As a business owner, or advisor, it is important to consider various alternatives and oftentimes the most obvious path is the one pursued. Many times when a company is in need of cash flow the immediate thought is to pursue a credit line from a Bank or other financial institution. The first impression is to “get a loan” and use Accounts Receivable as collateral. This may be a possible solution; however, there may be an easier way and that is to “obtain factoring”. Let’s look at the reasons it may be easier and more efficient.
One of the first things to come to a business owners mind when hearing the word Factoring is cost and way too much of it. However, this isn’t necessarily the case. As a matter of fact, depending on how one views the situation, it may actually not be a cost at all. It is easy to always focus on cost and this is often the first question that is asked from a business owner to a Factor, “how much will this cost me?” When in reality this should not be the first question to ask; but “how can it benefit my business?”
It is important to look at the benefits of Factoring and how it can improve cash flow. Can the availability of cash actually allow for other cost savings? The overall scenario needs to be analyzed and a full understanding of why Factoring should be used needs to be thought over. There is not one single answer for all business owners as to why the cost of using a Factor is justified and actually beneficial. Just as companies have their own unique products and services, they also each have their own specific needs for cash and reasons for managing it in a particular way.