The small business owners we deal with, like everyone else, are cost conscious. They may have researched invoice factoring on the surface and determined that the cost was “too much” for their business. They make the quick comparisons to other types of commodity financing like bank lines of credit or even mortgages. Let’s take a closer look.
A “factoring facility” is the purchase of a company’s accounts receivable (invoices) for a fee. Factoring companies provide financing but above and beyond that, they also provide credit and collection services. These services replace the cost of a portion of a company’s fixed expenses. As your company grows, so does the necessity to manage the credit you offer to your new and existing customers.
Taking a loss, especially as a start up business, can have a devastating effect on the health of your company.
Many of our clients come to us because the bank is asking them to bring in additional capital to either pay down their line or bring more equity in to the company. As recent as yesterday we spoke with a company that had been with their bank for five years. Every year they have been profitable. The last two quarters they showed a loss and the bank is asking them to bring in $350,000 to pay down a portion of their $1,000,0000 line. They were asked to reduce the bank’s exposure by taking on more debt! The company will now have to pay a higher interest rate on a collateral based loan so that the bank feels more comfortable about the last 6 months. Remember, these are the first two quarters the company showed moderate losses.
Bank lines of credit are attractively priced, but not reliable in times of adjustment.
So the initial concern with the clients we consult with is cost. However, at some point during the early phases of our discussions we ask the question: Which is more important to you: that capital is at the lowest cost or that it is readily accessible in good times and bad? The answer is always that it is available and readily accessible.
Our clients see the value in having the money there when they need it because they know the pain that it causes through missed sales opportunities, being tight on payroll, etc. Factoring companies do have a higher cost of funds, but it is reliable. If you are looking for a funding partner that will grow with your business and won’t manage your credit availability by using a ratio analysis you can’t understand, invoice factoring is for you.
Our value to our clients is education. Most of our clients are not in the finance industry, they are entrepreneurs. Through our guidance and consultation, they save hours of frustration and headache by utilizing us as a partner that is on their side of the table. If your business could benefit from reliable capital, we would like to speak with you.
Whether you have an existing line of credit or you are new to financing, we can assist
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