More Financing Company factoring Information
Factoring can offer many benefits to cash-hungry companies. Rather than wait 30, 60, 90 days or longer for payment on a product or service that has already been delivered, a business can factor (sell) its receivables for cash at a small discount off the amount of the invoice.
Payroll, marketing efforts, and working capital are just a few of the business needs that can be met with this instant cash.
Factoring provides the means for a manufacturer to replenish inventory and make more products to sell: There is no longer a need to wait for earlier sales to be paid. Factoring is not just a cash management tool for manufacturers: Almost any type of business can benefit from factoring.
Generally, a business that extends credit will have 10 to 20 percent of its annual sales tied up in accounts receivable at any given time. Think for a moment about how much money is tied up in 60 days’ worth of invoices: You cannot pay the power bill or this week's payroll with a customer's invoice, but you can sell that invoice for the cash to meet those obligations.
Invoice Factoring is a fast and easy process. The factor buys the invoice at a discount, usually a few percentage points less than the face value of the invoice.
People consider the discount a small cost of doing business. A four-percent discount for a 30-day invoice is common. Compared with the problem of not having cash when you need it to operate, the four-percent discount is negligible. Look at the factor's discount as though your business had offered the customer a discount for paying cash. It works out the same.
Financing Companies consider the discount the same way they treat a sales price: It is simply the cost of generating cash flow, much like discounting merchandise is the cost of generating sales.
Factoring is a cash flow tool used by a variety of businesses, not just those who are small or struggling. Many companies factor to reduce the overhead of their own accounting department. Others use factoring to generate cash, which can be used to expand marketing efforts and increase production.
The fact is that most companies share a common dilemma during periods of rapid growth of incoming orders draining cash flow. Account Receivable Factoring not only provides immediate cash but, efficient businesses also use it as a tool to increase profit margins:
1. Take Advantage of Early Payment Discounts - Having access to cash enables businesses to save on average 2% by taking advantage of early payment terms offered by suppliers. The points saved by reducing raw materials costs helps to offset the factoring fee.
2. Take Advantage of Volume Discounts - Having cash also enables businesses to buy raw materials in greater volume. This saves money and directly impacts the bottom line.
3. Reduce Late Payment Penalties and Interest Charges - Having immediate cash on hand to pay current obligations as they become due eliminates late charges from suppliers and other creditors.
4. Meet Obligations on Time - Paying vendors on time helps to establish a solid credit track record and allows for increased future credit limits from vendors as well as financial institutions.
5. Offer Credit Terms to Customers - Offering credit terms to customers is a common way to increase sales by making it “easier” for customers to buy. Having financial backing to carry accounts receivable is essential if a business wants to be able to follow through on its commitments. Reputable financing companies encourage “managed” growth by consulting with clients regarding exposures and other risks when taking on new credit accounts.
Imagine flexbility that no one else offers. Unlike the others, you choose what works best for you; you sign no long-term contracts; you pay no fees when your account is inactive. You set up your contract to meet your cash flow needs, not ours. You can choose between using our most advanced technology or using the old-fashioned systems - we maintain both for you. Unlike the others, our objective is not to force you to conform to us, but to get you the cash you need in the
quickest and most efficient manner.