Factoring Company

When researching for the best factoring companies, there really is a lot to consider.  This ultimately goes back to the title of this blog.  Now that you are more familiar with what factoring is, I’d like to discuss some questions you should ask before committing to working with a factoring company:

• What is your fee structure?  A lot of times you’ll find that fees can be around 2% of the face value of the invoice for every 30 days.  This of course does not apply to all factoring companies.

• What is the cost of the due diligence?  A good lender will do an extensive due diligence process which include: Guarantor background searches, UCC searches, Tax lien and liability searches.These items do cost money and can be passed on to you for utilizing the factoring company’s services.

• What is the term of the loan?  Is there a cancellation fee?  Keep in mind factoring lines are considered short term, but it is still a good question to ask.

• Do you require every invoice to be factored?  I feel like this is a good question, just simply because there are a lot of factoring companies out there that do require all invoices to be factored.  Of course this can get to be quite costly. 

There are a lot of companies out there that don’t require every invoice to be factored.  In the long run this can really save you some money while improving cash flow.  It makes it even better because if you factor just the invoices relating to credit worthy company’s they could end up paying faster saving you in factoring fees.

Improve Cash Flow

To run a business successfully, cash flow management is vital.  Obtaining financing through a factoring company is a great way to help manage your cash flow.  When you do business with a third party factoring company you may find it a little easier to find the cash flow assistance you need.  In the time I’ve spent in commercial finance, I’ve seen many businesses benefit from the use of short term financing and at the same time keep fees to a minimum. 

I’ve heard so many business owners out there say that they’re earning the revenue, but they’re company still doesn’t cash flow.

The root cause of this is the fact that a lot of customers take 30, 60, 90 days to pay.  Folks…………you cannot successfully run your business when your customers are taking that long to pay

You have to be able to:

• Pay your employees.

• Pay your vendors.

• Buy inventory.

• Build your customer base.

All of these things on the list above require working capital.

Best Factoring Companies

There are so many options out there to help with you working capital needs.  One of the best options is a form of small business financing called factoring.  Factoring is where you simply sell your accounts receivables to relating to your credit worthy customers to a third party known as a factoring company.  Advance rates vary, but are typically around 80%.
Working with a factoring company is really a great way to improve cash flow.  It eliminates a lot of the guessing you may have to do to plan your company’s cash flow.
There are also other benefits besides making payroll.

• Short term business loans are easily accessible.  With advances in technology, many banks and small business lenders have made it quick and easy to obtain small business financing.
• Costs related to factoring lines are easily manageable.  If you obtain a factoring line, then you may only pay fees based on the outstanding invoices.  Factoring lines can provide relief when your cash flow is tightening.  There have been many instances where I have seen a lot of small businesses waiting for a large invoice to be paid resulting in cash flow becoming tight.  This is where a short term business loan such as factoring can help alleviate that strain.