Even as many businesses are pulling out of the recession, commercial capital is still difficult to obtain, yet the need for capital abounds.  This is why more companies than ever are turning to factoring as their funding method. Last year domestic companies factored over a hundred billion dollars.  Despite its abundant use today as a successful means of solving cash-flow problems, many companies still view factoring as a last-gasp effort by a business in financial distress. 

Sure, in the past, factoring was used by struggling companies. But now, many businesses use factoring as an anticipation of healthy cash flow and revenues.  Nonetheless, according to Scott Winicour, COO of Gibraltar Business Capital, pessimistic connotations are still associated with factoring for two main reasons: cost and customer perception. However, if you dive into both issues, you can see that in today’s unpredictable economy, factoring should no longer be considered the “F-word” of funding choices. 

Cost:
Factoring has had the reputation in the past as being overly expensive.  However, because of supply and demand, the reality is factoring costs have been on a steady decline since 2008.  There really is an abundance of capital that would like to be working in the market, so today there are more factoring companies than ever before.  This plentiful supply of factoring companies means lower costs as they compete for customers. In addition, the marketplace has become more efficient, allowing prices associated with factoring to be driven down. 

Customer perception: 
Since the process of factoring generally requires that a business’s customer pays the factoring company directly, a business may worry that its reputation may be tarnished if its customers learn that it is factoring. The perception is that if a business has to sell its accounts receivable, it is financially stressed. While that may be true in some cases, most often it is not. In fact, big box retailers, including Wal-Mart and Home Depot, have staff dedicated to working directly with their suppliers’ factoring company. They know that suppliers are able to produce more finished goods when they can more quickly buy raw materials.  
 
In addition, some factoring companies offer a confidential arrangement in that the customer is not notified of the sale of the receivable and the business collects the receivable on behalf of the factor. This is more common in places like the UK, but some US factoring companies are also trying the arrangement.


Despite the common misconceptions about factoring, it can provide a useful means of securing needed capital for thriving businesses.

There  is a variation of factoring which in many cases provides a business with much  needed cash flow, when the company would otherwise not be able to get financing. With this “borrowing base” factoring product, we aggregate all of your invoices to give you a line of  credit based on the total amount of invoices you have outstanding. This becomes  your “borrowing base.” It’s the same concept as borrowing from a bank, but our
method gives you immediate access to daily cash flow, plus the flexibility and  cost controls linked to the size and timing of your advance. With our borrowing  base factoring, you …

*Decide how much cash we advance you
*Decide when we advance it to you
*Pay a one-time discount fee on your advance and an interest charge at the end of each month based on your average cash outstanding
 
Additionally, we do not verify like traditional factors. Instead, we periodically call a select handful of customers to confirm receipt of product or service and  customer satisfaction. Rather than verifying every invoice before paying, our quality-assurance program allows you to receive same-day funding, each and every
day. Our quality controls also help you pinpoint early on any potential problems with your product or service, allowing you to resolve issues proactively with your customer.

The decision to factor involves many criteria but the choice on how to factor is clear. Borrowing base factoring gives you the flexibility, security and speed you need to boost business.

Are you or do you know a business with low cash flow but high receivables, or a client denied by a bank, asset based lender or private equity source? Contact us  today to learn more about why borrowing base factoring could be a smart solution for your cash-flow needs.