If you own a business that offers payment terms for your customers of net 30, net 60 or even net 90, there is a good chance that you may experience cash flow issues from time to time. It is nothing to be ashamed about. In fact, in the manufacturing world it can show a sign of growth. Let’s say you are a manufacturer and have recently sold all of your remaining inventory to a company who has net 90 payment terms. Are you going to wait around for nearly three months before you can start operating sufficiently again? With factoring you can sell your receivables to a 3rd party company and collect almost immediately so you can go back to business as usual.
Benefits of Factoring
- Scalable – Factoring is one of the only sources of financing that grows with your sales. If sales increase, more cash can become available to use if you decide to do so.
- No Debt Incurred – Because factoring is not a loan, you are not incurring any debt. This is extremely beneficial if you are looking to obtain alternative types of financing.
- Quick Turnaround – Getting set up with a factoring company is easier than most other types of financing. You will often receive funding within 24 hours of submitting invoices.
- Credit Screening – A factoring company may provide you with credit information on new and previous customers so you can make better business decisions on your end.
- Invoices Paid on Time – Factoring companies will often report payment experiences to credit agencies so a customer who is aware that you are using factors will be more inclined to pay on time.
- No Personal Guarantees – Because a factoring company bases its funding decisions mostly off of your clients creditworthiness, company principals do not have to personally guarantee the repayment of the funding amount.
- Professional Collections – A legitimate factoring company will collect receivables in a professional and timely manner thus eliminating potential costs with the collection process.
- Back-office Support – Factoring companies will manage the collection process from start to finish, which allows you to focus on growing your business.
- Customizable – Factoring can be customized and managed so that you can use it on as needed basis.
- Flexible – There are no long term contracts, minimums or maximums and if your customers are creditworthy you can expect the percentage advanced to be high and the factor fee to be low.
If you are still unsure whether or not factoring can be beneficial to your company take a look at the factoring basics. Keep in mind factoring can help you stay in control of your day to day business operations so you can increase your bottom line. A recent New York Times article discusses how big companies are squeezing their suppliers by forcing them into net 90 and even net 120 payment terms. Factoring is one way you can mange to accept longer payment terms so you do not lose larger clients.
A Small Leader in Business Lending
CapitalFront was launched with a simple premise – create an easy, accessible and rapid process for small and mid-size businesses to fund their growth. CapitalFront strives to bring a wide array of financial products, including merchant cash advance, receivable financing, factoring, SBA lending and fixed rate term solutions, to independent business owners nationwide. Call today or fill out our online application.
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