Dewell Marketing

In the last post, we talked about what factoring is, some examples from history and the basic process.

Obviously, if someone agrees to pay you an advance on your invoices and agrees to collect them, they want to be paid for that. Just like you want to be paid for your services or the goods you sell.

So, of course, a factor gets paid a fee for this advancing cash to your company. There is a certain amount of misperception about these fees which may run from 2-4% per month on the value of the invoices.

Now before you stop reading, consider this.

The comparison is not between the factor’s fees and the interest rate your bank is charging. You can’t get any money from your bank, remember? The comparison here is between the factor fees and not getting payroll paid on time. It’s against not being able to take a big contract that walks in the door. It’s against not being able to go after really big jobs because the payment terms would kill you.

Factoring may be the only way you can bridge the time you’re in now until the time when your banker invites you to lunch to see what they can do for you. It is also not a long term financing method. It is a sort of “bridge” finance until your financials are such that you really can get other forms of finance.

Many companies double or triple their revenues using factoring exactly because they can expand and grow at critical times. They factor for 2 – 3 years, build a solid cash flow position and then are ready to take advantage of asset based lending possibilities, or more traditional forms of finance, if they need it.

A factor I know who has been in the business for nearly 20 years, has put together a great little book called “When the Banks Say “NO!”. It’s free and it provides you with lots more detail on factoring.