Who Uses Factoring and Why?

Who Uses Factoring and Why?

Many companies have difficulties with cash flow due to clients that are slow to make their payments. Factoring can improve your business’s cash flow so that you have the funds you need to pay your vendors, cover the salaries of your personnel, purchase inventory, and grow your company. Here is what you need to know about this method of financing.

Factoring Basics

Rather than wait 30 to 60 days for payments from customers, you can factor in your accounts receivable. This means that you immediately receive 70 to 90 percent of the value of the invoices. After your clients pay their bills, you receive the balance of payment minus the fees that go to the factoring company.

Industries That Use Factoring

Factoring is an effective means of financing for companies that sell goods or services to other companies and offer credit terms to their clients. Industries that commonly use factoring include wholesalers, freight brokers, construction, transportation, technology, and many more.

Qualifying for Factoring

Businesses that are unable to qualify for other forms of financing such as traditional loans and lines of credit can strengthen their cash flows through factoring. Even if your credit is not good or you have recently faced bankruptcy you may be able to factor your invoices because lenders are more concerned with the credit ratings and financial standings of your clients.

Benefits of Factoring

The most important advantage of factoring is to maintain strong company cash flow while you are waiting for clients to pay. This is an especially crucial option for new companies or smaller companies that do not have access to other forms of funding. It can help to turn your business around if you are facing financial difficulties, assist seasonal companies during slack periods, and spur up-and-coming businesses to grow even more rapidly.

For more advice on using factoring to help fund your business, get in touch with Toluca Lake Capital.