Who Uses Factoring and Why

Who Uses Factoring and Why

Many businesses face problems with cash flow due to slow-paying clients. Factoring provides a solution to this funding difficulty to a wide range of industries. Including construction, transportation, freight brokers, manufacturers, distributors, and many more. When you factor in your invoices, you receive 70 to 90 percent of their value immediately rather than waiting 30 to 60 days for payments. The balance, minus the finance company’s fee, you are sent when your clients pay their bills. Here are some of the reasons that so many businesses turn to factors for their funding needs.

Obtain Funding Regardless of Status

Startups, smaller companies, and businesses struggling to turn around often find it difficult to obtain financing from traditional banks and credit unions. Although they may not qualify for loans and lines of credit, factoring receivables is an option available to them. You may even be able to qualify for factoring if your business has gone through a recent bankruptcy.

Qualify Easily

Traditional financial institutions typically offer to fund only if your credit rating is high. However, factoring companies are more concerned with the credit ratings of your clients. You can still qualify for financing if your credit rating is imperfect as long as you have well-managed invoicing procedures.

Strengthen Cash Flow

Clients who are slow to pay can impede company cash flow, frustrating the running of your business and your growth plans. When you factor in the accounts receivables of these clients, you keep cash flow strong so you can handle expenses such as the salaries of your employees, rent, inventory, equipment, and taxes.

Avoid Constricting Covenants

When you borrow funds from traditional banks, you often have to agree to certain conditions known as covenants concerning the running of your business. These covenants often do not take into account special conditions such as those experienced by seasonal businesses. Factoring companies generally either work without covenants or with minimal covenants that are flexible enough to adapt to your company’s unique situation.

For more advice on factoring as a financial solution for your company, contact TCF Capital.