Question

Topic: Other

Factoring In The Industrial Distributorship Business

Posted by Anonymous on 6/10/2004 at 1:14 PM ET 250 Points
Factoring of invoices seems to be a fast growing way to help financial small and rapid growing businesses. Has any one had experience with factoring and would like to give their comments as to the good, bad and ugly of factoring.
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RESPONSES

  • Posted by Pepper Blue on 6/10/2004 at 1:40 PM Accepted
    Hi Fastener,

    Factoring is a big business.

    I've never had to seek factoring, but I've looked into it and am familar with it as a means of improving cash flow.

    If you are growing rapidly and are planning to continue this path cash flow can be tight you probably need capital, and you have invoices, factoring becomes a very viable option.

    If you can find a reputable Factor to work with (there are many, check out the link below) it might just provide the liquidity you need to keep your business growing.

    Some of the Upsides:

    * You are not giving up equity, incurring debt or borrowing money

    * You are not responsible for collecting no-pay and slow-pay clients - this is a big hassle for SMB.

    * You can continue to grow and expand production

    * You can take and/or negotiate vendor discounts

    Some of the Downsides:

    * Possible bad image to your company i.e. you are failing down.

    * It will cost you. Factoring is a lot more expensive than a traditional bank line of credit. Most factorers will charge the prime rate plus 2%, and that's in addition to a fee that ranges between 1% and 3% of the amount involved.

    Lots of information available, here is a good site:

    https://www.cfa.com/

    Good luck, I hope that helps!
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