make it very difficult for small, growing companies to secure loans.  Banks lend against assets, not sales.  If a business generates $1 million in annual sales, it’s a valuable operation; but if it only has $50,000 in hard assets, it won’t qualify for much of a loan.  The assets of the company and its creditworthiness are all checked and rechecked during the due diligence process. And a business must have a solid track record to qualify for a loan - something young, growing companies are not able to provide.

 

A company with no history, no assets and no credit couldn’t hope for a bank loan, but as long as their customers are creditworthy, a factor would love to do business with them.  The factor is not extending credit to the client company, but actually purchasing their invoices – invoices which represent cash due from their customers.  So the factor is concerned with the creditworthiness of the customer (whom the industry refers to as the account debtor) not the client.  The factor’s security in the transaction is their control over the collection system and their ability to check credit information about the client’s customers.

 

“Self Employment And The Factory Industry” by Laurence J. Pino, Esq.

 

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