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Factoring – Know what you Don’t Know

By November 14, 2014Business

And Avoid Dropping the Ball

by Denny Goodenough

One of the biggest challenges facing most businesses is cash flow. Start-ups have often put all the their cash into R&D and set up of their business, so giving credit to clients is out of the question. Rapidly growing businesses often find it hard to keep up with orders and waiting thirty days or longer for customers to pay can really handcuff a business. Seasoned businesses face challenges of strict bank guidelines and never ending waits for approvals exhausting amounts of red tape for bank credit. In the end, the line the bank offers is rarely large enough to fit your needs.

And what if you have bad credit, no outside income, less than stellar financials, complicated ownership structures, or your bank simply doesn’t like your industry or product? What options exist for a small business trying to secure the capital to grow or even just keep up?

Some businesses look to investors – give away a small piece of the pie today for some capital. Now you’re sharing net income and as your business grows, so does that tiny piece you once gave away. Buying them out later on can really cost you for what has now grown to a giant chunk.

Some businesses call customers to ask for early payment. Desperation always makes you look good in front of clients ….. wait, maybe not.

Some businesses just start selling stuff – not product, but things like equipment, computers, cars, etc. I’m going to take a stab in the night and say you’re probably not getting top dollar. Now you have to go shopping and pay more to replace it.

What about hard money? Those are short term loans that are very expensive. By the time you’ve paid for financing, there’s basically nothing left for you.

Some businesses look to a solution like factoring. Factoring can be a great option for a business that offers terms to clients, but has trouble bridging the gap while waiting to get paid. You give up no equity. You don’t look like you’re in trouble to your customers, like you would calling and begging for early payment. Also, a fire sale is never good. Factoring gives you capital up front as soon as you invoice, giving you the ability to continue to produce and grow. The factoring company waits on the invoice to get paid, then pays you the balance minus any fees upon payment of the invoice. What about the credit limit? The limit is based on need – your line grows as your invoice volume grows.  It’s a great way to grow a business with a potentially limitless amount of capital at your fingertips.

Who uses factoring? If you give terms to another business, you are likely eligible. Manufacturing, Staffing, Distributing, Trucking, Packaging, …. use your imagination. If you offer terms, there’s probably a solution for you. Never turn away business because you can’t afford to fill an order. Factoring can make sure you never do. It’s a solution that has existed since ancient Mesopotamian culture, and continues to businesses grow today today.

If you would like to explore whether or not factoring can work for you, you can call Denny 801-462-1961.

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