Factoring is a fundamental business finance building block. It allows a business owner to extend short term credit to their customers and still be able to pay their employees, suppliers, and taxes on time. It frees business owners up to focus on sales, profits and managing the business. In addition, factoring also provides an opportunity to start, grow and maybe most importantly today, turn a business around.
Factoring is a tool that has been around for centuries and whose time has come again. Yesterday the business finance world was in a frenzy with tons of money and lots of lenders desperate to lend it. Business owners borrowed a lot! Many will have a tough time paying it back. They should have been factoring.
One of the keys to business finance success is to not borrow more money than is needed for no longer than its needed for. It is the difference between good debt and bad debt. In other words, use short term money for short term purposes. Factoring is a good example of that.
Most people I meet think factoring is something to use as a last resort for those who have no other choice. Nothing could be further from the truth. Factoring fees are affordable, the services are valuable, and by using it, business owners get to hang on to their most valuable asset, the equity in their business.
In future blogs I will get into more detail about factoring; how it works, how much it costs, when to use it and how to use it. It’s meant to be an interim solution while a business tries to become bankable, self-financed, or whatever their exit plan is. It could take one, two or three years. Factoring is a tool that a lot of businesses should be starting to do once we get back to business.