| 'Factoring'
can provide your business with an immediate, positive
cash flow.
Many businesses turn to
"factors" as a popular way to finance growth
and operations. Factors buy your receivables at a
discount. Factors are available to all types of
businesses who are in need of working capital
financing. They can prove to be a very profitable
means by which businesses grow and prosper.
Is Factoring
For You?
In deciding if factoring
is for you, you must consider the advantages of having
immediate access to the cash that is tied up in your
accounts receivable. Factoring may make sense for you,
especially if you can utilize that tied-up cash for
"expansion" or "profit taking".
What To Expect
Your factor should provide
a reliable source of cash flow into your business with
a consistent and quick turnaround on invoices to be
funded. However, your expectations should not stop
here. The factor should be supplementing the efforts
of your accounts receivable department by being a
third-party accounts receivable management firm.
You should expect your
factor to verify shipment arrivals, provide detailed
aging and collection reports, make collection calls
and process lockbox collections. In addition, a good
factor will provide supplier payment guarantees, and
pre-award financial commitment letters and credit
reviews on current and potential customers. You should
expect these services to be customized and made
available to you to meet the demands of you and your
customers.
Consider the approach a
factor uses in designing your contract. Although much
emphasis will be placed on the quality of your work or
product and the financial strength of your customers,
the factor must also look at the big picture. A factor
who inquires about your management capabilities,
corporate structure, goals and market trends will have
a better understanding of your business. With this
understanding, the factor can determine the best way
to help you obtain your objectives.
Factoring does have its
price, but a good factor will be able to see an offset
of their fees with projections of increased profits.
Your factor should be able to show you the cost
benefits of factoring and accept only those clients
that will benefit from an immediate increase in cash
flow.
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