WHAT TYPES OF BUSINESSES SHOULD UTILIZE INVOICE FACTORING?
Invoice factoring is the sale of invoices at a discount in exchange for immediate cash. In this article I am going to list and discuss exactly which type of businesses are the best candidates to utilize this form of business financing. I am also going to describe the specific situations where invoice factoring works best.
1) Start Up Companies- It is very difficult if not impossible for a brand new company to qualify for a bank loan in today's lending environment. It is basically required that a new business have 2 years of proven results. Compare that with invoice factoring, where all new business needs to qualify are quality and creditworthy customers.
2) Rapidly Growing Companies- Companies that are growing very quickly but do not have enough cash flow to increase production and meet larger orders are great candidates for factoring.
3) Seasonal Businesses- These are businesses whose sales and cash flow fluctuate so much throughout the year, that banks will not lend to them.
4) Labor intensive Industries- Companies that use many employees and need working capital in order to make payroll and pay for their employees health insurance plans.
5) Companies That Can not Get A Bank Loan- There are many businesses that for a multitude of reasons can not get financing from a bank and there are also many businesses who were given business lines of credit that have already been taken away by banks.
6) Banks That Need to Make Timely Tax Payments- Businesses do not want to fall behind on their taxes and have tax liens placed against the company
7) Companies that Have Trouble Collecting From Their Debtors- Any business that has to wait 30, 60, or 90 days to obtain payments from debtors but need money now to take on new business, are excellent clients for Invoice Factoring.
8) Get Discounts From Suppliers- Many companies can obtain 10 or 15% discounts from their suppliers if they can pay them back in 10 days or less.
9) Companies That Want To Avoid Debt- Businesses that want to avoid putting themselves in debt. With invoice factoring, there is no monthly principal and interest to worry about.
10) Companies That Want to Increase their Credit Rankings
11) Companies That Need Capital to Purchase New Equipment or Pay For Inventory- Factoring can provide a company with the working capital they need to purchase different items that are needed for the business.
12) Companies That Have Low Net Worth- Businesses with low net worth will have a very difficult time getting a bank loan however they will probably qualify for invoice factoring as long as they have good creditworthy customers.
There are many industries that utilize factoring successfully like:
• Janitorial Staffing
• Oil and Gas
In conclusion, Factoring can be a great tool for your business if it is used correctly. To determine if factoring is right for your business, you need to examine all of your available financing options. If your business has low profit margins then factoring is probably not a good fit. However If your business fits in one of the 12 categories I described above, then factoring may be your best available option.
Source by Richard L Lonschein