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Is Your Business Suitable For Business Factoring

Aug 15, 2008
If you are dealing in industrial products or any other items, where you need to provide credit to most of your clients, then you would realize very soon that most of your money is stuck with your clients and you can lay your hands on that money only after they pay you on the due date. This can only be frustrating and can seriously hamper your cash flow thus leading to delayed payments to your suppliers, your staff members and can also put a roadblock on your road to expansion.

In business factoring, a factoring company will purchase your credit invoices that you have issued to some or all of your various clients. They will then wire the amount of your submitted invoices within 2 working days into your account after deducting their factoring fee, which is their service charge for handling your account. This fee could range from 1.5% to 5% of the invoice amount and would depend on the credit period extended to your client, the credibility of your client according to the factoring company and the total volume of business that you can give to your factoring company. As you start giving invoices of a higher value, your factoring company might lower the factoring fees, thus providing some relief in the future.

If your sales ledger shows that you are supplying products on a credit basis to a variety of clients that are financially strong and if your credit period too ranges from 30 to 60 days only, then your business could be an ideal candidate for the business factoring company. This will not only encourage the factoring company to tie-up with you, but you will also be eligible for a lower factoring fee that will enable you to hold on to most of your profit margins.

On the other hand, if you are working on wafer-thin profit margins and providing a high credit period to most of your clients, then it would be suicidal to engage a factoring company, since you would hardly be left with any profit margin to sustain your business in the long run. If a single credit client accounts for most of your sales figures, then that too would pose a serious problem in case the client refuses to pay the outstanding amount or does not want to do any business with you due to any reason. Thus, a wide range of steady credit clients with a reasonable credit limit could be ideal for the business factoring company to handle your account.

You too could use the incoming invoice amount to pay your staff salaries, your suppliers and even follow-up on your expansion plans. This could help to propel your business on a faster scale. If you have recently set up your business, then this financial tool could help you to stand on your feet quickly and confidently. If your business is suitable for factoring, then you could shortlist various factoring companies and check out their features and services, before deciding on the company that most suits your business format.

Thus, you should check your profit margins and also consider the variety of clients that you have on hand, along with the credit period that you have provided to them before making up your mind on whether to engage the services of a business factoring company. Conduct a proper research on various factoring companies before making up your mind, since their actions will affect your relations with your clients.
About the Author
Freight Factoring Company Phoenix Capital group is a one stop transportation services company. Freight Shipments and related Factor Growth has increased in the USA as shown. To learn more or to start your Freight Factoring visit: http://www.phoenixcapitalgroup.com
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