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Anyone have experience with invoice factoring?
My AR is fricking through the roof. Sure sounds like a good option to free up cash flow. Looks like I can make up a small portion of the costs with the 2% discount I can get, paying my suppliers in the 30 day. Never heard of anyone using factoring so lets hear your horror stories or other.
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If the invoice takes longer to collect, that 2% can increase in time. 2% is not too bad as a lot of the companies that I knowof generally want 3% of each invoice. I only refer to factoring if it is something that I cannot do myself. I have a couple guys who work for me that came from factoring companies. They can tell you all the horror stories you ever want to hear. Of course, some companies need factoring which is why they are in business.
A line of credit would be much better for cash flow purposes than factoring. If you have any questions, give me a call regarding your company.
______________________________
Matthew Roberson
Vice President
Business Financing Officer
US Bank
2020 E. Financial Way, Suite 200
Glendora, CA 91741
626.914.7390 phone
626.236.9302 fax
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This goes back over 25 years ago, early 1980's.
I worked selling construction supplies for a company.
We grew to fast, A/R got to big, went to a company for factoring. What a nightmare that became. I did not know of all of the details, but being I ran the front counter of sales, & the bosses right-hand man, I heard some of the problems doing this. It seemed as the recession of the early 80's hit, intrest rates sored to all time levels, construction industry took a dive, A/R now became more diffcult to collect, & bad debit mounted the factoring got worse.
Come into work on monday morning, boss was there before me which was a rarity, dressed in a suit. He pulls me into his office explains to me that at 10:00am that day the company was filing chapter 11 bankruptcy. That the Factoring company might come in, try to takeover receivership of the company.
He handed me my paycheck, said go strait to the bank @ 10:am & cash it, said come back, you will still have a job. Also told me to lock-up my personal Snap-on tool box, & if that factoring company comes in to roll my box out ASAP & load them up in my truck, because they would try to seize everything for assets.
Well the factoring company did try to do a fast on some things, but the bankruptcy judge allways stopped them.
Company contuinued on, came out of chapter 11 after 5 years, paid off all creditors 100% of what was owed. I stayed on until 1985.
Then I took my Snap-on tools, home & started selling snap-on. 20years of being with Snap-On, never a regret.
So the moral of the story is to make sure you know what you are doing, plus try to put some type of cap on how much of the factoring you are going to use. Plus make sure they are reputable company, & allways use a lawyer to look out for your legal intrest first before you sign anything.
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If the invoice takes longer to collect, that 2% can increase in time. 2% is not too bad as a lot of the companies that I knowof generally want 3% of each invoice. I only refer to factoring if it is something that I cannot do myself. I have a couple guys who work for me that came from factoring companies. They can tell you all the horror stories you ever want to hear. Of course, some companies need factoring which is why they are in business.
A line of credit would be much better for cash flow purposes than factoring. If you have any questions, give me a call regarding your company.
______________________________
Matthew Roberson
Vice President
Business Financing Officer
US Bank
2020 E. Financial Way, Suite 200
Glendora, CA 91741
626.914.7390 phone
626.236.9302 fax
thanks for the reply. Anyone else? I know some of you big boat players have an opinion for this little old jetboater. :)
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My banker who gave me my business line indicated that factoring is not good. Only in certain circumstances is it a viable alternative, but it can get very expensive. i was also told by an attorney who buys and sells businesses that it looks weak (if you plan on selling). And if your customers find out you are factoring they may not give you return business in fear that you don't have the liquidity to handle any revenue increases.
Like ChumpChange said, a line of credit will help out tremendously.
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My banker who gave me my business line indicated that factoring is not good. Only in certain circumstances is it a viable alternative, but it can get very expensive. i was also told by an attorney who buys and sells businesses that it looks weak (if you plan on selling). And if your customers find out you are factoring they may not give you return business in fear that you don't have the liquidity to handle any revenue increases.
Like ChumpChange said, a line of credit will help out tremendously.
Thanks guys, More imput if anyone has any...
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Factoring involves a lot of work for both parties. A factor will generally want to check credit for every order and invoice. Their credit standards may be tighter than yours. They will not purchase receivables unless they approve the credit. Every single purchase order and invoice will need approval from the factor before you ship. In many cases the factor will also try and obtain financial statements and other information from your client. It can cause issues between your company and your client.
Payments made by your client will go directly to the factor for processing. They will have complete control of your incoming proceeds from collections.
The best you can expect is they purchase your A/R and give you 80% of the total. Then will remit the remaining amount due to you when the funds have cleared the bank. But in many circumstances, they will not go as high as 80%. The purchase amount or advance rate will be determined based on a number of items such as your dilution factor (how much the A/R is impacted by credits, chargebacks, discounts, returns, etc).
Factoring also typically involves an intensive bank audit of your books and records. They will charge you for the audit.
And the cost per invoice plus all the other charges typically equate to an annual interest rate of between 18-30%.
Try and obtain a revolving line from a commercial bank. Depending on what size facility your looking for, I can probably refer you to a few loan officers that will take good care of you.
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Anyone have experience with invoice factoring?
My AR is fricking through the roof. Sure sounds like a good option to free up cash flow. Looks like I can make up a small portion of the costs with the 2% discount I can get, paying my suppliers in the 30 day. Never heard of anyone using factoring so lets hear your horror stories or other.
Is the AR concentrated in 1 or 2 very large accounts ??
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Try and obtain a revolving line from a commercial bank. Depending on what size facility your looking for, I can probably refer you to a few loan officers that will take good care of you.
Of course this is spamming my own business but I am now writing lines of credit at Prime or lower. If your bank is currently taking a spread of prime + anything, I will beat it for members of this forum. I am a direct lender and employee of US Bank, the sixth largest bank in the nation. I am not a broker. My contact information is above.
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Prime? LIBOR is where its at! But generally pricing is a function of credit risk and the size of the line. The safer the inherent risk and the larger the credit facility, the lower the pricing.