Accounts receivable factoring has been around for centuries, but in no way does that mean that it is an antiquated from of financing. Of course, a lot has changed since the days when invoices were etched in stone, and factoring companies have evolved as well. The reason why factoring has been around for so long and still remains a popular form of financing is because it has always been one of the best and most accessible options to growing businesses. Why should you consider accounts receivable factoring? Below are just 21 of the benefits of using accounts receivable factoring to grow your business.
The primary benefit of factoring is getting funded for your receivables the same day you invoice your customer, rather than having to wait 30 days or longer to get paid. Having healthy cash flow is crucial for any business, and it was what factoring is all about.
Accounts receivable factoring is a completely debt free form of financing. Rather than giving you a loan with receivables used as collateral, your factoring company is actually purchasing your receivables. You donâ€™t need to worry about having to pay your factoring company back.
Speed and consistency is what factoring is all about. Typically factoring companies will fund you the very same day that you send invoices over to them. In many cases, with a simple email or call, they may even be willing to extend their deadlines for you if you need a little bit of extra time to get everything put together, or are waiting for a truck to arrive.
Unlike banks that can take months to make a credit decision, factoring companies move quickly. It is quite possible to get setup with a factoring company within 24 hours and receive your first funding within 48 hours. Factoring companies also make speedy credit decisions on your customers, oftentimes approving orders in 30 minutes or less. In many cases, you might even get an instant approval on your factoring companyâ€™s web portal.
There is no need to worry about whether or not you will be approved for factoring. Your factor is extending credit to your customers, not to you. As a result, credit decisions are based on your customersâ€™ ability to pay, not your own.
Orders that may have been too large to take on in the past, are easily manageable with factoring. You donâ€™t need to worry about having all of your money tied up in receivables, and you donâ€™t need to worry about what would happen if your customer is unable to pay on time or at all.
Some factoring companies also offer purchase order financing. This means that they will give you a loan to pay your suppliers in the event that you receive a large purchase order. This is a great tool for any business that is getting into a major retailer for the first time, is simply expanding, or for businesses that are seasonal.
Your factor will handle all of the credit checking for you. That means you no longer need to ask new customers for credit references, or subscribe to expensive credit reporting agencies. You also donâ€™t need to continually monitor your existing customers, as this is all handled by your factoring company.
By factoring your receivables, you are also outsourcing your collections to professional and courteous collectors. You no longer need to have employees dedicated to collecting, or take away time from important tasks to make collection calls. Instead, when you call customers, your focus can be on making sales.
Your factoring company works with many other clients in your industry who sell to the same accounts as you. If an account does not pay a factor, it not only holds up their ability to receive more merchandise from you, but also from several other of their vendors. It is also known that factoring companies report both prompt payments and delinquencies to credit agencies, so how they pay a factor has a very large impact on their credit.
If your factoring company offers non-recourse factoring, your receivables are fully insured against non-payment. You no longer need to worry about a customer who is unable to pay for merchandise. Furthermore, you donâ€™t need to worry about paying annual premiums, deductibles, and reaching minimums, every invoice you factor is fully insured.
While factoring does not directly impact your businessâ€™s credit, the improved cash flow it offers you allows you to take care of bills faster, and this of course is directly reflected on your credit report.
There is no limit to how much you can factor, factoring is the only form of financing that grows as your business grows. Where bank look at what you did in the past, factoring companies look at what you are doing now, and what you can do in the future. The more sales you have, the more funding that is available to you. Factoring companies are also happy to work with seasonal businesses that experience most of the sales volume in a short two to three month period.
Some factoring companies are very flexible in how they finance your business. They may allow you to choose which accounts you wish to factor to help you minimize how much you need to pay in factoring fees.
Unlike a line of credit from a bank that comes with fees whether or not you draw on it, you only ever pay a factoring fee when you factor an invoice. If you wish to keep an account in house, or have a customer who prefers to pay with a credit card, then you are not charged any factoring fees on them.
With factoring you are simply being paid for your receivables, unlike a bank who may providing you with a loan for a certain purpose and requesting financial statements. As a result, with factoring the funds you receive are yours and they can be used in any way you wish.
Most factoring companies offer online portals that offer a variety of real-time reports. These reports can be used to assist in sales or accounting. Factoring companies are also willing to put together additional reports that you may need from time to time, usually at no additional charge.
Regardless of how much business you do, factoring will always fit your business. From companies that only do $50,000 a year to companies that do $5,000,000 a year or more, factoring will provide you with the financing you need. Likewise, no order is too small or too big, whether you are selling $100 to a mom and pop store, or $1,000,000 to a national retailer, you can always factor the resulting receivable.
While most financing options arenâ€™t available to startups or younger, growing companies, factoring is available. Even if your company has been around for less than a year and hasnâ€™t established any credit yet, you still can qualify for factoring.
Factoring is all about relationships. Your factoring company will always take the time to speak with you and work with you to help you grow your business. Some factoring companies are even family-owned small businesses themselves, so they understand many of the struggles that you need to deal with, and you will work directly with the principals.
Your factoring companyâ€™s success is directly related to your success. Since a factoring company only gets paid when you factor an invoice, your businessâ€™s success is at the heart of every decision a factoring company makes.
If accounts receivable factoring sounds like it may be the financing option your business is looking for, give DSA Factors a call today at 773-248-9000 or email us at email@example.com. We are a family owned business that has been providing accounts receivable factoring and purchase order financing for over 35 years. So what are you waiting for, give us a call today and start growing your business tomorrow!