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Factoring Offers Hope for Companies Struggling with Cash Flow

Guest post by: Michael Hemenway

Article Overview: Major companies have steadily increased the lag time in paying invoices which can stretch smaller firms significantly. Consider factoring, or selling off accounts receivables for instant cash. Factoring can help companies gear up for busy seasons or survive challenging times.

Factoring Offers Hope for Companies Struggling with Cash Flow

I'm not sure if you caught an article in the Wall Street Journal a few weeks back. The article was an indepth look at what made Amazon a success. While there were many general business principles that could have caught your attention, one little detail spells continued troubles for small- and medium-sized businesses.

The article explained that Amazon had recently stretched the length of time that it took to pay suppliers. The article showed that, what had been a 40-50 day turnaround just a few years ago had stretched to 70-plus days.

Amazon is not alone in this of course and there's nothing wrong with what they're doing. But many medium-sized firms, especially those who deliver products to major conglomerate, have felt the pinch of decisions made by companies like Amazon. Especially in this economy, cash flow is becoming increasingly critical to a business' survival.

That's why many businesses are considering "factoring." Let's start by explaining the term: Businesses sell their accounts receivable and receive the cash instantly. This allows a company to gear up for big projects, or just survive the longer turnaround on invoices. It's a low-cost, no-risk option for any company who needs cash now. Factoring also can be a lifesaver for start-ups who feel the brunt of the invoice lagtime acutely.

brandEXPANSION currently works with a factoring firm that offers the full notification, non-recourse method-meaning that debtors pay our partner directly. Factoring has become a viable option and is a well-respected way of managing businesses, meaning that your customers won't think less of you when paying a factoring firm directly.

Of course, when working with loans and the like, there can be quite a delay. So why bother to sell off the receivables, wait a month or so to receive the cash? You could have just waited for the company to pay in the first place. Our partner offers quick turnaround, in five days or less.

Factoring can also be a critical lifesaver for companies that are in financial straits, even in Chapter 11 bankruptcy proceedings. Many news reports have shown that freeing up credit for small- and medium-sized businesses has lagged dramatically in recent months. Factoring, though, can be a great option instead of a traditional loan.

Not all companies are a good fit for factoring, of course. But if you need some assistance weathering the current market-and the lengthening time for accounts receivable-contact us to learn whether it's a good fit for your business.

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Article Tags: accounts receivable, amazon, brunt, business principles, business survival, conglomerate, debtors, general business, invoices, length of time, lifesaver, medium sized businesses, non recourse, receivables, risk option, start ups, turnaround, ups, viable option, wall street journal



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Improving Cash Flow - How do I improving Cash Flow? What the best way to improve it to another 100% growth YOY? Has anyone does this or achieved this using online marketing? Thanks, Roberts
Re: Improving Cash Flow - Thanks for your information. guide on how to avoid the problems of over trading. <-- Where is this guide? Any URL? guide on debt factoring and invoice discounting: the basics. <-- Where is this guide? Any URL? I just want to learn more about this. I am also looking for a good article on: What exactly is Cash Flow? Ways to improve cash flow at individual level and organizational level? I think it is a problem of thinking and mind sets problem. If we can change the way of spending, we can have more Cash. Robert
Profiling Famous Women Entrepreneurs - Great suggestion Leanne! The PROFIT Companies are always great sources!
Re: Using factoring companies - [quote="BigJim22":3e4n6n63]I haven't used it myself but can see how it would be valuable for some entrepreneurs. It's hard when you get an order but don't get paid until 30, 60, or 90 days later. But it's also hard to give up $ to the factoring companies![/quote:3e4n6n63] ..."But it's also hard to give up $ to the factoring companies!" Great comment, Jim! However, it's not as hard as it may appear from the outside. Unfortunately, there is no free meal ticket with any financing option (other than gov. grants). The real question regarding the financial viability of factoring is this: I have 2 checks for you; one is for $100 and you can have that one in a month; the other one pays you $80 now plus another $15 in a month. Yes, you net 5 cents less on the dollar with option 2, but if you can take the first $80 now and turn them into $90 or $100 (e.g. more sales!) in a month, then you've not only off-set the loss but actually grown your top and bottom line. Factoring is really much more like running a price promotion. Just look at all the sales events that are happening daily. Companies discount their goods by 10% - 75% only to sell more volume. What are the costs of these programs? Another good example are credit cards! If you as a merchant accept credit card payments from your customer, you're already paying 2% - 5% of each sale to the credit card company. That's the same principle as factoring! Or how many businesses offer a 2% net 10 days discount to their customers, only for them to pay within 10 days? By the way, I can beat those 2% net 10 hands down with our factoring rate! And then there are traditional loans.... you always have to pay back the principal AND interest periodically, no mattter how the business is doing. With our factoring programs there is no principal or interest to be paid back, and the "cost of factoring" is tied to sales and cash flow (i.e., when an invoice actually gets paid and after you have already received the money). The objective truth is that factoring is not the right solution for everybody. Used wrongly or irresponsibly, it can do a lot of damage to a company. But used for the right reason and under the right circumstances, a good factor and factoring program will do miracles for a company's growth (or survival). And in these situations, the $ that go to the factoring company become totally moot. It will truly be the famous win-win. Best, Ralf
Re: Apologizing for my absence, and an update... - Apology accepted and thank once again for reviewing my copy of [i:3v8lr26m]Offline Cash Magic[/i:3v8lr26m] report


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