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.