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It is often said that factoring is an “off the balance sheet” form of financing, but what does that mean?

The term has relevance when compared to other forms of financing. More traditional financial tools issue debt in return for financing thus adding debt to the ‘liabilities’ section of the balance sheet. This affects the company’s debt to equity ratio, a key measurement of business risk, and can affect their ability to take on other forms of financing or even jeopardize their standing with current financiers.

This video offers an honest explanation about factoring, how it works, and its associated benefits and drawbacks.

Sign fabrication and installation companies get can get a wide range of project sizes. An associate I recently spoke with handles orders from $1000 to $60,000. A common problem for this gentleman’s business is when the projects on the higher …

Generally speaking a business owner can only control when they make payments IE their cash out-flows. To some degree they are at the mercy of their debtors for their cash inflow. However there is a way to gain control of …

Recent data shows that SBA lending in Southern California is up about 50% over the same period last year and dollar volume of these loans has nearly doubled. This appears to be good news for small business and supports the notion that the economic stimulus enacted in 2009 reached the right hands.

However this good news does not paint a complete picture.

The oil spill in the Gulf of Mexico has created huge demand for a wide array of resources needed to help in the cleanup process. There is probably no better example than MOP Environmental solutions Inc. They have a patented material used to clean up oil spills. Obviously MOP was going to see a large increase in demand for their product. However huge spikes in demand can create cash flow issues, especially when offering 30 day payment terms.

This is where Bibby Financial Services enters. They provided a $750,000 factoring faculty so that MOP would have the financial capability to complete orders and keep the clean up efforts going at full pace.

This is a prime example of how factoring can help a business’s cash flows.

In an overly simplistic model, janitorial companies really only need two things; supplies and employees. Most of these supplies are durable goods and represent more of an upfront cost. The cost of labor is periodic and represents a large portion …

Most Repossessors have the same problem; slow payment. The finance companies that employ recovery agents know better than anyone what delaying payment does to their finances. However, their cash flows are improved at the recovery agent’s expense. In response to this situation, recovery agents have employed a few different strategies.

First, and most obvious, is to sit on a solid cash reserve. This ensures that there are no cash flow deficiencies, and provides the ability to wait for payment. Sounds simple enough but in reality this is a luxurious position to be in. Not all businesses can build up that cash cushion and even the ones that can have to work hard to maintain it.

Another common strategy

I read a financing expert’s Blog post about his experience helping a client get funding. It provided a much needed reality check as to how financing availability is not static; rather it’s constantly changing and even financially strong, profitable businesses may find that funds are not as easy to get as they once were.

“I recently worked with a client seeking financing from their business where the business is well established, has an excellent balance sheet, and is very profitable. The Owners were experienced, established, and had a solid track record of performance.

So why were they looking for financing?

Their primary and only institutional lender could no longer underwrite the type of business they were in.

When talking with prospective clients, a common question comes up; ‘What kind of interest rate do you charge?’ This seems like an obvious question when seeking any form of financing but factoring is an exception.

Factoring fees are fundamentally different from interest rates. Factoring amounts to a discounted purchase of an invoice (or a package of invoices). This means that the fee the factor takes will be based on the face value of the invoices for which the factor provided funding.

For example