Information
Factoring...
The Solution To Your Cash Flow Needs
Have you explored all your sources of
capital for your business?
Does it make sense to postpone your
creditors when you have capital available in your accounts receivables?
Are other institutional financing sources
responsive to your immediate needs?
If the answer is "NO"
to any of these question, perhaps you should consider a source of capital known as
factoring.
Factoring is the purchasing of
the original business to business/government invoices. Upon receipt of the original
invoices the factoring process usually transacts in the following manner.
The first step taken by a
factoring company, before purchasing an invoice, is to order a credit report on your
firm's client. The credit report enables the factoring company to establish the credit
worthiness of your client. This is accomplished by using the services offered by companies
such as Dunn & Bradstreet or Creditel. The amount of credit a company extends your
firm on each transaction is solely based on the potential ability of your client's ability
to pay on the invoice or contract.
The second step taken by a
factoring company is to verify the invoice, verbally or through written acknowledgment
that the services rendered are complete and satisfactorily performed in accordance with
the purchase order(s). That the invoice is true, correct and payable in accordance with
its terms. That they shall be paid in full without offset or deduction despite any claims
or 3rd parties.
Once these steps have been taken
the factor will then fund the total advance on the invoice(s), generally 80 percent of the
invoice (depending on the firm's industry). These funds will then be advanced between
24-48 hours. The actual fee generated by the factor is determined by the time lag from the
day of the advance to the day of receipt of funds from your client. Once receipt of monies
has occurred the factor will settle your account and disburse the calculated differences
between monies received from your client less their fee and the amount of funds advanced
to your firm.
When you factor you do not borrow
money. You make no monthly payments. You control "how much" and "how
often" you want to factor. You eliminate your own collections and the
"bad
feelings" associated with them. In short....
- you are able to spend more time
running your business
- you can improve your cash flow
- take advantage of discounts for
quantity purchases
- pay your suppliers and vendors
more timely
- increase your credit rating by
carrying higher cash balances
A factoring company surveyed it's
clients with this question: "If every customer paid at delivery, what sort of cash
discount would your company be willing to offer?" The results were anywhere from
5% - 15% with a median average of 9.6%. Inc. magazine, May 1990, reported that the
average fee charged by factoring companies point out that the savings of fees is even
greater as the company's sales volume increases and it's receivables prove to be bankable.
An increase in sales, reduced overhead, increased production and reduced bad debt all lead
to higher profitability. If used properly, Factoring can be one of the most
powerful and beneficial forms of financing for your business.
Talking to a Fleet Street
professional about factoring as an alternative to get the money you need to grow your
business, may be the most productive conversation you have this year. Call us at
416-929-9272, or send an .
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