Factoring Business Studies: What Do They Reveal?

Nowadays, quite a few mainstream finance publications and websites have finally accepted the fact that invoice factoring can be hugely beneficial for small businesses. For example, the Fox Business website has published an article that discusses the loan programs available through the Small Business Administration, and it suggests that invoice factoring may be your better alternative if you need the cash quickly.

Click here for our factoring case study.
Click here for our factoring case study.

But how do you know if a particular factoring company can be the best fit for your company? One way of doing this is to ask for references so you can use the experience of their former clients as your factoring business studies.

  • Choose references that are involved in your own industry. Different industries have different needs and business processes, so it doesn’t really make sense to study a factoring service for a janitorial company when you’re a distributor in the apparel industry. Those are two wildly different industries.

Instead, make sure that the references you get are in your own industry. If you can’t get these references, then at least you know that the factor you’ve approached to help you has no or very little experience in your industry.

By getting these references, you can then gauge the level of experience the factoring company has, and you’ll have a better sense of how they can set up an efficient arrangement for you.

  • Analyze the entire process. Since you’re using these references for your very own factoring business studies, take note of the particulars of each case. How much advance payment did the other companies get, and how quickly did they get it? Were the clients forced to assign factoring for certain invoices, or could you pick and choose what you can put up for factoring? Were there any lock down contracts in place, which required you to use factoring for a certain amount of time? Get the answers for all these questions, because they could apply to you too.
  • How much will the arrangement cost you? Everyone says that invoice factoring can cost you a whole lot more than a traditional loan from a bank. But the question you need to ask is precisely how much more? The references you get can give you a clearer idea of what you’ll be paying for the opportunity to get the funding you need much more quickly.
  • Are there any extra services available for your company? Some factoring services offer additional benefits than just simple funding. For example, they can handle the job of collecting payments for you, which then saves you the burden of having to set up a department dedicated to collecting payments from your customers. Others may give you detailed reports on the reputation of potential customers, so you’ll know which ones you can offer credit to. Some factoring companies even offer to shoulder the risk if your customer doesn’t pay the invoice.

Like any other business studies, factoring business studies can clearly illustrate the details you can expect, as well as the potential benefits and liabilities. Study them well, and you can get the right arrangement with the right factoring company that can fit your needs to a T.

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Factoring Business Studies Lets You See the Bigger Picture

Click here for our factoring case study.
Click here for our factoring case study.

It’s not always easy to get a clear picture of how factoring can affect your business. Sure, factoring companies will tout their advantages, but some businesses would rather stick to bank loans. Some even make use of credit cards to spur the growth of their business, despite the astronomical interest rate.

But there are some factoring business studies which shed light on the subject so that you can get a better understanding of its purpose. For example, there’s a book of actual factoring business studies, and it shows success stories as well as failures. You can also read up on various articles detailing actual companies which underwent the procedure.

How Does Factoring Work for You?

You can probably read up on many articles about what factoring is. After all, it’s a simple process. Instead of waiting 90 days for that $100,000 payment, you can get your $80,000 now. Then the factoring company gives you the rest of your money (minus the factor’s fees) when your customer pays in full.

But with actual case studies, you can get to see how it works precisely. For example, you can ask a factor for references in your industry before you take advantage of the factor’s services. Then you will know exactly how the process works, how much you get in advance and how quickly, and how much you pay for the privilege.

This is crucial information. While your situation may not be exactly the same as the other business, you two have something in common so at least the process and the experience will be very similar.

Is It Right for You?

This, of course, is the crux of the matter. With actual case studies, you can know precisely what kind of circumstances led a particular company to seek factoring services. For example, a business may have some trouble getting a loan from a bank. It may have cash flow problems, or it may have had a business opportunity that needed an extra infusion of cash quickly.

With this info, you can then see how such a solution that worked for others can also signify that factoring can also work for you.

When Is It Not Right?

With a case study, you can also find out if it’s not the right solution for your business. Even factoring companies admit that factoring isn’t for everyone. For example, if you have a very small profit margin then you’re just giving your profit to the factor.

OR it may also mean that a particular factoring company isn’t right for you. Perhaps their advance is too small, or their fees are too high. Maybe they want to lock you in a long term contract when you only need a short term solution, or perhaps they want complete control on which companies you should do business with. That’s why you need to look at several factoring companies to see what terms they offer. The best offer may just be good enough for your needs.