Owning and operating a successful business is not only stressful but challenging. Cash flow is often a big hurdle for companies to jump over and they frequently find themselves short on the money every month. If you have a large number of account receivables then you know how important it is to collect those account receivables every month in a timely manner. All it takes is one or two of your big customers to either pay late or not pay at all and you could find yourself in financial trouble.
Business factory companies provide a great alternative for cash flow problems. Companies can sell their accounts receivables to a factoring company at a discounted rate and they will deposit the cash right into your business account. The customer will no longer owe the original company but will owe the factoring company instead. This has helped a lot of different businesses get through tough cash flow times. So now that we know what a factoring company is and the services they provide, let’s take a more in-depth look on how much this will actually cost, the process involved and steps to take to find the right factoring company.
A good and fair estimate of the cost of factoring is around two to five percent. Now, you might be thinking that kind of percentage rate is actually great and factoring may be the right option for you. Although two to five percent is a great percentage rate there are other factors that can increase this percentage. For example, if you factor an invoice from a customer that is slow-paying then that percentage rate will increase. When you are choosing which invoices to factor it’s always best to choose the customers that pay relatively on time so that your percentage rate stays low.
Factoring companies aren’t collection companies but per say but they do have a team of collection professionals on their staff to collect on the invoices that you factor to them. Sometimes other companies can be slow paying their invoices but when the factoring company calls them daily or weekly to pay their invoices they may start to pay them a little faster especially if they think there will be ramifications if they slow pay.
You need to do your homework before you start services with a factoring company. If you are a small local company then you are better off going with a smaller local factoring company because they will more than likely charge you less money than a large nationwide company. You also have the chance to build a good solid business relationship when you go with a local factoring company.
A good and reputable factoring company will be able to give you a professional presentation and professional quote on how many their services will cost you. If you ask them questions and get vague or indirect answers then you probably need to look for another factoring company. There are many great resources to help you find factoring companies and there are even factoring company directories to aide you in your search.
Is invoice factoring the right option for your company? You have to sit down and put the pen to paper, crunch the number and weigh out your options in order to make the right financial decision for your company. If you have been in business for over five years, have decent or good credit and have financials to back up your financial status then a bank loan might be the better option for your financial needs.