If you were hoping this article would somehow show you how to use a certain four-letter word, professionally, in
business, then sorry to disappoint you. Unfortunately, there will be no examples of office friendly “F” Bombs, if there ever was such a thing!
Despite your disappointment, (hold the sigh), odds are you’ll find this to be helpful and informative, especially if you’re someone who needs help with cash flow for your business.
The so-called “F” WORD, as it’s used here, refers to a business financing product called “FACTORING.” Factoring sometimes gets a bad rap. As is the case with any industry, there are the occasional bad actors that can give an otherwise good thing a bad name if it’s not used properly or ethically. There are a few choice words for these people. Words that the other “F” word would come in handy for, but hey, let’s not digress and instead move on to the many positive aspects of Factoring.
FACTORING = CASH FLOW
Factoring can best be described as a tool to increase cash flow. When a business has to wait 30-60-90 days to get paid by their customer it can cause a real strain on the business. Meeting payroll, paying vendors, and covering other costs can be a big challenge. It can even damage relationships with clients, vendors, and employees. Having cash in hand helps businesses ensure these important relationships are taken care of.
The numbers can vary with Factoring depending on a variety of scenarios, but let’s make it simple for explanation purposes. Hypothetically, let’s say you have a $10,000 invoice. A Factoring company can purchase that invoice and immediately advance you $8,000. When the factoring company gets paid in full on that invoice, they release the remainder of the funds to you, minus their fees. For the sake of this example, let’s say their fees are 2%. Therefore, the factoring company would take a $200 fee and release the remaining $1,800 to you, so ultimately you would end up with a total of $9,800.
You may be wondering… What kinds of businesses can benefit from factoring?
The short answer is any B2B business that gen
erates Accounts Receivables or Purchase Orders. Essentially these invoices become valuable assets the business can use to their advantage. Some of the most common industries where Factoring is used include manufacturing, staffing, technology, distribution, wholesale, logistics, business services, consulting and more.
SIX BENEFITS OF FACTORING
- Factoring can be both a short-and-long-term solution. It can be a great way of funding your operation during the off-season when business is slow, or if you’ve hit a rough patch. Alternatively, if your business is experiencing rapid growth, Factoring can be a year-round solution to maintain steady cash flow.
- It’s generally easier than applying for a loan. In many cases, a traditional business loan is still the best way to get an injection of capital, but it takes time and requires a lot of paperwork. Factoring is fairly straightforward, and many companies will put cash in your hand within a few days.
- The requirements are straightforward. Generally speaking, you qualify if you operate a business with commercial or government clients (who have good credit), and if your business is free of liens, encumbrances and legal problems.
- New and small businesses can use factoring. Without an established credit history, new businesses may struggle to find a traditional lender who will offer them a line of credit. Furthermore, small businesses may not have enough profit to attract a traditional lender. Many Factoring companies, on the other hand, work with startups and small businesses.
- Your line increases with your growth. Factoring scales with your business, which means you get access to more capital as you gain more customers or clients.
- Your invoices are collateral. With Factoring, the invoices are your collateral, which means you can quickly convert them to cash.
So, now you know, appropriately using the “F” Word in business can actually be very worthwhile… without damaging your reputation!