202 Business Development

The benefits of factoring business accounts receivable are relatively simple for anyone to see and understand.  They include:

• UNLIMITED CAPITAL: Factoring is the only source of business funding which is unlimited.  A factoring facility grows in size as business grows.  The more quality invoices a business can generate, the larger the factoring facility.
• NO DEBT: Factoring is not a loan so no debt is incurred. It is an “off balance sheet” transaction which can beimportant to larger manufacturers and distributors.
• NO PERSONAL GUARANTEES: Business owners do not have to personally guarantee any debt.
• PROFESSIONAL COLLECTIONS: Factors are courteous collectors of overdue payments.  This can free up back office staff for other important duties.
• CREDIT ANALYSIS: Factors will screen and monitor the credit of both new and existing customers.  This is an important task which can prove very difficult for a small business owner to accomplish alone.
• FASTER INVOICE PAYMENTS: Factors typically report their collection experience to Dun & Bradstreet.  This will help to build a customer’s credit history so long as they pay timely.  Customers know this and will often go out of their way to pay factored invoices before others.
• READY, EASILY ACCESSED FUNDS: Unlike a typical bank loan where the business owner’s credit is of primary importance, factors are much more concerned about the creditworthiness of the customers of a business.  This makes factoring an easily accessed form or ready cash for new, early stage business owners with limited credit history.
• ELIMINATION OF BAD DEBT:  Under non-recourse factoring arrangements, factors will assume the risk of non-payment from customers, thus eliminating bad debt.

Objections You May Need to Overcome

Showcasing the benefits of factoring is relatively simple.  The primary “hot buttons” when marketing to business owners are factoring’s accessibility as a financing source when the banks say “NO!” and the immediate availability of cash for payroll, supplier payments, and other expenses.  

Objections to factoring are usually based on imperceptions and there are really only three.  Most often, these will come from professionals who should know better, such as accountants.

• FACTORING IS EXPENSIVE: You will very often have an accounting professional say something like:  “Factoring?  That’s way too expensive for my clients.  Factors charge over 30% per year!”  Accountants should know better and its up to you to point it out, in a nice way of course.
  
  Factoring is a “transactional” method of financing very similar to accepting credit cards for payment.  The average fee for factoring is about 2.5% for 30 days.  The average fee for a not-on-premises credit card swipe is about 2.3%.  So for the business owner, the costs of factoring for 30 days and the costs of accepting a payment by credit card are virtually the same.  When you add in all the other benefits of factoring, it’s easy to see why it is often the chosen
  method of payment by many small business owners.   It’s true that factoring is more expensive than a bank loan, but so are credit cards.  And, if the business could get a bank loan, it wouldn’t need either.
• FACTORING FACILITIES SHRINK AS BUSINESS SHRINKS: This is true and is the opposite of the expansion of credit as a business grows.  The reality is, factoring is a great method of finance for fast growing  businesses.  If your business is shrinking, you are less likely to need as much factoring.
• NOTIFICATION:  Some business owners perceive the notification process as sending a signal to customers that the business is experiencing financial difficulties.  This, however, is seldom the case.  Factoring notifications are usually written in such a way that conveys the need for factoring as one for a business enjoying “explosive growth” and because of their exceptional credit rating, the business was able to secure the services of a factor to assist in such times of expansion.