What is Factoring?

Companies of all types and sizes are discovering factoring and using it as their cash flow secret sauce.
So what exactly is factoring, and how can it help your business? It’s a common question among small B2B businesses that we hear every day.
In a nutshell, factoring (also known as invoice factoring, invoice financing, and accounts receivable financing) is simply a cash flow solution that turns invoices into quick cash. Though it may seem like a new concept to some industries, factoring has been around for quite some time. In fact, factoring got its start in the Mesopotamian times, and became a common financial practice prior to the 1400s in England.
Today, companies don’t need to wait for ships to cross the Atlantic, but there are industries where invoice payment terms can be lengthy, and where cash is often needed sooner than later to capitalize on growth. Here are some industries that commonly use factoring:

  • Transportation – Freight bills are often not paid until well after delivery, and there can be a good deal of expense in getting them delivered. That’s okay of you’re a large transportation company, but if you’re a small to midsize fleet, immediate cash is often needed to fuel your trucks and pay your drivers.
  • Oilfield & Gas – Running an oilfield or gas operation requires a heavy investment in capital equipment, and yet payment terms can run 60, 90 or even 120 days. If you had access to immediate cash in this industry, you can take advantage of the robust demand for work in this hot industry.
  • Government – Lengthy and complex invoice terms and conditions can weigh government contractors down. With invoice financing, not only does the factoring company provide the access to cash you need to fund your contracts, but the factor assumes the receivables and complexities that come with them.
  • Staffing – When you’re dealing with long invoice terms of 60 and often 90 days, and yet you need to worry about human capital, it can be challenging. When you have staff there are often pre-employment and payroll taxes that go along with paychecks. Invoice financing can get you the cash you need to not only pay your employees and tax liabilities, but fund new opportunities.

There are several other industries where factoring makes sense, including manufacturing, business services, distribution, and other business-to-business industries where cash flow is needed for growth.
Have questions about factoring and wondering if it would be a suitable solution for your business? Give us a call at 760.456.3786.