It's time to find a way to get off the cash flow merry-go-round! One way to step off and regain your balance is to work with a factoring company. Factoring is the purchase of credit worthy accounts receivable in exchange for immediate cash. This can provide you working capital when conventional funding is not an option.



Invoices are great assets as the work is already completed or the product has been delivered. You are just waiting for the invoice to be paid in the next 30-45 days, or longer. Unfortunately, businesses often need the money owed well before the customers pay - even if the customers pay in a timely manner.

Factoring companies do the waiting for you. Once your are set up with a factor, you'll be advanced 80 percent or more of the face value of the invoice in 12-48 hours from the time it is submitted to the factor. The balance of the funds, less the discount fee, is released back to you once the factor has been paid.

The cost of doing business with a factor is the discount fee. These fees range from one to ten percent, depending on volume, creditworthiness of the customer being invoiced and the overall risk. These fees are often off-set by being able to take advantage of cash discounts, market growth and reduced late payment penalties.

In addition to providing immediate cash for invoices, a good factoring company performs credit analysis on new and existing customers, follows up on invoices as they become due and provides timely updates. Other benefits are an improved credit rating; the ability to take advantage of volume discounts; the ability to meet obligations on time; putting an end to payroll and tax payment worries.

Candidates - Any industry that creates a business to business invoice for product delivered or service provided is a candidate for factoring. The industries could be medical, trucking or construction related; they could be janitorial to high tech and every thing in between. They could be start-up companies or ones that are having tremendous growth.

Factors are primarily interested in four things:

1> The business is properly licensed and registered.

2> The products and or services being delivered are of consistent and acceptable quality.

3> Invoices are creditworthy, accurate and verifiable.

4> The factor can be in a first lien position on all receivables.

Finding a factoring company - Each factor operates a little differently, so there are different benefits and costs. There are many reputable factors, but some charge more than others. Here are some criteria to be considered:

> Are there any fees being charged besides the discount fee (the cost for the time the money is out)? These could include application fee, loan origination fee, set-up fee, administrative fee, and maintenance fee. Are there any penalties?

>Does the factor provide credit services on your existing or new customers? Do they charge for this service?

>Does the factor provide timely reports on what is happening with your account?

>Does the factor provide any value-added services?

>How much experience does the factor have and what is their depth of knowledge.

Bankers, suppliers, customers, CPA's, attorneys and business colleagues can all be good referral sources for a reputable factory company. Another excellent referral source is an experienced broker knowledgeable in factoring. Good brokers will have several reputable factors they have chosen to work with and will have an idea of fees to be charged. National Funding Resource Associates is such a broker. We have been in business for over ten years and got our start in factoring. There are several advantages in working with a reputable broker:

>They do all the legwork for you in finding a factoring company. This frees you to spend your time on what is important - that is - running your business.

>You don't pay them; the factor does and they don't charge you more because you are using a broker.

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Caution: If you are working through a broker and the factor is going to charge a loan origination fee, question how much of that is for the broker. If the broker is getting part or all of it and didn't disclose that up front to you, I would question their honesty. With factoring, National Funding Resource Associates does not charge any loan origination fees or any other up front fees.

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>When your business has stabilized, they can help find a good banking relationship as well. they do want to see you succeed.