10 Reasons to consider Invoice Financing (Factoring) over traditional loans or lines of credit.
- Easier
- Faster
- Cheaper
- Strategic benefits
- Debt free
- No obligations
- No more collection calls
- No annual renewals or additional collateral
- Organic growth fueled by your own abilities
- Balanced Cash Flow
1. EASIER: Factoring often requires very little set up, with access to cash for new clients in as little as 24-48 hours.
2. FASTER: From application to funding, it can take 24 to 48 hours.
3. CHEAPER: What? Really?! How can that be? This can be explained with a formula involving NPV, but let’s just keep it simple. This is a transaction cost, no annual fees, no line minimum usage. In some cases, you can pay as little as 1% off the invoice value if you trade an invoice for cash and it’s paid within 10 days. Consider the factors driving the cost per transaction:
- you have control over when you request the advance, thereby controlling the cost per transaction
- you are not held to a minimum, only pay per transaction
- merchant services are often more expensive at 3.5% per transaction
- traditional lines of credit have annual fees, minimum usage requirements, and often costly depository requirements (i.e. lockbox)
- Lastly, consider the value added components to your cost comparison and there is no argument. Do you staff 1, 2, or 3 people to make collection calls and follow up on past due invoices? Do you have a full time person dedicated to reconciling payments as they come in via ACH, check, or EFT? Factors often take all of that off your plate… at no additional cost.
4. Strategic benefits – these range greatly but can include:
- Credit executives to assist you in evaluating new customers and establishing terms
- Consistent and professional managers calling on your invoices, sending statements, engaging positively and regularly with customers.
- Payment reconciliation – matching invoices to payments, reconciling discounts or missed invoices. Removing the headaches associated with managing an accounts receivable portfolio.
- Document Storage – the factor needs all pertinent information to close an invoice, so it’s often stored and easily accessible for the client.
5. Debt free
Loans and balances on lines of credit are debt on the balance sheet, borrowed against assets often times personal and company assets
Factoring is an advance against current invoices, not debt – essentially you trade your invoice for cash and the customer pays the factoring company on your behalf. It’s a strategic trade, not unlike trading chocolate for hard candy on Halloween, if your pesky little sister can be convinced to do so.
6. No obligations
There are many factoring firms available. Reputable, long standing, factors do not have term requirements or minimums. They want good long term clients who utilize factoring appropriately, as a strategic solution to improve cash flow, mitigate risk, and reduce overhead. This is not a cash for clunkers environment. This is intelligent working capital, as my friends say.
7. No more collection calls
Who in your office likes collection calls? Outsource it to professionals and hold them to target DSOs. The squeaky wheel, as they say…
8. No annual renewals or additional collateral
Annual renewals, unless you’re the banker, are no fun. No need to say more.
9. Organic growth fueled by your own abilities
No need for underwriting to criticize a dip in your leverage or liquidity ratios… you control your sales and invoicing, so you control your access to cash. It’s all in relation to and driven by you and your business. Improve your revenue cycle and take control of your cash flow with Factoring… yes, it’s true.
10. Balanced Cash Flow
Factoring takes the headache out of wondering if/when cash will come in and be available.