Factoring is a method that you can used to obtain Cash when the available Cash Balance held by your company is insufficient to meet current obligations and accommodate your other cash needs, such as new orders or contracts.
The use of Factoring to obtain the Cash needed to accommodate your immediate Cash needs will allow you to maintain a smaller ongoing Cash Balance. By reducing the size of your Cash Balances, more money is made available for investment in your growth.
When your company sells your invoices at a discount to face value it will be better off using the proceeds to bolster its own growth than it would be by effectively functioning as its “customer’s bank.”
Accordingly, Factoring occurs when the rate of return on the proceeds invested in production exceed the costs associated with Factoring the Receivables. Therefore, the trade off between the return you earn on investment in production and the cost of utilizing a Factor is crucial in determining both the extent Factoring is used and the quantity of Cash that you hold on hand.
Many businesses have Cash Flow that varies. You might have a relatively large Cash Flow in one period, and might have a relatively small Cash Flow in another period. Because of this, you may find it necessary to both maintain a Cash Balance on hand, and to use such methods as Factoring, in order to enable you to cover your Short Term cash needs in those periods in which these needs exceed the Cash Flow.
You must then decide how much you want to depend on Factoring to cover short falls in Cash, and how large a Cash Balance you want to maintain in order to ensure you has enough Cash on hand during periods of low Cash Flow.
Factoring has been used by companies for hundreds of years. Some of the largest companies in the world including many clothing companies, media companies, staffing companies, medical professionals, contractors, and even giants like Coca Cola use factoring to improve their cash flow.
If your company needs immediate cash a factoring line can usually get started in seven to 10 business days, less if you can supply answers to our questions.
After the account is established you can turn invoices into cash in as little as one to two business days.
I know the application is lengthy. Don’t let that concern you. Just put down your head, roll up your sleeves, and get to work. The sooner you submit the application, the closer you are to improving your cash flow.
Five Things To Tell Your Customers About Why You’ve Chosen To Factor
1. Working with a Factor helps me fuel my Company’s growth.
Selling invoices (receivables) to a third party has been a standard business practice for hundreds of years. Our business is not in trouble. In fact, it’s just the opposite: it is growing fast and factoring accelerates my cash flow to fuel that growth.
2. Your payment terms will not change.
By working with a Factor, your payment terms can stay the same as they are today. You don’t need to pay any faster and the name on the check stays the same.
3. Your day to day contact with our Company stays the same.
I will continue to be the person with whom you discuss project related issues.
4. Working with a Factor is easy.
You will receive an original invoice and Authorization Letter with each invoice that involves the Factor. Instead of mailing a check to our business, you simply redirect payment to the Factor. The Factor should be notified if payment terms or amounts are going to change.
5. The Factor is not a collection agency.
Even though you will be sending payment to the Factor, they are not a collection agency and they will not be calling you to collect payment.