There are many reasons why food and beverage companies often need an infusion of capital. They have to adapt to constantly changing markets, comply with ever stringent food safety and marketing regulations, and pay increasing labor costs. But banks are no longer reliable when it comes to loans, and that means alternative forms of financing. For many small and mid-sized companies involved in food and beverage business factoring is perhaps their best option.
How Does It Work?
The way food and beverage factoring works is very simple. First you need to find a factor to help you, and preferably you get a factor with extensive experience in the food and beverage industry. You then negotiate how much you get in advance for your invoices, and how much you pay for the factoring service.
Once the details of the agreement are set, you then have your additional capital. You just submit the invoices to the factoring company, and in return you get more or less 80% of the value of the invoice almost immediately. The factor then takes over the administration of the invoices, and they also handle the collection as well. When the customers finally pay in full, you get the rest of your payment, after the factor deducts the fees for its factoring services. This is usually in the 2% to 4% range.
It really is that simple.
Benefits of Factoring
With food and beverage factoring, your own credit doesn’t matter. So if you were denied a bank loan due to your poor credit, in factoring that’s irrelevant. Only the credit of your customers is relevant. So if you deal with reputable companies in the industry, then you can use their excellent credit to boost your own working capital. With factoring, the entire application process may take no longer than a week or two, and the chances of getting your money are very high.
There are other benefits in addition to getting more working capital. Factors investigate your potential customers, so you will now know which companies are credit-worthy. You’ll know which ones pay fully and on time. You no longer have to investigate them yourself.
You also save yourself the trouble of hiring people to collect your payments. Your factor does this for you as well, so that you can concentrate on coming up with new and exciting food and beverage products that can boost sales.
Food and beverage factoring is now one of the more popular forms of financing, simply because banks are not always eager to grant borrowers a loan. They have too many requirements such as collateral, and their loan application process is simply too time-consuming. Often they even need to know what you want to use the money for.
With factoring, you can use the money in whatever way you see fit, and you don’t have to pay any monthly loan payments. Factoring is not a loan at all, and that means your own credit isn’t affected as well.