Eight Benefits of Factoring
Factoring is not for everybody. Like all financing, there are certain situations when factoring works extremely well, and other situations when it doesn’t. So when is factoring the right choice for a business? Below are eight benefits of factoring. If you know of a company that values the following, then factoring may be right for them.
- Speed of Setup and Funding: Unlike most capital resources, the factoring relationship can be set up within days, and once set up the funding of invoice can happen between 24 to 48 hours.
- Different Credit Requirements: Most of the funding decision is based on the credit of the customer, not of the company receiving funds.
- Flexible Credit Limit: As long as the client is invoicing a credit-worthy customer, factoring relationships can grow with the client so there may not be limits to access of capital.
- Borrowing Discipline: Lack of discipline often causes companies to not pay loans regularly down the line. With factoring, there’s no lack of discipline — each time a customer pays the invoice, it retires the mini-loan.
- Preserved Equity: Factoring is considered an off-balance sheet form of financing, preserving the equity position in a positive manner.
- Ease: The process of getting set up requires minimal paperwork and no lengthy negotiations compared to banks and equity venture funding.
- Cost: The cost of factoring invoices is relative to the short-term nature of the transaction, not lasting more than 90 days — more than a bank, but less than a VC. Companies with thin profit margins are not good candidates for factoring to grow their business.
- Ability to Grow: Having access to capital improves the financial position of a growing company. While factoring is a short term solution, it ultimately leads them to conventional bank financing.
This entry was posted on 7. January 2010 at 19:15 and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or trackback from your own site.