Below is a transcript of this segment of #TheMoneyFactor. Some parts have been edited for clarity. Here is why factoring is a good fit for small business financing right now.
Factoring as a Cash Flow Fit
Why is factoring such a good fit for small business financing right now? Well, first and foremost it helps your cash flow. If revenues are going down and you don’t have money coming in as fast as you’d like it to, you may be worried. You have bills to pay, people to pay, and inventory to buy. The predictability of your cash flow is the most important thing you can have. Factoring gives that to you. When you send your goods out and issue an invoice, you typically have to wait 30 to 90 days to get paid by your customer. With factoring, once you issue an invoice, you don’t have to wait 30, 60, 90 days to get paid. Instead, you get paid the next day after you submit the invoices to your factoring company. Suddenly, the problem is gone.
Choosing Factoring to Combat the Cash Flow Gap
Factoring bridges the gap between making a sale and collecting on your invoice. So many companies are struggling with cash flow, and so many of their customers are taking longer to pay because they are struggling, too. This just makes the cash flow strain worse. So, we bridge that gap for you. You make a sale. You deliver the goods or perform the service, and you cut the invoice. Through factoring, you’re going to get your money the next day. Why would you not want that right now? The alternative is that you wait even longer for your money and run the risk of your customer not paying.
Choosing Factoring as Credit Protection Right Now
It’s important to talk about the difference between recourse factoring and non-recourse factoring. People get confused by those terms. The difference comes down to who covers the credit risk. So, with recourse factoring that means that if the customer does not pay or goes out of business, ultimately the factor can recourse it (or charge it back) to you, the seller. Non-recourse is the opposite. The factor will take on that credit risk. A lot of people need non-recourse factoring right now because it really takes not only the cash flow worry away but also the credit risk.
Growth Potential When You Choose Factoring Right Now
Another great thing about factoring is the facility is going to grow in line with your business. So, as you grow and make more sales, you can obtain more funding from your factoring company. That’s awesome. It’s very unlike a bank loan or line of credit where the funding stops once you max everything out and spend everything. Instead of hitting the end of that funding road, factoring will offer funding that grows with your business growth. It automatically gives you a higher credit limit.
Should You Choose Factoring Right Now or a Loan?
It’s not a loan, so you don’t make any repayments. It’s not debt. Eagle Business Credit purchases your invoices and gives you an immediate prepayment for those. As we’ve discussed, we get paid by your customer, so this is a cash flow tool that grows with you. You don’t make the repayments. We get paid by your customer, so you don’t have to worry about whether you have made a loan repayment or not for the month. Many people find that extremely liberating when they move from a debt-based facility.
Do You Need Cash Flow for Loan Repayments?
Particularly if you have stacked MCA loans, you may worry about having enough working capital in the bank. MCA repayments automatically pull from your bank account at frequent intervals for loan repayment. Refreshingly, with factoring you will just get a flow of cash each time you make a sale. It’s a completely different form of financing and very flexible.
Can You Get Other Financing When You Choose Factoring?
Do you have other financing options open to you if you are factoring? Yes! Factoring with Eagle can work in conjunction with other lenders as long as we have the receivables as collateral. You can obviously go out and finance equipment, real estate, and whatever else you need. As long as we have your receivables, factoring works in tandem with so many other forms of finance.
Factoring with a PPP Loan
Factoring works especially well with a PPP loan. You can have your cash injection from the PPP loan and use that to make payroll for the next few months. Also, you still have the ability to go out and take a factoring line to help you with your working capital. Remember that with a good strong cash flow your business credit is not going to be affected. So, you may be able to go out and get discounts from your vendors for early payment because your cash has now been accelerated. You can do that. You’re not waiting to get paid, so there are lots of different ways to improve cash flow now. Ultimately, we’ve seen our clients over the years use it for so many different purposes.
Who Qualifies for Factoring Right Now?
Again, we finance so many different industries and different walks of life. We finance transportation clients and provide money for them to make the fuel for the next load. Factoring works with construction companies and manufacturing companies. We can help so many different entities. For qualification, we’re just going to ask you about where you’re at, what your receivables are, and where you are trying to go. We make quick determinations as to how best we can help. One thing that I’m really proud of is how we’ve managed ourselves over the last few months. We haven’t changed our business model at all. Our facilities are the same. Our fees are same. We’re not taking advantage of anyone or doing things differently. We’re doing the same as we always have done. Because at the end of the day, we know that works. We’ve been doing it for 30 years.
Why Is Factoring a Fit for Tough Times?
First, we have seen through many times whether good or bad. So, factoring works in all those tight situations, and we won’t just throw a client out because their revenue has dropped. We won’t drop a client because they’re starting to make losses, and we won’t charge you more money because of it. We’re here to help small businesses, and we’re not scared by recession. We’re not scared if you have bumps in the road. If your business has an IRS issue, we can still work with you. You can have so many different issues of business that we understand, and likely, there are things that we can do to even go beyond our facility to help. Whether it’s an over advance that you might need or something specific to help you with a particular problem, we offer flexibility to help your business meet funding needs.
Why Choose Factoring as Small Business Financing Right Now?
So, factoring is a very different form of finance. It’s a relationship-based tool, and it goes beyond a loan. Factoring is nothing like a loan. You can talk to us about particular challenges that you’re having. We will brainstorm with you and figure out a way to get you a financing solution. Ultimately, we know that our role is to help you from Point A (where maybe you’re in a desperate need right now) to Point B (where hopefully you either are self-financing or you can graduate into a bank facility). We are always proud when we see people do that. You know that you’ve done your job and you’ve seen them through tough time. Thanks for watching this episode of The Money Factor. We know there are difficult times for lots of businesses out there. Kris and I are here to answer any questions you have. Please reach out to us. We’re more than happy to help.