At first take, the cost of factoring may seem prohibitive. This is particularly true if you are coming out of a banking relationship. Maybe your first choice was to obtain bank financing ... but guess what? At this time it simply is not an option. Your company is either too new, or doesn't have the financial strength to qualify for bank financing. What it needs is interim or bridge financing to grow, while positioning itself to become bankable. As the leader, you must look beyond the present moment. You must look towards the future to what is best for your company in the long run.

Let's say that your customers pay in around 45 days, and the average cost of factoring is 5% of the accounts receivable face value. By factoring your receivables, you will have the cash flow necessary to pay suppliers and payroll on a timely basis. No more dreading collection calls from suppliers or lying awake at night wondering how to meet payroll. You can now concentrate on selling product. As sales increase, your company can fill new orders because your suppliers will supply more product to timely payers. Your company can also hire more staff when needed, because of the healthy cash flow. As long as your profit margin is above the 5% additional cost of factoring, you will be making increased profits from the increased sales. What is the cost of not factoring?

Typically factoring allows more cash to be freed up than does traditional bank financing. Banks will generally lend 70-80% against what they define as "eligible accounts receivable"; that is, the invoice totals after deducting debtor concentrations over X%, omitting invoices such as government receivables and receivables of account debtors with X% over 90 days outstanding, etc... The result is 70-80% of a potentially much lesser amount than the 90+% that a factor may fund of all creditworthy account debtors.

Factors do not produce widgets or any other products. They are experts at one thing - accounts receivable. They have immediate access to credit reporting agencies to help you make quick and dependable credit decisions, which can reduce and even eliminate bad debt. They handle collections in a professional manner achieving efficient results. They can perform quality assurance on invoices to find out if there is a problem with the product or service, which can slow down payments to vendors. All of these value added services come with no additional expense to you, the client.

Contact our professional consultants today!