Types Of Factoring For All Business Cash Flow Needs

Posted by John Mauldin on Thu, Jan 17, 2013

types of factoring for all small business cash flow needsHappy New Year! Is one of your resolutions to be more organized in running your business in 2013? If you’re a business owner who always seems to struggle with cash flow, then this is the year to turn over a new leaf. 

The key to successfully running a business is cash flow. CASH IS KING!

Some Things To Consider In The New Year

Come up with a new game plan for managing your finances in 2013. Consider taking these actions:

  • Stay on top your collections
  • Be more diligent in managing your receivables
  • Make sure your payables are well managed
  • Consider looking into small business financing such as factoring

Factoring

Factoring is selling your creditworthy receivables to a third party finance company known as a factor. Advance rates vary but are typically around 80%. Once the invoice is paid, you get the remaining portion back less any applicable fees.

Benefits Of Factoring

We all know that it takes 30, 60, 90 and even 120 days for some customers to send you payment. The nice thing about factoring is that you bridge that gap between when an invoice is billed and when you collect the cash.

Different Types of Factoring

There are many different factoring companies and many different types of factoring programs or strategies to help you improve cash flow.

  • The first factoring strategy we would like to suggest is to factor all of your receivables. This does come with a cost (there are fees associated with factoring), but it’s a small price to pay to ensure you have the cash necessary to efficiently conduct business. 
  • A second strategy is to only factor invoices when you need a little help with your cash flow. Make sure these receivables relate to your strongest (most creditworthy) customers. These customers have a tendency to pay faster, which in turn minimizes factoring fees. 

We have managed many factoring lines where the client projects out their cash flow and figures out what they need in terms of funding, and factors just enough to supplement the cash flow.

Strategies For Making A Factoring Program Efficient

Setting up a factoring line is a great way to help get your receivables and cash organized. Once you have sold your invoices to the factoring company, you receive the cash quickly and have it on hand for your business needs. Try these strategies to make the factoring process a little more efficient:

  • Make sure all of your contact information at the customer is up to date. This helps the factoring company reach the right person at your customer’s location during the extensive due diligence process.
  • Utilize accounting software. By doing so, your books and records are much more organized.
  • Stop offering quick pay discounts. By factoring, you’re getting the cash you need. Customers take the discount even if they pay late. 

As you may have guessed, what we’re trying to say is that factoring is an easy and efficient way to help you get your business organized this year. We wish you the best of luck in 2013.

Fast A/R Funding specializes in helping small businesses bridge the cash flow gap with factoring. Schedule a cash flow consultation below, or call 888.833.2286 to speak with one of our small business finance consultants.

Schedule A Cash Flow Consultation

Tags: Invoice Factoring, Cash Flow