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Factoring
Without question, factoring is the
most powerful financial tool that can be brought to bear on problems
of cash flow. This is especially true in the case of young,
first stage companies with little or no credit history. In today's
credit impaired economy with bank financing at a standstill, factoring
is fast becoming the financing method of choice for
business-to-business transactions.
How It Works
In addition to its ease of access,
factoring is also one of the simplest forms of financing to obtain and
utilize. In a typical factoring transaction....
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Each week a business owner will invoice
customers often granting 30 days or longer to pay. While such
"terms of payment" is an important accommodation to customers and
leads to more business, it can cause serious cash flow problems when
payroll is due or suppliers want payment.
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Factoring basically puts your company on
a C.O.D. basis. Instead of waiting for your customers to pay
their invoices, those invoices are sold each week and delivered to
your factor for immediate cash. You now have cash for weekly
operations, payroll, taxes, etc. Cash is usually wired
directly into your business checking account within hours of invoice
submission.
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Factors typically advance 80-85% of the
invoice face value. When your customer's payment eventually
comes in, the factor releases the other 15-20% not initially
advanced after subtracting his fee for services. Typical factoring
fees for 30 days are in the 2-3% range...about the same as accepting
a credit card!
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Factors provide significant additional
services as opposed to credit card processors however. As a
factor's client, you will receive expert collections service, daily
reports of collection and aging, tax reports, and many other
accounting services. Factors are also experts in credit and
can assist you when attempting to determine the creditworthiness of
a new prospective customer.
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Factors will typically only require your
accounts receivable as collateral. That means you are free to
use other assets such as inventory and equipment for separate
financings.
Available to the Newest of Companies
Another important feature of
factoring is its availability to even the newest of businesses.
Factors are like the "mirror-image" of banks and look at the credit
quality of the customers of a business rather than the
business itself. This makes factoring the perfect form of
financing for young entrepreneurs bidding on large contracts with
state and local governments and large corporations that traditionally
take 45 days or longer to pay invoices. With a factoring
arrangement in place, lack of adequate cash flow and payroll worries
are a thing of the past for most entrepreneurs.
Find Out More
For additional information on
factoring and to explore whether its right for your small or mid-size
business, complete the request form below and receive our
complimentary booklet "When Banks Say NO!...the Small Business Guide
to Factoring. It's FREE!....from Naples
Factors. |
