Ever since banks started to really tighten up their loaning procedures back in 2008, factoring services (also called debt factoring, invoice factoring and invoice discounting) have become increasingly popular especially for small businesses. The advantages they offer are quite remarkable, and you don’t even have to rely on their advertisements or just take their word for it. You can just take a good look at some debt factoring case studies to see how such services can help your business.
Here are some notable debt factoring case studies that can shed some light on these services:
The Almost Insolvent Painting and Rust-proofing Company
This company provided painting and rust-proofing services for big oil rigs. But they were losing money, and there was a time that they almost reached insolvency.
The company decided to try factoring, and because of that they were no longer required to chase down accounts receivable to get their money. That responsibility was passed on to their factoring provider. In three years, the company’s sales grew from $1.5 million to $10 million.
As this case illustrates, factoring can help you get the money you need to avoid insolvency, and at the same time it removes the burden of collecting from customers. Factoring here means giving you the breathing room you need to help you grow your business.
The Cash-Strapped Temporary Staffing Agency
This company was established way back in 1988, but in recent times it had problems running daily operations and meeting the weekly payroll. Their real problem was that their financing company wasn’t providing enough cash for their account receivable.
They then switched to another factor which offered better advance rates and a more generous financing option. The company was then able to get back the cash flow reserve they needed.
The lessons in these case studies are simple. The first lesson is that even established companies can have trouble maintaining adequate cash flow. And second, just because factoring is your last option doesn’t mean you’re stuck with inadequate cash advances. You can still switch to another factoring company which can meet your requirements.
The Electronics Distributor that Secured a Line of Credit with Accounts Receivable
This electronics distributor needed $20 million in profits each year to run smoothly, but at one point they realized their profits would not meet that mark. One of their products didn’t sell as well as they had hoped, and their customers usually paid about four months later. They had an unsecured line of credit, but the loss of profits meant that this would be reduced or even taken away from them.
So what they did was to offer their accounts receivable and inventory as the basis for a credit line. The credit limit was capped at 85% of the accounts receivables and 60% of the inventory.
As this case shows, accounts receivables can function as collateral. What’s more, they’re actually more effective as collateral than inventory.
So if you need the cash now, and your bank won’t oblige while your customers pay later, you still have an option. You can use factoring to get your money now, so you can keep your company afloat. Get the right factor to work with you, and you’ll see for yourself how well factoring can help small businesses.