AR Cash Flow has summarised its views on factoring and types of businesses, which can benefit from factoring.
AR Cash Flow lists the kinds of companies, who can benefit from factoring and the kinds of customers they need to have.
Any company, whether starting out, experiencing a growth phase, or mature in years, needs good cash flow.
If a company’s cash flow is good and always has enough to pay its bills, meet payroll and taxes, and can expand to its desired size unaided, factoring is not necessary. However, if improved cash flow is needed, factoring can be an ideal way to get it.
A company considering factoring will need to have at least one customer, whose invoices can be factored. Young companies several months to a few years old, as long as they have good receivables, are often good candidates.
Their customers need to be other businesses, or government agencies such as schools, city, county, state or federal branches whose receivables are assignable.
The receivables should be with dependable, good-paying customers who simply take longer to pay than the client can wait.
Customers who are large corporations often make their vendors wait 60 or more days to pay as part of the terms for doing business with them. These customers are usually good to factor.
Companies that sell strictly to consumers will not factor those receivables; however, if a company invoices the general public as well as businesses or government, the latter can be factored.
A good strategy to improve a company’s cash flow is to accept credit cards from consumer customers and factor their invoices to business and government customers.
The good customers to factor are credit worthy, solid firms who regularly take approximately two weeks to two months to pay. Accounts, which fall outside of this window, may not be cost effective to factor.