Factoring Companies- A Chat With A Small business owner
I’ve owned 11 businesses and still own four of them and just in case you ‘d like to know one of them has an Letter Of Intent to Buy in hand and got to profitability taking advantage of INVOICE FACTORING ONLY and is entirely – as in totally – debt free. Exactly why? They never ever had to borrow. See Transportation Factoring Company Reviews.
Concerning having used or not used factoring: With three of them and soon to become a fourth I have made use of invoice factoring. Just why? You can capitalize the business without borrowing because factoring is not borrowing. FYI: One of those businesses fulfilled orders it could only have hoped for carrying out had it not used invoice discounting. It’s the one with the LOI in hand in fact.
Invoice discounting, like it or not, is actually a front end transaction that capitalizes a company without their having to borrow. It’s not complicated and only dates back to the Eqyptians … and still works. About it not opening the flood gates? If you have a million dollars in invoices and can not borrow against them nor turn them to cash your business (my businesses were any way until I factored) are dead in the water until you get in some cash. If you have some alternative to that then let us all know . An invoice is a non-performing asset until you can turn it into cash but I am sure that I’ll stand corrected.
QUESTION: If you as a business owner could employ a sales person and they would help you access sales you normally could not BUT you had to pay them a 2 % – 3 % – 5 % commission BUT they would increase your business 10 or 20 or 30 % would you hire that person? If you say yes to this then you are endorsing factoring. It’s not different than a credit card transaction. The business owner is selling the transaction to a third party to receive the payment so how is factoring different from cc transactions?
About the cost of receivable factoring? It appears that surrendering 2 % on the front end of a credit card transaction is ok (on a daily basis and using your formulation in your reply incidentally that calculates annually to 760 % by the way but we both know that this isn’t true now don’t we?). Why should a retailer accept cc processing? More business perhaps? More substantial sales? And what are doing? They are selling the transaction to the credit card company. Yes? No? FYI: I offer that service too … not rocket technology.
Invoice discounting can be be utilized by a company that is turning away sales and can not grow otherwise and note: The only time that they use receivable factoring is when they need to have working capital to satisfy an order that they would otherwise lose. It’s like the sales commission: The only time you pay the salesman is when he sells i.e. it’s a sale you either didn’t have with the salesman or it’s a sale you can’t fulfill because your money if shackled in your invoices and you can’t get it out.
That said it’s pretty simple equation when you can not access liquidity:.
1.) Factor and surrender 3 % of the sale OR dismisses the sale and fail the customer and lose my profit margin … 10 %? 20 %? 30 %?
2.) Use invoice factoring and give up 3 % of the sale OR kiss off the sale and disappoint the customer and lose my profit margin … 10 %? 20 %? 30 %?
3.) Use factoring and give up 3 % OR kiss off the sale and disappoint the customer and lose my profit margin … 10 %? 20 %? 30 %?
What aspect of being in business to maximize a profit am I skipping?
As to the 24 % annually(or as above it would be 36 %) let’s keep in mind that the owner of the business above got to complete transactions that he or she otherwise wouldn’t have had the chance to. Not a lot different than the retailer that get’s to close a sale with a customer comes in with their cc is it?
Also please explain this: A bank loans someone money ($100,000) at 9 % annually. A factor gives $100,000 a month at a 2 % discount and carries this out 12 times over the course of a year. Hmmmmnnn … the bank delivered $100K for 9 % BUT the factor in fact delivered $1,200,000 for 24 % so which is the far better offer? The bank? It owns you: Invoices, inventory, equipment, your house and your signature … the factoring firm has a right to your invoices: End. Which is more desirable?
Furthermore: Precisely what happens with the bank when you need $200,000 and you are only approved for $100K? If you have invoices the factoring firm funds you and you make the sales and get the profit … the bank says to you, “Let’s see how you do over the subsequent year and come back” or the infamous reply, “We don’t like your collateral and your credit is weak” and the bottom line is that they don’t have ability to take the risk or perform the work that a factoring firm does.
REMEMBER: MONEY IS NOT LOANED IN A FACTORING TRANSACTION. If you can not accept or comprehend that then there is no sense in conversing anymore on this …
In closing: To associate to the last statement that invoice factoring at 2 % monthly in discounted interest costs 24 % in interest margins annually then I’ll agree to that but only if it can be acknowledged that a company that sells product with a 30 % monthly margin hereby generates a 360 % annual profit to which you will yell back “They’re not the same” and to that you ‘d be right: Using a factoring company and borrowing money from a bank … Are definitely not the same. Also see Transportation Factoring Company Reviews.