What Should You Consider Before Hiring a Factoring Service?

If you’re thinking of supporting your business revenues with a factoring facility in Douglasville, GA, there are several things you need to consider. Keep reading to learn more about factoring services from Eagle Business Credit.

The Cost

The first factor many businesses will consider is the cost of the factoring services and more importantly, are they worth it? Several factors need to be taken into consideration when determining the total value of your accounts receivable or factoring facility. A typical factoring agreement will charge between 1.0 – 6.00 percent of the invoice, depending on how quickly it pays and the volume of invoices purchased.  This might seem high compared to a line of credit or small business loan, however, a factoring facility not only includes the money you receive but also additional credit management and collection services. It doesn’t shown as borrowing against your credit score. Factoring can actually help improve your credit score while you get the funds you need to keep your business running smoothly. Credit Card fees are also higher than a factoring line as are some of the new FinTech (MCA & ACH) loans which often cost the borrower an APR of well over 100%.

With or Without Recourse

When you enter into negotiations with your factoring company, whether it’s the first time or the fifth, always read the fine print of your contract terms. When you sell your accounts receivable to a factoring company, there’s always a chance that some of the invoices will not qualify for funding either due to their age or credit unsuitability. If you sell your invoices “with recourse,” your company is liable for unpaid balances at the end of the agreed term. Selling your accounts “without recourse” protects you, the business owner, from having to make up the difference. Verify this with your factoring firm and protect yourself from potential loss. Without or Non-Recourse is often less flexible and more expensive than recourse due to the increased risk to the Factor so may not be the best option, particularly if you only supply a small amount of customers.

Business Profitability

Your profit is the most important number on your yearly financials. It shows that you have a sustainable business that is able to support you and your dreams. While factoring does come with a cost, thereby reducing your profit, you need to factor in the savings from having somebody else managing your accounts receivable plus the decreased risk of bad debts from non-payment. By not having to wait to be paid by your customers you may also be able to negotiate early payment discounts from your vendors which will help to increase your margins.

Circumstances

Ultimately, your financial circumstances will help you determine the best course of action for your business. For new businesses with limited capital, a factoring service can help remove the burden of slow-paying clients and get you the cash you need now. You can determine whether to use factoring to supplement part of your revenue or all of it; the choice is yours. Factoring services in Douglasville, GA, can help analyze your specific situation and suggest the best course of action for your business.

 


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