To Factor or Not to Factor

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If you’ve heard about invoice factoring and are consideringit for your B to B company, be sure it fits your needs.  Factoring is a type of specialty lendingthat’s not meant to replace bank lines or other commercial loans, but toaugment them when the need for cash flow is greater than a basic line of creditcan provide.  Factoring is helpful foryoung, non-bankable companies with growth opportunities, and for companies thatcan benefit by outsourcing their credit and collections activity.  Full-service factoring companies will providefinance, credit services and guarantees, and accounts receivable management.

Here are the Top 10 reasons to consider and NOT to considerfactoring for your business:
TOP 10 REASONS TO CONSIDER A FACTORING COMPANY (OR NOT)
10.  Your B2B companyneeds a line of credit to support growth, but isn’t bankable yet.9.  Your customersdemand credit but your suppliers demand cash.8.       Your customers love to keep you guessing.7.      Youjust don’t have time to manage receivables.6.      Yourgrowth is outstripping your cash flow.5.      Yourcustomers worry when you make those desperate calls for payment.4.      Youworry every time you extend credit to a new customer.3.      You’repassing up new business waiting for old bills to be paid.2.      Yourbank is getting out of the commercial finance business.1.      Youlove the thought of outsourcing credit, collection and A/R management so youcan concentrate on growing your business.
Or NOT:
 10. Your company isgrowing, but your gross margin is under 10%. 9. Your cash isshrinking because your business is shrinking. 8. Bad management iseating up all your cash flow. 7. You want toreplace your bank line and get a lower interest rate. 6. You want cheapmoney. 5. You’re tired ofusing the IRS to finance your business. 4. You want to sellsome old, uncollectable receivables. 3. You’re looking fora collection agency to strong-arm your delinquent customers. 2. You need somequick cash to pay off your angry suppliers. 1. You need somequick cash so you can close your business and leave town.

Tom Smith is Vice President, Marketing for Riviera Finance,a nationwide commercial finance company and sponsor of the ASBDC.  Prior to Riviera, he worked as an independentfinancial consultant and held various positions in finance and marketing forXerox Corporation.  He is married withtwo sons, and resides in the Tampa Bay area. Tom holds an MBA in Finance from The Wharton School, University ofPennsylvania.
With offices nationwide, Riviera Finance (www.rivierafinance.com)provides early-stage accounts receivable financing to small companies in needof cash flow. Riviera's non-recourse factoring program includes full protectionagainst bad debt, and complete receivables management services. Since 1969,Riviera Finance has funded over 20,000 small companies.