How Factoring Plays an Important Role into Your Financing Equation

If you are searching for business financing in the middle of constant credit crunch, it is high time that you look at factoring in a new way. With factoring, companies borrow or sell against their outstanding business accounts that are receivable. The cost is a fee which is a discount between 2-5% of the borrowed amount or the invoice.
Factoring helps the companies get benefit from improved cash flow immediately: So, rather than waiting between 30 and 90 days or more than that to get the payment, they’ll receive 80 percent amount approximately in the form of advance when the receivable is presented to the factor. Besides, the factor executes credit check of the customers and evaluates credit reports to discover the risks associated with it. They also help in managing appropriate credit limits. Most factors also offer a follow-up service to lend a helping hand so that the debtors can pay on time.

How factoring plays an important role into your financing

Some areas you need to focus to boost your chances for factoring success

Below are discussed some areas you need to focus to improve your chances for factoring success.

# Financial declarations and management reports

It is important on your part to produce correct and timely financial declarations, as well as for the owner to identify where the business is financially at all times. Make sure you track the factoring fees correctly since this way, the business will be build in a better way and you can get back the fees. You can gain value by means of discounts for paying vendors, increase in gross sales and overhead reduction. Factoring will seem to be costly unless you measure it properly against the value it will bring.

# The factoring contract

Make sure you can clearly understand all the details of the contract you may sign with a factor and the fees that you’ll be charged. Be cautious of the factors that issue a term sheet without proper attentiveness. What may seem to be a low factoring rate at the beginning may end up being very exclusive when things such as minimum usage, lock box, credit checking and wire transfer fees are included in it.

# Open communication

It is essential that you have a clear communication with your factor. You may be surprised at the flexibility your factor will provide when you are honest with them. Communicating directly with the factor is also necessary if you’re conscious of any problems with your customers. A good factor can solve most of the issues if you’re aware of them but like most of the lenders, factors too do not like to be surprised.
Since factor plays a vital part of your business team, it is important that you choose your partner very carefully. Professional experience and sufficient capital are particularly crucial. Good factors are undoubtedly choosy about their customers just like you should be with your financial partner.

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