9 Benefits of Factoring Receivables

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:

  1. Elimination of bad debt – a non-recourse factor will assume the risk of bad debt, thus eliminating this expense from your income statement.
  2. Professional collections – Not only will a good factor collect receivables in a professional manner, but he will eliminate overhead associated with the collection process.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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.

Become Bankable Again!


This book is meant to help small business owners realize the life independence and financial freedom they dreamed of when starting their businesses. To accomplish this, it means getting your business to the self-sustainability stage of the growth model. When you achieve this level of business growth then you truly have choices: let your business run itself “as is”; sell it when the market is ready; or scale it into a large corporation.

If you are among the owners working longer and harder while getting nowhere in your small business, then you need this book. Find out why your business is stuck and your dreams are on hold, and how to get unstuck and rapidly grow your business so you can have the choices that a self-sustainable business offers.

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7 thoughts on “9 Benefits of Factoring Receivables

  1. Do large businesses like Coca Cola Amatil use factoring to improve their cash flow and their accounts receivable turnover ratio? or do they use another cash flow strategy?

    • Sanjana,

      Typically, large companies like Coca Cola do not “factor” their receivables, as they generally have very large bank lines with a lot of borrowing capacity, given the vast assets they have to pledge as collaterl to their bank. That is not to say they will not leverage their receivables if cash flow is needed, they just don’t go through the process of “factoring” or selling their receivables, rather, they use a borrowing base certificate sent to the bank on a monthly basis, showing what assets are available to borrow against.

      Factoring is most often used by small to medium size businesses that are either in a growth mode and need consistent access to cash to maintain that pace of that growth, or a company that is in a very cash intensive business such as staffing will commonly factor their receivables as they need to make payroll on a weekly or bi-weekly basis.

      When you mention Coca-Cola, we as factors like the sound of that when our clients are working with a company of this size, as we base our credit decisions with our clients, primarily on the creditworthiness of the entities they are selling to. If you were to provide goods or a service to the likes of a Coca Cola as one of their vendors, you might not receive payment for 45-60 days or longer. This is a situation where we would be happy to get involved, factor or “purchase” those invoices from you and provide you the necessary cash against those invoices, giving you the freedom and flexibility to run your business without fear of being short on cash. The credit facilities with factoring are virtually unlimited.

      I hope I have answered your question here. Should you have any others, please let me know. You can also visit our website at http://www.cfsfunds.com for even more information about factoring and related services.

      Best Regards,
      Greg Porter

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