4. June 2009 04:22
There has long been a misconception that companies who use factoring are dangling one foot over the abyss of financial ruin. This perception is untrue and often the result of rumor and ignorance of what factoring really is and how thousands of business owners benefit from this type of financing.
• Do business owners turn to factoring when they have experienced a downturn?
• Is factoring a good option for companies who have been turned down for a more ‘traditional’ line of credit?
The answer to both of these questions is, yes. So, while using factoring to help a business owner take control of their cash flow and firm up their balance sheet to get them through a rough patch; it can also be said with a good measure of veracity that factoring can also assist a strong business grow and keep up with increased demand.
Many business owners turn to accounts receivable factoring because their cash flow is inconsistent. A business may have a relatively small cash flow for part of the year, and when they are in their peak business cycle, their cash flow increases significantly.
By factoring their invoices business managers and owners control this cash flow cycle. They find that rather than being reactive to the ebb and flow of their cash flow, they can make their receivables work for them. It becomes a much easier and less stressful event to say ‘yes’ to new customers or larger orders once business owners are confident they are not going to be strangled by tight cash flow.
Used correctly, factoring is a very effective tool for a variety of situations.
4. June 2009 04:17
Almost to the client we are asked this question. Understandably this is a common concern of most new clients.
First, lets understand that as discussed in my previous blog about factoring, it is not a black mark for a business. In fact it is very normal for a business to have a line of credit. Factoring is little more than a line of credit which utilizes accounts receivable as collateral. Having a factoring line in place can help to put your business on a much stronger footing than your competitors. You have the advantage of being able to positively manage your cash flow.
You might be surprised to find out from your customers that some of them are already familiar with factoring and may even be having some of their invoices from other vendors factored.
What do you tell your customers?
Tell them due to growth and to keep up with your cash flow you have decided to factor your invoices. This is a positive step for your business and will allow you to continue providing your customers with the great service they have come to expect. Your customers will continue to have the same level of contact with you that they have always had.
By the way, this is also a benefit to your customers as it allows them the luxury of paying on terms. You’re not the bank…we are! So, let the factoring company worry about when your customers are going to pay your invoices.
Communicating proactively and positively with your customers will go a long way in making factoring a smooth transition.