Working Capital Factoring
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Working capital factoring, one of a number of cash flow solutions for businesses is offered by many online companies. Factoring is a positive cash flow device to help companies who suffer through tough stretches each month with bills rolling in but not accounts receivables. This could be akin to the family running out of grocery money six days before payday. With a business trying its best to maintain a healthy financial statement and avoid late payments that can show up on a credit history, working capital factoring can be a real solid answer to this problem. While some businesses may flinch at some of the conditions for participation in such an agreement, others have found it to be a real boon for business.
Let's take the Runny Watercolor Paint Company, purveyors of watercolor paints for elementary students that positively will not dry under any circumstance. Art teachers all across the nation love the company's paints which enable the student to portray, shall we say, perpetual action scenes long after taken from art class to freaked out mom. The RWC has plenty of orders for their paints, but has a sixty day invoice policy which enables the paint company to have a friendlier customer relationship. The problem arises when the RWPC is awaiting payment on these sixty day invoices and sometimes the situation is so dire that the accounts receivable department actually has its own golf tournament two working days of every month. But the company continues to receive bills for the many shipments of products needed to make its runny paint. The company's creditors, not nearly so interested in having really good customer relations have only thirty day invoice turnarounds. The result is a company president who is suddenly crying for working capital factoring.
Working capital factoring is the action taken by a factor, which can be an individual or a company of investors. When the factor is an individual, it will be a wealthy investor looking for the opportunity to not only make money, but may even be open to having part ownership in a cash strapped company. This investment device is not investment in land or real estate, but rather in the actual cash business of a commerce enterprise. It is always the nature of the financial world to worry about the future, but the bible reminds us that Christians need only look at nature to see how God takes care to dress the flowers so splendidly. And since His children are that much more important than flowers Jesus remarked, "Take therefore no thought for the morrow: for the morrow shall take thought of itself. Sufficient unto the day is the evil thereof." (Matthew 6:34)
Here is how working capital factoring works. The RWC bills thousands of school districts each year for its products. Hundreds of invoices go out each month and they are like money in the bank, but just not yet deposited. A factor will front the RWC sixty or seventy percent of each billed invoice and upon arrival of that payment will be repaid plus a commission. Suddenly there is money for the company to not only pay its bills, but also to craft a new marketing plan for schools overseas. Making the cash flow turn from molasses like to ocean like can happen with an invoice factoring plan.
There are a plethora of reasons why working capital factoring is attractive to so many businesses. The foremost would be the avoidance of having to seek a loan for a cash reserve. The last thing many businesses need is another loan on their financial statements. After a factoring company has scrutinized the credit rating of a company's customers, it can often be just a few days before the company begins to see income arriving from billed invoices that have not yet arrived. For the company operating on a seasonal basis or that has uneven sales patterns or even for companies just starting up, the factoring strategy has been proven to be a real asset to profit and growth.
Not just any business is eligible to have working capital factoring as a part of its business cycle. In most cases, factors have some stringent guidelines by which they do business. A business must offer a service or a product that is delivered that will produce an invoice that has to be signed. The company must produce invoices that are final sales and have no opportunities for being disputed. Finally, the customers must have a sterling record of paying on time each time. Some of the favorites industries for capital factoring include medical businesses, oil and gas enterprises, security services, manufacturers, trucking companies and distribution companies.
Researching the business of working capital factoring, one is struck by the fact that the company doing business with the factor is not nearly as important as the strength of the company's customers. Often factors come in and assist companies that are not in as good a fiscal shape as the customers they serve. Factoring can be traced by to the Mesopotamians and was widely practiced in the American colonies so it has a long and storied history of engagement in business. For the president of the Runny Watercolor Paint Company, factoring was the springboard to a worldwide market.
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