For a regular importer or beverage company, having some ready working capital is always a problem. That’s the nature of the business, because most of their assets are often tied up in their inventory or in their account receivables. If you own a beverage company, you may always find yourself running low on funds to run your monthly operations (for overhead, utilities, and salaries) because the payment schedules of your distributors are generally slower than the pace of your expenditures. That’s why a lot of lenders and other financial assistance providers offer more alternative ways of supplying working capital. You can even take advantage of a beverage company factoring line.
Different Types of Factoring Services
If you take the time to research about factoring, you may find yourself becoming confused. That’s because there are many different types of factoring. Factoring companies also offer different advance rates and varying fee structures. Part of the confusion is that terms such as factoring and invoice discounting may be defined differently, depending on the organization you deal with.
But the advantage here, once you actually discover the details of a particular factoring service, is that often the factoring can be customized to fit your particular needs. You may be able to make use of additional services such as investigating the credit-worthiness of new clients, processing the invoices, and even collecting the payments from clients.
A Line of Credit
A regular line of credit is one of the more traditional ways of obtaining working capital from lenders. If you own and use a credit card, the process is similar. You can borrow money up to a certain amount, so for example if you have a $100K line of credit then you can borrow only up to $100K before you need to pay it back with interest.
The advantages here are that you can borrow the money when you need it, and you also only borrow the amount you need. With traditional loans, if you borrow $100K, you have to pay interest on the full amount, even though you only spent $60K. With a line of credit, you can then be approved for a $100K line of credit but only pay for the $60K which you need, plus interest. So you still have $40K available, which you can use anytime you need it.
The Factoring Line
The factoring line usually works the same way, although of course this again depends on the particular factor you work with. Essentially, the total of your invoices can determine the limit of the factoring line. The factor may buy only a certain number of them, or you can be the one to choose as to which invoice you will sell to the factoring company. Like a line of credit, you have a limit as to the total amount of the invoices you can sell.
If you run your own beverage company, try to go with a factoring company that has experience dealing with beverage companies. They may be your best way to determine if a beverage company factoring line is appropriate for your situation.