Accounts Receivable Financing: Modern Factoring Can Grow Your Business
Many growing companies get stock. They cannot accept a larger, more profitable job because they do not have the funds to finance it. A large amount of working capital can be tied up in accounts receivable. Modern factoring, at reasonable rates, can help a business get the capital it needs.
Benefits Of Factoring
- Immediate cash flow increase
- Based on your customer’s credit rather than your credit rating
- Ability to take advantage of early payment discounts and buying in larger quantities because you are not dependent on customers paying the last job to cover new materials, inventory and payroll.
- The factoring company frequently collects your debt so your people do not have to be the “bad guy” and can be devoted to higher profit activities.
- Frequently “no recourse” to you if the customer does not pay or is a slow pay.
What Is Factoring?
Factoring is essentially Buying invoices from a business at a discount. In modern factoring, this discount ranges from 5% to 10% based upon the type of business and the creditworthiness of the customers. Typically, money is paid within a day or two of the invoice by the Factoring company.
Like Being Paid With A Credit Card
Even though factoring has been around for thousands of years, information and technology have lowered the costs and improved the benefits. Similar to a customer paying by credit card, when the customer is invoiced, the factor pays you. Typically, the payment is 70% to 90% of the invoiced amount. When the customer pays, the factor takes its fee and pays you the balance.
Factoring Is Different From A Loan
It is important to remember that factoring differs from a loan. Factoring does not concern the repayment of a debt. You do not need to worry about balance sheet compromises, and it does not involve agreements or concerns regarding raising capital. What factoring does allow is the utilization of assets to raise cash to help your business grow.
My firm can help you determine if factoring is right for your business. I also locate and negotiate with the factor. Call me, Ronald J. Cappuccio, in Cherry Hill at 856-665-2121. You can also reach me by email.