Simply put, factoring helps businesses meet their cash flow needs by providing accounts receivable financing and management services. Many people view factoring as a short-term stopgap to plug the working capital hole that inevitably presents itself in almost every growing business. Although factoring can many times help a business refresh its working capital in the midst of a ‘cash crunch’, it can actually be a highly profitable long-term strategy. With adequate cash flow, a business has the ability to not only avoid stoppages in business, but to increase customers and sales. Cash flow is the lifeblood of any business and with out it, regardless of profitability, a business can cease to exist.
Factoring is one of the few forms of financing that can support rapid growth in a business. As the receivables increase, so in turn does the funding. Therefore, it stands to reason that by reducing working capital requirements, a company can more rapidly reach their long-term growth plans. The net effect is increased sales, increased production, and decreased stress.
Factoring is typically more expensive than traditional financing, however, the cost of factoring is usually significantly less than the loss of net profits that would have otherwise been generated by the substantial growth that it supports.
Next week I will talk about ways you may be able to use factoring with almost no cost at all.
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Thanks for reading and Happy Easter!
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