Cash Is King. Is Factoring Your Best Option To See More Of It?

Here you are on FactorKing.com. That likely means you already understand the definition of factoring. But do you know the specifics involved? Who uses factoring? Will your company benefit? Which company should you use to do your factoring? Let's find out.

Question: does your business have more cash on hand that it knows what to do with? Few small businesses find themselves in that situation, especially today, so let's call that a 'no'. Ok, so not enough cash. What to do? Simple, get a loan. Simple, yes... if this was 2004. It's no secret that few banks are opening their pockets these days.

But businesses need cash, especially small businesses. So if no one's lending, and the customers aren't paying on time, where does the cash come from? Accounts receivable factoring is a proven method of pulling in capital quickly so you can keep the wolves from your door without resorting to drastic measures. (Read: Top 5 Reasons To Factor).

When deciding whether or not to factor, keep in mind that a business does not have to factor all of its invoices. It's a good idea to give time to those customers that usually pay quickly but who might be experiencing a temporary shortage. Sometimes it's not easy to figure which invoices to factor and which to give more time to. You know your customers, and your industry... only you can accurately assess the situation. So choose your factoring invoices carefully to effectively maximize your profits.

You'll pay a small fee for factoring but fees are by no means your only consideration when deciding whether to factor, and which factoring company to use. Does your factoring company offer a good rate but poor customer service? The factoring company will be dealing directly with your customers, so you must make sure that the factoring company has a good reputation and knows how to handle customers with respect. Additionally, it's usually a good practice to let your customers know that you’re using a factor and that the company will be working with them.

When deciding which company to use, see if the company you have in mind belongs to a factoring group like the International Factoring Association (IFA). If so, you can usually rest easy with the knowledge that the IFA has strict guidelines for its members. The IFA works hard to ensure customer satisfaction and maintain high industry standards.

There are other things to consider when deciding whether to factor, and who will do the factoring. But often, a simple phone call with a company representative can answer most, if not all your questions.