How far can factoring take your company? In many cases, it can take you as far as you want to go.
Most companies start factoring their accounts receivable so that they have enough cash on hand to address operating costs and other expenses. Many of these companies continue to factor because it allows them to grow at a faster pace than if they were self-funded.
Factoring is a valuable financial tool because there is typically no limit to the amount of financing available. As long as your company generates customer invoices, those invoices can be sold to a factor and cash can be advanced to you within 24 hours. For that reason, many companies that began factoring just a few thousand dollars in invoices now factor in the millions of dollars.
Fuel for Financial Growth
Below is a story of how factoring can elevate a company’s growth. While this particular company is fictional, its experience is common to many companies that choose factoring as a way to expand their operations:
Jim was a dispatcher who started his own trucking fleet in 2005. The company, Ultimate Transport, began with just two trucks and almost no cash reserves. Jim knew he would need financing to keep his business running. Since Ultimate Transport had no balance sheet or credit history, securing a line of credit from a bank was not an option. Jim had heard about factoring through some of his contacts in the trucking industry. He sold his first invoices to a factoring company, which advanced him 85% on the invoices, enough cash to fund operating expenses until his customers paid up. The factor also handled collections, which freed Jim to secure and manage loads for his small fleet.
Jim initially thought he would use factoring to fund the start-up phase of his company. But he soon realized how essential factoring was to Ultimate Transport’s rapid, continuous growth. By the start of 2014, his company managed a fleet of 60 trucks serving customers in 48 states. Without the increased cash flow provided by factoring, Jim believes that Ultimate Transport would only have a fraction of its fleet size today.
Additional Resources Keep Costs Down
Jim also appreciated the back-office and customer support provided by his factoring company. He did not worry about collections, which would require an additional employee if he brought it in-house. The factoring company’s credit ratings and analysis on various brokers and shippers in Jim’s industry enabled him to avoid risky customers as Ultimate Transport continued its growth path.
The success and growth of companies like Ultimate Transport are mostly due to savvy entrepreneurs like Jim and their employees. Factoring companies do not draft business plans or go after potential customers for their clients. They do, however, provide working capital and operational support that help drive revenue growth. If a factoring company is experienced, reliable and well-capitalized, it can help your company achieve and even exceed its business goals.