Alternate to Factoring

Aron

Heard a lot about factoring on recent SuN shows. Just want to remind everyone that terms of an invoice are always negotiable. On numerous occasions customers have placed large orders with us and cash flow gets tight. What we will do is offer 2% 10 net 30. Meaning if the firm that purchases the product pays within 10 days we give a 2% discount, after 10 days full payment is due.This finance strategy has double benefits. First we usually get paid within 10 days and we can pay off any short term loans that we may have taken. Second (and possibly more critical) is our invoices rarely go past 30 days. I asked the accounts payable people why we were so lucky and they explained "Invoices with discounts go to the front of the line. We may not process them all in time but because there is an opportunity to save money that invoice will not be processed in the order received. It always receives priority."Hope this helps. 

Rich

great post, aron! very valuable.

Aron

Brian,Terms on an invoice are what you set. A typical range is from 1%-5% (although 5% is a very large discount for only 20 days advance).Factorers look at who the purchase order is from (because that is what they are buying). A P.O. from Dell will have a lower rate than one from a small company because the likelyhood of Dell defaulting is low. I wish I could give you more of a range but it is a very negotiable deal. Good luck

Stu

Having factored my invoices for nearly 5 years ( having recently obtained a business line of credit,) I found it to be an invaluable tool when growing a business that doesn`t have much cash on hand. I paid 2% off the top, and having 85% of factored invoices, advanced.. I was lucky to find the company in Michigan and fortunate that the owner was both an attorney and CPA- someone who could also offer invaluable advice. As he said ( and my accountant cringed), "it is the price of doing business without adequate funds." He also said, any staffing company (such as mine) that used his factoring services went on to become more successful. We are currently working on the "more."