Factoring Advantages

Factoring Advantages2016-10-14T00:09:17+00:00

 Advantages of Factoring and Working Capital Lines

  • TIME : Factoring is a much quicker approval and set up process than obtaining traditional bank financing. Typical time to establish and deploy a factoring facility can be from 24 hours to 5 days depending upon the provider and the accuracy of the information provided by the applicant. The process for submitting invoices to receive an advance on them is also very fast. The good Factors will offer same day funding at no extra charge. Often funds are sent by electronic wire transfer or ACH. The good Factors also will provide these services at their cost and not try to profit from such. There is not much worse of a feeling that bumping into your banks credit ceiling and asking for a higher limit to be told no, all the while the reason is your great growth.
  • GROWTH:  Factoring can provide an almost unbridled level of growth. Because factoring takes into account the Accounts Receivable (AR), as the AR grows, so does the size of the factoring “line”. As a company adds more and more AR, they in turn continue to increase the collateral that is used for the factoring “line”. With traditional bank financing, a line of credit is often fixed with a set credit limit, and is difficult to increase it. There is not much worse than having an opportunity and not being able to seize it.
  • PAYROLL : Probably the most prevalent reason business owners stay awake at night is worrying about how to make payroll, and how to make sure they never miss it. Employees don’t do well when they are not paid as agreed. Factoring, so long as you have invoices that are due to you, lets you rest knowing that all you have to do is request an advance on one or more invoices that will allow you the funds to make payroll. A lot of sleep has been regained by business owners who established factoring relationships, even if they only used it as a safety net in emergencies.
  • CLOSE THE BIG DEALS : When you have a quality and well capitalized Factor relationship, you can take on new business with the confidence that as soon as you deliver, and invoice your customer you can access the cash from that sale, and avoid waiting until the check arrives in the mail. This confidence allows businesses to take on larger and higher quality clients whose nature of doing business is to be invoiced and to pay that invoice through an approved accounts payable department process.
  • FREE CREDIT ADVICE : Often times the quality Factors will provide you with free credit advice about your clients. Because Factors need to understand the risk and likelihood that your customer has the ability and will pay your invoice, Factors rely upon sophisticated and high end commercial credit reporting tools to help them understand that risk. The good Factors out there will also share that insight with you, and not just say yes or no.
  • COLLATERAL : Factoring limits its collateral typically to the underlying invoices and accounts receivable. Unlike a bank line of credit or other loan products it does not attempt to take a lien position or security interest in your home, personal assets, and often times not your other businesses assets. Remember, the less you have to expose to risk the better off you are.
  • FREE TREASURY MANAGEMENT : Banks actually charge heavily for this service. With Factoring, at least with the few good Factors, treasury management is free. Because the Factor will be receiving the payment from your client, and depending upon the Factor that will come made payable to either your company or the Factor directly, the good Factors have software that scans in the check, stub, envelope and any remittance advice and forever warehouses that in a PDF version for you. They then electronically deposit that into either your account or theirs depending upon if the payment was for an invoice you factored or one you did not and you therefore are entitled to the money. You get free offsite data backup, and archival, and essentially never have to make a bank deposit. 
  • IMPROVE CREDIT : When you have access to capital you really have no reason for not being timely in paying vendors and bills when they are due. By doing this, your businesses credit rating will soar. Eventually your business will stand on its own two feet, or will recover from the current difficulties that you and many like you may have experienced in this economic climate. Factoring, at least the good Factors, are there when you need them, and no bother to you when you don’t. Your vendors once paid timely for a while, will be much easier to persuade to increase their credit line to you when the time comes.
  • DISCIPLINE ASSISTANCE : Because Factors costs are usually based upon the length of time that the money is outstanding, it behooves you to stay on top of your collections and not let yourself get lazy with this. By knowing that the sooner the customer pays you / and therefore the factor, that you are reducing your financing costs, you should be more motivated to chase those slow paying customers more diligently. Anytime there is a carrot, the rabbit always runs faster.
  • EXCEPTIONS : Once again, we reference the Good Factors: when we say that one of the greatest advantages to using a good Factor is that they can and most of the time when it is logical to do so, will make exceptions to the norm. By that we mean, should a particular client or situation merit your needing a 90% advance against the invoice versus the typical 80%, often times the good Factor will step up to the plate. Other examples are too numerous to mention, but Good Factors are flexible, logical, and are there to help, never to hinder. Good Factors are not finance people. They are business owners, adapters, hybrids, just like you. They adapt to meet the need.
  • AS NEEDED : Again, we have to say the Good Factors, as there are plenty that don’t fit that bill, when we say that Factoring should only cost you when you use it. If you select a Good Factor, there will be no monthly maintenance fees, no monthly minimum required activity, and if you don’t use the facility, it simply is of no consequence to you whatsoever.
  • INDUSTRY SPECIFIC : Some Factors have niches that they operate more specially in. Some are experts in the staffing and payroll sectors, some in medical, some in construction, some in technology, etc. A Good Factor will tell you what industries they serve best, and can often times be a conduit to great connections, advice, lessons learned, and insights into your own industry. Because they are exposed to your industry every day, they have an abundance of collective wisdom.
  • COMMUNICATION : You should always look for a Good Factoring company, but one way to tell is by how open their lines of communication are. Do you have a dedicated person to deal with day to day? Are you able to email them, reach them on their cell phone in a crisis, and if you need a higher level of approval from say the President or Principle of the company, are you able to reach them as well. Don’t just settle for either the sales person or the representative who you originally deal with, meet the whole team and determine if you like them and if your personalities are a fit. Also – let me note! Very Important! The Good Factors who do not tie you into a contract, they also are motivated to have great people and great communication, because you can leave at any time…
  • PERSONAL CREDIT : If you are like most budding or even seasoned business owners, you’ve personally guaranteed everything, put it all on the line, and then some, invested your own money, and probably along the way have dinged your own credit when you were the last person to get paid. Well, welcome to the life of the entrepreneur. Factors – the good ones – understand and expect that. They look almost exclusively at the credit of your customer: the company you invoiced. When that credit is solid, yours often never comes into play.
  • NO DEBT: Factoring in accounting terms, and in taxation terms is not considered a debt. It is only a debt if your customer does not pay the invoice, which after a certain amount of time – usually 90 days, you are asked to make good on. Because the underlying debt due is from your customer to you, by way of the Factor, you legally and honestly have no “debt”. Sleeping better knowing you have one less debt is a good thing.
  • RETAIN EQUITY : Because you do not have to seek out capital partners, investors, or other forms of equity dilution, you retain and keep your full ownership in your business. While your company’s stock value may be small or insignificant today, you never know what it may be worth down the line, and you want to hold onto all of it that you can.
  • YOU OFFER TERMS : Ever had that feeling of when you finally got that larger more sophisticated client, and now what? You are going to have to beg them for a deposit, or to pay COD upon completion, simply because you can’t afford to extend them the terms they are so used to getting. When you have a good Factoring partner, you can confidently extend those terms with a smile, knowing that the cash is available upon invoicing.
  • LEVERAGING : I’ve devoted an entire section in the tab list above called Costs & Mitigation, as to how you can not only afford Factoring, but you can’t afford not to Factor. This section deals with how to use our money to make money by leveraging cash with your suppliers, vendors, and creditors to entice them into their best deal.

       There is a vast array of reasons why Factoring is a GREAT tool. That being said, it is only as valuable of a tool when it is in the hands of a skilled craftsman, and one who cares more about his clients than his wallet. I say this, as those in the factoring industry who are both skilled craftsmen, and who simultaneously care about their clients, well… are far and few between.

         In my years in this industry I’ve found a select few, I hold their feet to the fire on such, and they shine every time. Please ask me for a referral to either my own employer, Midland, or some of the other specialized Factors who may delve into industries that we do not, such as Transportation, Construction or Medical Factoring.


Scott P Brown

Video Widget



  • Fast Growth Companies
  • Start-Ups
  • Payroll
  • Working Capital Needs
  • Bank Turn Downs
  • Turn Around Situations
  • High Concentration Customers
  • Maximized Credit Lines
  • Bank Workouts