Forums: Discussions for entrepreneurs and small business.

Factoring can be helpful in a case such as yours. The problem being as I remember it the interest was 7% to 10% a month. They would call your client and tell them the PO had been purchased by them and your account would need to send the check to them when it was due. If your customer did not pay the account when it was due you would pay another months interest. After 60 to 90 days the Factor would make you pay all the money back even if your customer had not paid the bill.

It got to a point I would only factor a small % of my accounts receivables each month to keep the cash flow going. This may be a good time to talk to your suppliers, tell them the situation and ask them to help you out if they can. If this large order is good for you it is also good for your suppliers. Also the suppliers could check out your customers credit and let you know if it is good or not. Another idea is to go to your bank and get a credit line.

Hope some of this helps,

Winston

I would use factoring as a last resort.  If its a cashflow issue you are trying to solve go out and establish a relationship or harvest your existing relationship with your banker.  I feel THERE ARE some great advantages to factoring, however, a line of credit could cost you much less in the long run.  Think of it almost as a hard money loan.  First understand, why you are in this situation of needing the cash now and determin what the problem is.  I feel that EVERY business at some point should have a line of credit on reserve for the tough times.  Right now we are seeing tougher times for many small businesses and I have clients using both methods.  They happier one`s are the ones that got a line of credit and used it for emegencies.

 

Factoring can be great for a large job that just can up and you need to ramp up heavy equipment and staff but you`d get a better itnerest rate adn save more money long term trusting and using your bank.