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This is an interesting take on what it means to be a direct lender. To summarize, almost all financial institutions lend money that is not ‘their money,’ it is their customer’s deposits. This is why they are able to …

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.

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 …

Cash flow is the life blood of business. Understanding and managing cash flow successfully is usually the difference between the successful businesses and those that fail. This becomes particularly important during a cash flow crunch.

Cash flow issues can happen for a number of reasons. Customers fall behind in payments. Manufacturing, shipping or other business costs rise. Business growth is soaking up working capital and so forth. The following provides strategies to help get through this rough time.

Great break down of factoring. Informative, concise, and easy to understand. If you are not familiar with factoring, this is a great introduction.

Factoring tends to be widely misunderstood. It is not a ‘traditional’ lending arrangement and most businesses owners have limited exposure to factoring, if any at all. Because of this, there are many myths and misconceptions about factoring I hope to dispel here.

Myth #1

The most widely accepted myth is that factoring is too expensive. There is some truth to that statement; 2 to 6% over 30 days is a lot. However, there are many ways to offset this cost. Using the funds to complete deals that otherwise would have not been financially possible is the best use of factoring funds. In this case you are increasing your profits as a direct result of factoring. If your business is already at capacity and cannot take on new sales, it means your business needs to grow. Factoring is ideal for growing companies as it provides flexible financing that grows with your business. Factoring funds can be used to purchase new equipment, hire new employees or open a new location, all of which can increase your long term profits. Factoring can also allow you to take advantage of volume and/or early payment discounts which can affectively off set the factoring fees. Bottom line is when factoring funds can be put to good use, it is expensive not to factor.

There was a recent article on entrepreneur magazine’s website called “The Post-Banking Loan.” It is a very appropriately titled article about the factoring industry and how an increasing number of small businesses are turning to factors as a source of capital in the current lending environment.

However factoring, as a service, was a bit misrepresented in this article and I would like to take this time to correct a few of the points made and add some of the glaring omissions as well.

Factoring is very different from “traditional” lending. For one, it is definitely more expensive. But with the expense comes added flexibility and services that other types of lending cannot match. So this leads to the question: When is it a good time to switch to other types of financing?

To answer this question the business must first look at what financing options they qualify for. If factoring is their only option then it can help increase business volumes while building credit history, both of which may help the business to later qualify for a different, perhaps more ideal form of funding.

The purpose and goal of a factoring arrangement is simple: Improve cash flows. That is the primary value that a factor provides to their clients. However, a factor’s value does not start and end with simply providing financing.  The factor assumes a host of responsibilities that are inherent and unique to this variety of financing.