How Receivables Factoring Can Benefit Your Company

In many financial circles, the "f" word is not to be used. However, factoring is a well-established form of business financing that produces immediate cash payments to a company at the time of shipment, delivery and invoicing a customer. In its basic form, factoring has been used by American business since Colonial times, and its origins go back even further, literally thousands of years to the early days of commerce. Factoring has a bad name among some "experts" because of what is perceived as an excessively high cost of capital. But those who are able to put things in perspective know that when bank financing isn't available, other alternatives should be at least reviewed for viability. For example, lets say you have the opportunity to execute a new contract, but you need capital for production costs and overhead. Your friendly banker says he'd like to help, but your company is overextended. What do you do?

An analysis of how the costs of the contract could be funded by factoring should be performed. Will factoring provide enough working capital to pay the additional labor and overhead? If so, will the fees be covered to provide an adequate amount of profit?

Sadly, many business owners give up after a bank turn down rather than seek alternative forms of financing. The prudent thing to do is to take a few minutes and fill out an application for a factoring arrangement. The factor will know if your company is a good fit for this type of financing.