| |
|
|
Can Factoring Make You Money?
by Mark Little
Published on this site: April 26th, 2006 - See
more articles from this month
Simply put, factoring helps businesses meet their cash flow
needs by providing immediate cash by using accounts receivable.
Many people view factoring as a short-term stopgap to plug
the working capital hole that inevitably presents itself in
almost every growing business. Although factoring can many
times help a business refresh its working capital in the midst
of a 'cash crunch', it can actually be a highly profitable
long-term strategy. With adequate cash flow, a business has
the ability to not only avoid stoppages in business, but to
increase customers and sales. Cash flow is the lifeblood of
any business and with out it, regardless of profitability,
a business can cease to exist.
Also consider the fact that by factoring, debt is not shown
on your financial statements. This reflects strong numbers
and if you have the opportunity to sell your company, this
can be attractive.
Factoring is one of the few forms of financing that can support
rapid growth in a business. As the receivables increase, so
in turn does the funding, as long as your customers are credit
worthy. Therefore, it stands to reason that by reducing working
capital requirements, a company can more rapidly reach their
long-term growth plans. The net effect is increased sales,
increased production, and decreased stress.
Factoring is typically more expensive than traditional financing,
however, the cost of factoring is usually significantly less
than the loss of net profits that would have otherwise been generated by the substantial growth that it
supports.
Ways to offset the cost of factoring if it applies to your
industry is to use the positive cash flow and take early pay
discounts from your vendors and also buy in bulk using volume
discounts. These savings can be deducted from your factoring cost if not eliminate them completely.
If you are turning down business due to the lack of capital,
you need to explore the benefits that factoring can provide.
It is a form of commercial finance that is very powerful and
must not be over looked.
Mark Little is President of Diversified Funding
Services, Inc. He can be reached at 888-603-0055. His company
website can be found by http://divfunding.com
and the Company blog http://www.divfunding.blogspot.com
|
| |
|
|
