The XBanker
Business Financing eXpert
How Factoring Can Benefit Your Business
March 4th, 2008
Let’s face it – your needs are at odds with your customers. You need to be paid up front for your products and services while your customers want to pay as little as possible and to pay it over time (for as long as humanly possible). This is a particular challenge for small businesses when they compete against large corporations, because most small businesses lack the financial resources to take payments over time. If you extend credit to your customers, factoring might be a great financial solution for you.
When a customer owes you money it is called an Account Receivable; you are going to receive money on an account. Factoring is when a bank or money source agrees to buy your accounts receivable and assume responsibility for the collection of those payments. So not only do you receive money upfront, you also free yourself from the collection process. The factor makes their money by charging a fee of 1-10%. To illustrate how this would go down, let’s assume that you have an outstanding invoice for $5,000 to a customer to be collected over the next 60 days. You decide that cash upfront is your primary need, so you choose to have the invoice factored. The factor pays you $4,500-4,950 (90-99% of the invoice). A huge benefit to this type of cash infusion is that your personal and business credit don’t play a part in the decision to buy your invoice – it’s based upon the creditworthiness of your client, the debtor.
So why would you factor your invoices? The answer is simple: CASH.
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March 5th, 2008 at 9:07 am
Again , great and pinpoint accurate topic , especially when you are in retail business . If you know , how to sell “stuff” and only thing missing is the actual cash , many times it is the only way , how to avoid “crush” caused by cash flow “crunch”. In todays credit markets however , is very hard to get “fair” , let’s say 10% discount deals . When you hear the “reasons” why they will buy your deals for 30-40% discount all over again & again , a couple things could actually happen…….:
1st : You get tired of listenning to it..
2nd: You’ll find out , the customers with the worst credit are the best payers , if you sell stuff , necessary for everyday living…
3rd : You sit down , do the numbers , realize , it is a great business
4th : You re-think your entire business model
5th : You create system of collecting the pmts. , re-po policy..etc.
6th : You gather the capital & become the “Bank” itself
Just a thought , but I had seen it happen….
March 7th, 2008 at 12:39 pm
Ultimately, the amount charged by the factor will depend on the creditworthiness of your customers. Working with a Fortune 500 company will give you a better rate than working with consumers.
- X
March 7th, 2008 at 3:40 pm
Point taken and agreed …..
The journey has many “roads” , your future options depends on which one you take…
“It is tough to sell “apples” on a street corner , but that’s what we do and we do it successfuly..” TZ
April 24th, 2008 at 11:51 am
[...] Factoring [...]
March 2nd, 2010 at 8:31 pm
Have a establised business? Need additional working capital in a short time? Look no further than HomeCoast Capital.
We specialize in Asset based lending, factoring , equipment leasing, commerical lending, and Capital Market Development.
Over 25 years of industry experience in designing customized capital solutions for companies just like yours.
We do not care how long you have been in business—if you can provide us a valid invoice for a product or service, we will finance it.
We have flexible financing programs, allowing you to combine receivables financing with equipment, real estate, and inventory financing as your individual needs dictate.
Unlike banks, we offer a non-traditional perspective on financing approval.
We have in-house underwriting, allowing for fast approvals.
We make our own credit decisions.
The bulk of the underwriting is done on your debtors and your equipment, not picking apart your financials.
No hidden costs or fees. We disclose all of our fees up front so you know exactly what to expect.
For more information please contact:
Cal Drummond
Financial Service Executive
Cdrummond@homecoastcapital.com
800-763-3021 ex. 172