9 Benefits of Factoring Receivables
Many people are afraid of factoring, but frequently that’s because of the stigma often attached by the banking community to this form of financing. There actually are many very positive aspects to factoring. See if any of these could help your business:
- Elimination of bad debt – a non-recourse factor will assume the risk of bad debt, thus eliminating this expense from your income statement.
- Professional collections – Not only will a good factor collect receivables in a professional manner, but he will eliminate overhead associated with the collection process.
- Unlimited capital – Factoring is the only source of financing that grows with your sales. As sales increase, more cash becomes available for you to use, which allows you to constantly meet demand.
- Take advantage of volume and early payment discounts – With improved cash flow, you will be in a position to take advantage of these discounts which directly effect the bottom line.
- No debt incurred – Factoring is NOT a loan and therefore, you are not incurring any debt. This keeps your balance sheet looking good, thereby making it easier to obtain other types of financing or to sell the company.
- Factoring is easy and fast – The application required to establish a factoring relationship is much simpler than other types of financing. No tax returns, financial statements, business plans, or projections are needed.
- No personal guarantees – The company principals do not have to personally guarantee the repayment of the funding. They usually have to guarantee against fraud or disputes, but not against customers’ inability to pay.
- Invoices are paid faster – Factors generally report payment experiences to Dun & Bradstreet or other credit agencies. A debtor who is aware of this will not want his credit impaired.
- Credit screening – A factor will provide you with credit information on new customers, thus allowing you to make better credit decisions. Factoring may not be for everyone, but those who are in the role of “banker” for their customers should at least take the time to weigh the benefits of factoring to provide continued growth and stability.
In these tough times in getting bank financing share your experiences with alternative financing so that others can see how it’s actually benefited other entrepreneurs. Have you ever used factoring in your business? What benefits did they have for you?
If you don’t understand factoring read our previous post title “What to Do When the Bank Won’t Finance You”. If you still need more help understanding factoring and how it can work for your business contact me or you can find more information on our website. I would be happy to help you experience the many benefits of this form of financing for your business.