A Common Misconception with Factoring
I ran into this Q&A article outlining 7 points about factoring. One of the best parts of the article is this point outlining a common misconception:
“The biggest misconception is that people believe factors are a lender of last resort but that’s not true because clients seeking out factoring are often in the beginning stages of growth. At first glance, factoring appears to be expensive but does a lot more; in essence, factoring replaces the accounts receivable and credit department. For example, if a trucking company is doing $600,000 a year in sales, a factor may charge 5 percent (or $30,000) per year for financing. In addition to the financing, the factor will do credit checking, ledgering and all the collection work, thus saving the company the salary of an employee hired to handle the same tasks.”
When Tom Nort (CEO of Facteon) was interviewed on my radio program several months ago, one of his points had to do with the extra services that a factor can provide to a small business. The factor essentially can become your outsourced accounts receivable department. The factor brings added value to your business operations, making your business more efficient.
That’s something that a bank lender doesn’t offer.
And just think of the difference in attitude that presupposes. With a factoring company, they are on your side and working for you. Banks, on the other hand, aren’t actively in a position to help you with collecting your accounts receivable.
August 16th, 2008 at 5:44 am
Factoring definitively has an important role for start-up companies, but also well established firms that don’t have time and effort to collect the receivables on time. It is very important to take care of the cash flow situation.