Your business and factoring

Cash flow now

Also called Receivable Financing, Invoice Financing, Transaction Financing, Cash Flow Funding, AR or Account receivable funding or financing. Funding and financing are used interchangeably but funding is the proper definition since the factor is buying an asset (your receivable).

The factoring business model was one of the first forms of financing ever developed over 4,000 years ago. At that time, the factor would pay a farmer for crops (giving the farmer cash flow) while they were still in the field and would take his fee at the time of sale.

 

Factoring is the most popular financial product in the world

Most businesses that invoice their customer or client have some relationship and understanding of the process. Your invoice is an asset: it has value. The factor (us) advances funds to you by taking ownership of the invoice.

 

Here is a common example:

Whenever you use a credit card, you’ve created a factoring transaction. Say, you’re at a restaurant and used your Amex to pay the tab and assume it’s $100. The restaurant gets about $97 of that $100 but it gets it immediately. The restaurant sold your “receivable” to the credit card company at a discount . Some people may ask why didn’t the restaurant insist on cash? It’s been proven that people spend more money and more often when they use a credit card. The restaurant has more customers and they spend more money. Consequently, accepting slightly less actually grows their business and creates a larger profit.

 

Here’s a common problem:

Be very careful when you select the firm you factor with. The great majority of factors are capital limited so that as you grow or suddenly have a large increase in your business they won’t be able to meet your requirements. They simply run out of available funds. That won’t happen with Exportbank. $1 billion available to fund receivables worldwide.

 

How does factoring help you?

We often forget the most important things – a good night’s sleep and less stress. Once your business enjoys the predicable cash flow that factoring can provide, the pressure to juggle your payables is suddenly reduced. Instead of spending your time worrying, you can spend that time building your business. Factoring can provide the funds you need to cover payroll and all the other costs that land on your desk. One of the best features is that factoring can be FREE because your suppliers will normally offer “Less 2% 10 days and that discount can offset the factoring fees. We also provide receivable monitoring and will follow up if the invoice isn’t paid within your terms. It’s almost like having free accounts receivable staff. Also, we provide credit monitoring through the main credit rating agencies. This monitoring service can be invaluable – especially if your customer begins to face credit issues and you don’t know about.

 

Who uses factoring?

Any business that invoices their customer and creates a receivable can use factoring. If you have a lot of small receivables, then it’s best to accept credit cards. But for larger receivables and customers who pay by invoice in 30 to 90 days, factoring might be the best option. Staffing and temp agencies almost always enter into a factoring relationship because they need to meet payrolls for their staff well before they receive their clients’ payment. It’s the same with trucking but for different reasons. Transportation companies have huge fuel bills that often run more than their labor costs. They also experience lease and maintenance costs that are due before the customer pays their freight bill invoice.

Manufacturers, distributors and exporters factor their invoices because they are often required to extend credit to their customers in amounts that can easily exceed $100,000. We work with companies with millions of dollars of outstanding receivables each month. Every business needs consistent cash flow to operate. We’re the source for your predictable flow of funds.