Working Capital Solutions With Factoring
Factoring is the process of selling an accounts receivable for less than its face value. It's a financial transaction similar to interest-bearing lending. The factor advances a loan to the company, which pays back the amount plus interest.
Factoring is one of our most effective sources for cash because it reduces payables and eliminates working capital needs, thereby improving liquidity and competitiveness in many industries. Some companies can't get enough factoring because they don't have enough creditworthiness, while others have too much debt outstanding but desire more cash flow.
Factoring can be done for both new trade and business, allowing you to sell your accounts receivable without putting up collateral. Factoring delivers cash on a daily basis rather than waiting for your customers to pay.
These and other factors should be considered when evaluating factoring:
type of accounts receivable being sold (open-account vs. back-accounts);
of accounts receivable being sold (open-account vs. back-accounts); credit terms enjoyed by clients;
by clients; creditworthiness of clients (down customers can cost more than they generate in revenue);
of clients (down customers can cost more than they generate in revenue); credit rating of your firm, usually without a third party review;
of your firm, usually without a third party review; unproductive days - e.g., weekends, holidays - when you're unable to invoice and collect cash.
The factors above are important, but many times what makes a difference is the fact that factoring can be done anywhere in the world. The flexibility of factoring lets you sell your receivables to the best buyer for your company's needs.
When using factoring, you pay only for the service. There are no additional fees or charges. The factor receives 100% of any cash generated from your receivables. When business is good, factors will be eager to purchase receivables from your company. When times are slow and the factor's clients have difficulty paying their trade accounts, you might receive less than anticipated, but you still get your cash immediately.
Factoring has saved many a business in tough times and it has raised cash for businesses that need money quickly. For example, one of our clients had a key piece of equipment break down. They needed to replace it right away or else they would lose millions of dollars in revenue until the new equipment was installed.
Factoring became the only solution. The customer wanted cash quickly in order to minimize the cash loss from the equipment failure and make up for lost business revenue.
Once we received a factoring request, we began working on it immediately and got a firm commitment from a local factoring company within 24 hours. We then had to wait for the client to receive their money. The machine was delivered within two weeks, and after final payment, we had $1M in 20 days. The client had more cash on hand than they would have if they waited for the equipment replacement to be completed or to purchase new equipment with operating funds at a much higher cost.
Factoring is also a way to improve receivables quality. Whether from new or existing customers, you don't want accounts that can't pay on time. The credit terms that your customer has negotiated with your company determines the payment schedule for your accounts receivable. The factor can set up a schedule for the client that conforms with factoring agreements and still delivers cash to the supplier on time.
Overall, factoring provides flexibility and liquidity for a business owner with quality credit customers who have agreed to factoring arrangements as part of their trade terms.
It's an excellent way to enhance cash flow and use the money for capital investments or working capital needs. You can also maintain a high credit rating while improving your liquidity.
UTILITY COFFEE MERCHANT AND DISTRIBUTOR BENEFITS FROM A WORKING CAPITAL SOLUTION WITH FACTORING
VISIT: www.GreenCoffeeFactoring.com
More info about Coffee Factoring and how it works, visit us at: www.GreenCoffeeFactoring.com
In business, it's important to maintain a cash flow. It is the lifeblood of most companies. In order to meet the needs of clients, you may be paying ahead on invoices rather than waiting for payments from your customers. This puts you in debt with your vendors and can make for a very unproductive situation if business slows down or stops entirely. One way to remedy the situation is factoring accounts receivable.
Factoring accounts receivable can help a company reduce operating costs without sacrificing customer service. The process is simple and stress-free, unlike a loan from a bank or other financial institution. Factoring allows companies to increase their profits rather than just their sales volume. You eliminate the amount of money you are spending on payroll and paying out the loan interest. If a client goes bankrupt, you may be liable for some of the failed debts depending upon your contract. However, factoring erases these risks completely.
Factoring is used by many companies in all areas of business. For example, manufacturers and wholesalers factor their accounts receivable as well as many types of service businesses and retail stores. Factoring usually works best when used in conjunction with an advertising campaign or marketing plan that brings in new business or improves cash flow from credit customers already doing business with you. Many companies factor their accounts receivable to improve their cash flow in the short term. You also can factor your accounts receivable to get the most money from your clients as fast as possible.
Factoring is not a method of obtaining cash that always works for every business. It's important that you establish good relationships with the industry experts at your local factoring companies so you know what loans are available and how much capacity exists for new customers at a given time.
Factoring is ideal if you need money fast, but it's advisable to have a solid credit rating before approaching a factoring company with your needs.
Conclusion: Factoring is a more efficient way of paying your accounts; it is also a profitable strategy for improving cash flow.
VISIT: www.GreenCoffeeFactoring.com
More info about Coffee Factoring and how it works, visit us at: www.GreenCoffeeFactoring.