Worldwide, commercial factoring is by far the most popular and widely utilized financial solution used to address those cash flow problems related to slow paying customers in B2B sales. In addition to the obvious, there are dozens of additional benefits of factoring, however, that every commercial finance consultant should know. Here are 10 “quick” benefits of factoring that can help every factoring broker close more sales.
Fast Access to Working Capital
Factoring is a quick and easy method of accessing working capital with funds provided within 24-48 hours on approved invoices. Initial account setup typically averages less than 7 days from receipt of a factoring application.
Cash Flow Without Debt
Factoring is always a purchase and sale transaction and not a loan. Because of this, it doesn’t add to the liabilities on a business balance sheet making other forms of financing (inventory, real estate, equipment, etc.) more accessible.
Factoring contracts are typically for a year or less with modest monthly minimums required. With most factors, you may choose which invoices you want to factor each week. Additionally, a factoring facility will automatically grow with a business as sales increase.
Modest Fee Rates
Fees will vary based on volume and customer creditworthiness but overall, factoring fees have dropped markedly over the last 20 years with
today’s 30 day fee rate often lower than accepting a credit card.
Factoring companies don’t dictate how to spend the funds. While most who employ factoring do so to grow their business, some use the new liquidity to fund retirement programs, buyout partners, etc.
Relieve Payroll Stress
Factoring eliminates the need to chase checks and customer payments. With factoring, a business can comfortably make payroll and pay bills without incurring late fees, penalties, or damaging it’s credit.
Increase Sales and Profits
Factoring is commonly used to increase profits and fund growth. With factoring, a business can take advantage of early payment discounts from suppliers, increase available inventory for seasonal sales, and even add additional marketing staff.
Minimal Financials Required
Unlike traditional bank loan requirements, the credit of a business or its owner is of secondary nature to a factor. The factoring company looks to the credit strength of the customers of a business (those paying the invoice). With factoring, you not only build your business with OPM (other people’s money), but also OPC (other people’s credit).
Increase Sales by Extending Terms to Customers
Extending payment terms to customers is one of the most proven methods of increasing sales for small business. With the extension of 30-60 day payment terms for good and services, customers will often increase their purchase size as well as their purchase frequency, confident in their ability to sell the ordered goods within the 30-60 terms and easily pay the invoice with receipts from sales.
Accounts Receivable Management
A business can save salaries and back office expenses with the professional accounting and collections services which are part of any factoring arrangement. Factoring companies will provide monthly statements of account to all customers, daily aging reports to clients, and expert collections services on past due invoices.
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