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What Makes An Ideal Factoring Candidate?

October 22, 2019

Have you ever waited more than 30 days to get paid by your customers? If so, you might be a candidate for factoring. Factoring, otherwise known as invoice factoring or accounts receivable financing, helps you get paid faster and provides a broad range of other benefits, including ongoing funding, debt-free cash flow, and more.

Learn more about how factoring works.

But what makes a company an ideal candidate for invoice factoring?

CUSTOMERS SERVED AND SERVICES PROVIDED

  • Your business provides goods or services to other businesses
  • Services are deemed complete when invoiced
  • Your customer base is credit-worthy

If you are a business-to-business (B2B) company, you have jumped the first hurdle of being a candidate for invoice financing. Second, the invoices you send to the factoring company must be for complete and final work, with no unsatisfied conditions. Third, your customers should have good payment history and credit-worthiness.

CASH FLOW CHALLENGES

Cash flow challenges come in many shapes and sizes, but some are ideal for factoring to help overcome, including:

  • Your customers typically pay 30 days or more past the invoice date
  • You pay your suppliers, vendors or employees quicker than you receive payment from your customers
  • Income seasonality creates roller-coaster-like fluctuations in your revenue stream, due to the off-season months

Industries that typically face the issue of paying employees before receipt of customer payments include temporary staffing and construction. Both industries usually have weekly or bi-weekly payroll cycles, while customers may pay beyond 30 or 60 days, thus causing pressure on cash flow.

The manufacturing industry can face cash flow challenges as well, especially for projects that last months, require up-front investment in raw material or entail high levels or work-in-process.

RAPIDLY GROWING COMPANIES

Rapid growth creates a need for increased cash investments. If your business is growing at a rapid pace, factoring can be useful so you don’t get cash-strapped. This is often seen in start-ups or small businesses where:

  • Working capital is needed for continued growth
  • Limited financial reporting exists
  • Strong credit history is not yet established

OTHER CONSIDERATIONS 

  • Your customer base is small, or you only have one customer

Having a small number of customers gives you a high debtor/customer concentration. Some banks and other funding sources won’t work with companies that have high debtor concentration because of the high risk associated with non-payment by the few customers. As long as the customer(s) have strong credit and payment history, some factoring companies will provide funding.

CAN YOUR COMPANY BENEFIT FROM FACTORING?

If your company fits into multiple criteria to be a factoring candidate, taking advantage of receivables financing may provide a huge advantage to you. Luckily, factoring with Commercial Funding Inc. offers you unique services that traditional lenders don’t and can help you meet your business and growth goals.

Are you an Ideal Candidate for Invoice Factoring?

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