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.

In contrast, factoring does not create any new liabilities. The only part of the balance sheet that is affected by factoring is assets; factoring converts one asset, accounts receivables, in to another asset, cash. This provides liquidity particularly for businesses that have a large base of receivables.

Factoring is a form of finance that focuses on cash flows and receivables. However there are other items that can have a dramatic effect on a business’s cash position besides accounts receivables, such as inventory, accounts payable, capital expenditures, and debt service. The liquidity gained through factoring can be used to off-set hardships in the other areas. For example, a growing business will usually require increased investment in inventory and eventually capital expenditures. This means that cash will flow out of the reserves and into theses accounts increasing working capital requirements. However, factoring gives access to the funds that would otherwise be locked up in accounts receivables. This gives the business a faster cash-to-cash cycle and thus ability to operate more ‘lean’ in regards to cash. In most situations this can more than offset the cash flow issues that arise in a growing business.

Other forms of financing can also be used effectively as a means to finance growth, however factoring is one of the few financing options that is not limited to some predetermined dollar amount. Factoring is only limited by the size of accounts receivables, and thus will grow in line with sales.

Factoring from an Accounting Perspective is a post from: Factor Direct Capital

In this specific case, the big projects took precedent over the smaller projects. This sometimes lead to a situation where 70 percent of the money outstanding on his aging report was from one large deal, therefore he wasn’t seeing or expecting much money to come in from other sources. Although the money was no longer coming in, his suppliers, employees and expenses still needed to be paid. The longer that invoice remained outstanding, the more he depleted his cash reserves and the more stressful his situation became.

This is why he decided to speak with us. We can provide a simple solution to this common cash flow problem with our factoring services. Factoring is essentially the sale of an invoice at a discount. In return for this discount the business receives immediate funding. This means that the large receivable is no longer sitting idle on his books; it is in his bank account ready to be reinvested into his business.

This gives companies the ability to book new business with confidence, knowing that a slow payment won’t lead to a cash shortage and all the accompanied stress that situation brings.

Whether it is one big project, or a quick spike in demand, factoring can prevent having to turn down new business due to cash flow issues. This keeps operations humming along and most importantly, profits coming in.

Sign Companies benefit from Factoring is a post from: Factor Direct Capital

Factoring gives the business owners full control of their cash flows through the sale of accounts receivables. By selling receivables to a factor, the business receives an immediate cash advance. This is essentially controlling when a customer sends payment. However if cash flow control is what you are seeking it is important to pick a factor that offers the right terms.

Some factors require year long contracts with monthly minimum factoring volumes. This can work well in some situations but to be fully flexible the key is partnering with a factor that allows the business to pick and choose which invoices to sell and when to sell them. This gives businesses the ability to utilize the financing when it is needed but save on the factoring fees when it is not a vital. As well it provides the perfect amount of funding at any given time.

Control Cash flows is a post from: Factor Direct Capital

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. There is no doubt the MOP was working at full pace to move as much product as possible. However, this can create huge cash flow issues.  MOP will be forced to finance all production costs as well as the large purchases of raw materials that not only will be needed to replace the inventory that has been sold, but also anticipate materials needed to meet increasing demand. Meanwhile, MOP will also be financing their customers purchase for 30 days or longer. This can easily stretch the finances of a company and create a short term situation where too much cash is flowing out and not enough is flowing in. Without factoring, a fast growing company would eventually be forced to pass on potential business as they would run out of cash necessary to finance new sales. However MOP was smart and factored their invoices which gave them the ability to turn their 30 day debt into immediate cash. This is cash they used to finance sales, and meet the crucial demand for their product in the Gulf of Mexico.

Factoring is also an extremely flexible financial tool. This is important for MOP because there is no good way to anticipate how big this spike in demand will be or how long it will last. However, factors are only financing for 30 days. This means that the executives at MOP can adjust the level of financing they receive from their factor as conditions change.

Factoring provided the financing needed to keep the cleanup efforts in the Gulf going as well as helping a business capitalize on current conditions. This is a prime example of how factoring funds should be utilized. For more information on this story click here.

Factoring’s Role in the BP oil spill is a post from: Factor Direct Capital

This is an important as it relates to cash flows of janitorial companies. As we all know, payroll is not an expense that can be delayed a few days or weeks; it must be paid on the day it is due. This is by no means a ground breaking insight, but it is key to janitorial companies, particularly those that service businesses.

Businesses will often demand 30 day terms on janitorial services. With 30 day terms there is always the possibility that payment will come late. Usually this is not a huge problem but if cash reserves get tight, and payday is on the horizon, delayed payments could create stressful times for the owner of the janitorial company.

However there is a solution available to janitorial companies; that solution is invoice factoring. Factoring has a whole list of benefits, but the key advantage for janitorial companies is it offers dependable money. Factors are in the business of buying invoices from their clients. What this does is grant access to the capital that would otherwise be locked up in the form of a receivable. Most factors can disburse funds within 24 hours of their client’s request, which gives business owners tight control over their cash in-flows.

This gives the business owner the luxury not having to depend on a payment coming in to make payroll. If funds are needed a factor can provide them quickly and dependably. This is why factoring can provide business owners with piece of mind.

Why Janitorial Companies Utilize Factoring is a post from: Factor Direct Capital

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 is to step-up collections efforts. For small operations this means the owner takes time out of their busy schedule to review their aging report and make phone calls on past due invoices. For larger operations a collections specialist might be needed. This can be done in-house or through a third party.

This can be an effective way to expedite payment and improve cash flows; however it comes at a cost. For small operations, this cost usually in the form of precious time. For a full-time collections specialist the cost is in the form of a salary.

Another effective way for repo agents to manage cash flow is to use an accounts receivables factor. A factor will advance payment on the invoice so that cash is available immediately. The factor will then handle the collections on the invoice as well as key accounting functions. This provides a much improved cash flow position as well as outsourcing key duties to the factor.

Factoring comes at a cost as well. The factor makes money by purchasing the invoices at a discount.  It ranges from 3-5% of the face value of an invoice. At this rate, it is much more expensive than other forms of financing. However, for most recovery companies it makes more sense to factor then bring an in-house collections agent. Only the repo companies with the highest sales volumes have factoring fees that are more per year than a salary. As well, factoring improves cash flows much more substantially because payment is comes in 30 days earlier.

Factoring is also a great avenue for recovery agents to get financing when other sources are not available to them. For all factoring arrangements, the factor is most concerned with the credit-worthiness of their client’s customers. This means even the smallest recovery agent can get funding based on the credit of big finance companies.

Factoring: Working Capital for Repossessors is a post from: Factor Direct Capital

“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.

In the current economic climate, this is becoming a more and more common occurrence for even well established small businesses.

For this particular client, they were actually able to secure better business financing than the package they had.

But while you might think the debt financing could be easily replaced given the financial strength of the business, this is not always the case. For this particular client, while the end result was positive, there were not many interested lenders at the very point in time they required financing. And with the institutional lender they are working with now, there is no guarantee they would have done this deal 6 months ago, or would considering doing it at all 6 months from now.” (The rest of the post can be found here.)

While this particular case got straightened out, and the business actually got a superior funding setup, this is the exception to the rule. As well it highlights how unreliable sources of funding have become. An article on entrepreneur.com highlights the inconsistency and dangers of business credit cards, which are apparently the “top-source of small business capital.” So where to businesses turn to get the funding they need?

‘Alternative’ lenders provide a solid fall back for businesses that find themselves needing funding.   Purchase order financiers, inventory lenders, accounts receivable factors, equipment financing companies, real estate lenders, merchant cash advancers etc. are all alternative lenders and each unique type of financing has a different set of benefits, draw-backs and affects on the bottom-line.

One or more of these avenues for financing tend to be readily accessible to most businesses. For example, Purchase order financing or factoring are widely available forms of financing to businesses that operate in the B2B market. However, retail operations can take advantage of merchant cash advances to find the funding they need. Point being, it might be a good idea to develop a relationship with alternative lenders so that there is a familiar place to turn if the banks are no longer interested.

Invoice Factoring: Alternative finance is a post from: Factor Direct Capital

You might be thinking, ‘are you crazy? Where can I find cash within my business?’ Take a look at your books, specifically your accounts receivables. Would having 80 percent of that balance today put your business back in good standing? Then invoice factoring is the solution to your business’s cash flow needs.

Factoring is effectively the sale of an asset. Accounts receivables are simply a future cash flow that a factoring company will purchase at a discounted rate. In exchange for this discount, the business receives immediate cash flow for use in their business. As well the factoring company will assume the invoice as there own and thus will provide accounting and collections services, as well as a package of other benefits.

Because factoring is the sale of an asset, it creates no new debt. This is apposed the business credit lines and loan arrangements that create a liability. The factoring company gets paid back by your customer which means there is no added liability for your business.

Another key characteristic of factoring that it provides fast access to capital. Banks have to go through many processes ensure that their clients are credit worthy before they approve a loan. Factoring companies require due diligence as well, but their process is much more streamlined and they can usually disburse funds 24 to 48 hours from the time of application. This means that your cash flow worries can be over ASAP and business can keep running as usual.

Need Financing? Look at your books is a post from: Factor Direct Capital

Factoring is a great way to get quick the cash your businesses needs. Factoring allows businesses to access the money owed to them in the form of a receivable. The money is already earned by the business, factoring simply allows you to use that money.

Factoring provides more control over your company’s cash flows as well. Some Factoring companies let  you to pick and choose which invoices to sell which gives the business owner the ability to control cash inflows, not just outflows. Any business owner that has stressed making payroll knows the value of having access to cash when it is needed. Factoring can provide timely money and the piece of mind that comes with it.

Away from making payroll, factoring can help your position with suppliers and customers. On the supplier end, factoring funds can be used to make payments on time as to not strain the relationship you have worked hard to maintain. It can also be used to take advantage of early payment discounts as to cut costs. On the customer end, factoring can be used to differentiate your offering by extending 30 day payment terms. Further it can be used to finance large deals or busy periods so that your business can fulfill all its deals and/or not have to turn down business due to lack of capital.

Meet Payroll, Pay Suppliers, etc is a post from: Factor Direct Capital

Without factoring, a business is forced to finance their customers purchase for 30 days or often times longer. This is all well and good, but a growing business usually won’t have the extra capital to be financing their customers and their expansion. Factoring allows these growing businesses to affectively stop extending trade credit, so that they can finance their growth rather than their customer’s purchases.

Factoring gets the businesses paid upon invoicing which can be huge for growing enterprises. It not only gets capital back in the business and covers the expenses of the deal but it provides cash that a business owner can depend on being there when they need it. This can provide safety for a growing business, and help relieve financial concerns that arise from not knowing when payment will actually come in. This provides the ability to expand rapidly and responsibly

As well the money from factoring can be invested in volume discounts and early payment discounts to affectively cut costs. This decreased in cost coupled with the ability to take on more business can lead to skyrocketing profits. All because you can reinvest in your business faster.

Reinvest your Earnings Faster is a post from: Factor Direct Capital