The Factoring Force BIG Blog

I am always keeping my eyes open for information or articles that describe the way that invoice factoring or receivables factoring is used in various industries. I came across an article by a gentleman named Gregg Elberg in which he describes the various factoring programs that are utilized by import companies to keep cash flow moving and a company solvent.

Gregg describes three factoring processes:

1. Purchase order financing

2. Receivables financing

3. Inventory financing

Of course, all these are forms of factoring in that they anticipate revenue and leverage that future income.

There is a lot of information out there and I’m trying to keep up with it all.

In his blog titled “Journey of a Serial Entrepreneur,” Usman Sheikh discusses his approach to cash flow and liquidity difficulties that may be periodically experienced by some businesses. Invoice factoring is included in the mix. In the post, Mr. Sheikh refers to invoice factoring programs as “schemes” and warns those who may want to take advantage of these programs to read the fine print and be careful of restrictions applied by the factoring company.

One very appropriate concern that is raised is the perception that clients may develop about your business based on the use of invoice factoring. All of a sudden there ia a third party in the mix and that may send the wrong message about the solvency of your enterprise to clients whose invoices are being factored. I believe that communication with clients is critical in this instance and a call or email to a client letting them know that you are leveraging the strength of your receivables by factoring is appropriate. It may also prompt a speedier response to clients that realize the effect that their payment process is having on a key supplier.

But don’t count on it.

Invoice factoring is presented as a financing option for businesses on this blog managed by the Small Business Development Center at Del Mar College in Corpus Christi, TX. The staff at the center authors these blog posts to help the small business community become more informed about issues and resources that can affect their business.

What I liked about this blog post was that it expalined the concept of invoice factoring in a manner that speaks right to the experience of a real small business owner. The article take a problem/solution approach and offers a scenario which may be only too familiar to an independent business person. What do you do when you need cash quickly to keep your business solvent and viable. The team offers the concept of invoice factoring as a means of leveraging an asset and expedite the flow of cash back into the business.

Good to see that the local education community is looking out for the local business community in Corpus Christi.

A blog post over at IFG Network has got me thinking now about the history of invoice factoring. According to the author, invoice factoring can be traced back as far as ancient Mesopotamia during the rule of a King Hammurabi. Unfortunately, the author does not elaborate and the next thing you know we are reading about the practice of invoice factoring in the early American colonies.

It is obvious that factoring invoices, or at least the concept behind the practice, has been around for centuries. Now I’ll have to do a little digging and come up with a more detailed overview of the long history of leveraging receivables in the form of factoring.

Sounds fascinating, doesn’t it?

Invoice factoring is not just for the struggling little guy. GE Healthcare Financial Services recently closed a $75 million deal with The Schumacher Group. This division of GE specializes in financial services to the healthcare industry.

A look at their website provides insights into the way that a company of this size views factoring of receivables. I did not find one mention of the word “factoring” on the GEHFS website although the site did mention that, “Our underwriting expertise in valuing real estate, receivables, inventory and cash flow ensures that our customers obtain the optimal financing structure and maximum leverage capability for any given situation.”

So factoring receivables is essentially providing financing against another asset. This is correct but it is interesting that it is not referred to as factoring. Guess that the big boys view themselves as more complex and sophisticated than firms specializing in factoring.

Snobs!

Factoring may be more expensive than traditional financing but, for a business startup, factoring may be the surest bet to staying solvent during the lean times of getting the business up and running.

I came across a  example of the way that invoice factoring may be the right move in certain circumstances. Read about a fictitious company and the way that two make believe partners take advantage of factoring their receivables to keep the business afloat.

Rather than take a lot of time typing out the FAQs for invoice factoring, I have taken the liberty of linking to a website that provides answers to some of the basic questions about factoring receivables. I’m sure that the good folks at Working Capital Company won’t be complaining about the link love.

Get answers to your FAQs here.

I came across a very thorough article about invoice factoring at a blog called Good Small Business. The blog describes a variety of best practices for managing a small business and includes this article about invoice factoring. Thought that it would be helpful to anyone trying to understand the basics of factoring receivables.

By factoring accounts receivable a company can generate working capital and move the business forward rather than play catch-up all of the time because of cash flow issues. But besides just providing liquidity, factoring companies can also provide services that will assist business owners to make better decisions.

To view a factor as simply a funnel for cash is to miss the opportunity to capitalize on other business resources that can help a company be more profitable and better managed.

To gain some more insights into these additional services you can check out this blog post over at Ozark Capital Funding.

Everybody wants to use your money to make money. Say you bill a client $10,000 on January 1. On March 1 you finally receive your payment, if you’re lucky. That means that for 60 days your client has been able to use money that should have been yours.

So how do you get your money? Consider factoring. Read this article about factoring invoices as a means of addressing slow pays and cash flow issues.