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Hi,
I was reading some of the posts in growth funding, and noticed a lot of people looking for angel investors.
I was wondering.... does anyone, know anything about, businesses or people, that buy invoices instead, for a percentage? Sometimes growth comes unexpectedly when companies want to purchase large quantities of a product. What seems to be a great opportunity for growth, can be a difficult situation for many start-ups, if they have to wait 30-90 days, to get paid.
Janie
Factoring can be a very useful financing tool in hypergrowth situations when you sell your product to creditworthy businesses. Factoring is often a perfect funding solution since the amount of financing can grow as quickly as you can sell your product.
The cost of factoring will typically range from 2.5% to 4% per 30 days though in some cases it can be even less expensive. To receive the lowest rates, you have to factor significant volumes on a monthly basis. Advance rates range from 60% to 85% of the face amount of the invoice and will depend upon factors including return provisions and history.
When compared to finding an investor, factoring is faster, easier and doesn`t require you go give up any ownership.
Please feel free to contact me if I can be of any assistance.
Using factoring should be a carefully considered action. You should look at your A/R turnover and see if there are other means to shorten the collection days. Especially if A/R turnover is a chronic problem.
The cost of factoring is another issue. If the cost is 2%, you might stimulate A/R turnover if you instead offer the customer 1% discount if the invoice is paid within a certain number of days. Thus saving you 1% over the factoring fee while retaining control of your A/R.
Another consideration is the use of the funds received by factoring. Factoring does not increase cash (like a loan) it only gets you cash quicker. So, if you need 80% of your revenue to cover costs... factoring will not change that. It would be a mistake to use factoring generated funds for expansion or capital expenditures and not set aside the amount needed to cover operational costs.
~Roland
Janie,
There are other funding solutions that would enable you to borrow against accounts receivable, but at lower cost than factoring.
While more expensive, factoring enables a business to react more quickly when you land a big order that can result in customer concentrations.
Marshall
Thank you Marshall, I appreciate your help. My question mostly stemmed from curiosity. And it was, a good question. I learned a few things from you, and Roland about factoring,
At this time, we are not looking for funding options, but I really appreciate your answers..
.I edited my comments because I had stated that we had some direct contacts after posting this question. I just wanted to be very clear, ... these contacts did not come from Marshall, who took the time to be very helpful .
Thanks Marshall!
Invoice factoring is a service that is commonly used by businesses to increase their cash flow as well as reduce administration costs.
In this process you are required to sell your company's invoices to a 3rd party for a discount which then is compensated by the way of a provision of immediate funds that allows your company to finance further business.
Kimberly
Compound Profit has factoring services. Email me at kbernhardt@cprofit.com
Compound Profit provides working capital to small and medium sized businesses. We have excellent Factoring programs.
Keith
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