Factoring Invoices in 2011
Posted: Friday, January 28, 2011
by Marc Marin
Gateway Commercial Finance, LLC
Its time to debunk a myth that factoring is the financing of last resort. In reality, Factoring Invoices should be the only decision for many businesses.
For as long as I can remember my industry has been labeled as the lender of last resort. What does “last resort” mean anyway? If it means you’ve turned down the banks that are beating down your door to give you a loan or the investors that want to get in on the ground floor of your business or you’re going to self fund, then it’s a good label.
Let me start by saying that as with any type of lending, if your business is “circling the drain” NOBODY wants to finance you! Factoring Companies are no exception.
If you run a low margin business, Factoring Invoices is simply not a viable solution.
If you’re a control freak and can’t have a third party interact with your customers, Factoring Invoices is probably not a good solution either.
Miss a couple payrolls or have a supplier put you on COD and perhaps your outlook regarding Factoring Invoices will change a bit.
Why Factoring Invoices should be at the Top of your list of financing choices.
Accessibility
Factoring may be the most accessible form of funding available to perhaps one of the widest spectrum of businesses today.
Factoring Companiesare highly specialized experts in collateral evaluation which gives them a tremendous amount of comfort in extending working capital to businesses that are unable to obtain “traditional credit.”
Given Factoring Companies take a unique approach to their collateral they are able to fund companies in the following situations:
- Start-ups
- Companies with Operating Losses
- Companies with negative tangible net worth
- Poor Personal Credit of Owners/Guarantors
- Rapid Growth
- Companies in Bankruptcy
- Companies in forbearance with their bank
Provided your business is supplying goods or services to another creditworthy business on terms, Factoring Invoicesis generally available to you.
Therefore, before you go spinning your wheels down the conventional road take a reality assessment and have a candid conversation with your banker. Determine if your business is even in the ballpark of a traditional credit product. If your not, Factoring Invoices,suddenly moves to the top of your list.
Tangible Benefits of Factoring Invoices
Factoring Companieshave many RESOURCES and vast experience at your disposal. Many of these resources rival those of the big boys and guess what….there available to you!
If you’re a small business owner you wear many hats, but the two most important hats are the ones that make your world go around and around. First is making good credit decisions and second is collecting payments. Without either, you’re out of business!
Credit Investigation
Factoring Companieshave vast resources when it comes to evaluating another businesses creditworthiness. Many of these resources cost tens of thousands of dollars each year to subscribe to.
While almost any business can subscribe to Dun & Bradstreet or Experian are you truly qualified to effectively evaluate the information and make a GOOD decision? Credit is not an exact science and Factoring Companies have experienced credit managers and teams to evaluate the information and make an informed decision. These decisions are objective that often save businesses from catastrophic failures from a poor credit decision. Remember a sale is not a sale unless that check clears the bank!
Receivables Management
Factoring Companies are experts in the monitoring and collecting of accounts receivables.
Now, let me just clarify a couple things about most factors:
FIRST, we do not buy non-performing invoices or invoices that take longer than 90 days to pay.
SECOND, we’re not heavy handed collection companies. Most Factoring Companies have the EXACT same interests as their clients. Simply to get the invoice paid in the customers normal course of business. No need for pressure, coercion, discourse or the like.
The age old principle holds true “you get more with honey than you do a stick.” If a Factoring Companyhas does its job correctly and bought a quality receivable, then it should be enough to simply monitor it for the following:
- Confirm the customer is in receipt of the invoice;
- Confirm the agreed upon payment terms between the factors client and their customer;
- Ensure payment is directed to the factors lockbox
A good Factoring Company will act as an extension of it’s clients business. At my shop, we utilize a Softcall Methodology whereas we answer phones on behalf of our clients name, we do not disclose our name (unless necessary) and checks a still made payable to our clients business.
Again, the goal of most Factoring Companies is the timely payment of your customers invoice.
Reporting
Factoring Companiesprovide comprehensive reporting to their clients. Many business owners fall short of having a competent in house bookkeeper that can provide the owner with accurate and timely information. Remember, garbage in equal’s garbage out!
Room to Grow
Factoring Invoicesis one of the few sources of financing that actually grows systematically with your business without the need for timely and complex credit committees.
Provided you extend reasonable amounts of credit to creditworthy businesses, a Factoring Company can provide availability against eligible invoices within hours of a request.
Credit Insurance
Factoring Companiescan provide its clients with credit insurance against non payment due to protracted default or customer insolvency. Many credit insurance policies are simply out of reach of a business due to high premiums of such coverage.
A Factoring Company can provide this valuable resource to its customers in its normal course of business at an affordable rate. This is protection that can me the difference between staying alive and closing your doors.
Piece of Mind
How does a business owner measure the piece of mind of knowing that the cash is in the account to cover payroll?
How does a business owner measure their ability to focus on areas of the business that generate sales or drive production knowing that the cash is there to support the business? Very simply, through Factoring Invoices!
Invoice Factoringis going to be a dominate form of financing for American businesses for the foreseeable future. With the credit markets forever changed, this accessible form of working capital can make itself available….even to the most vocal critics.
This Article has been viewed 231 times. (Not updated in real-time.)
Top-level comments on this article: (1 total)I want to thank the blogger very much not only for this post but also for his all previous efforts. I found to be greatly interesting. I will be coming back to your blog site for more information. Regards.....
We want your comments! If you can read this, you don't have javascript enabled, so you can't use this comment system. Please enable javascript.