Coldwell Banker Commercial Benchmark

What is receivable factoring?
A business seeking funds assigns its outstanding invoices to Monetrex in exchange for immediate funds. This assignment/purchase procedure is historically referred to as "factoring."
Why would a business use factoring?
The company needs funds now, rather than waiting the typical 30 to 65 days to receive payment from its customers. In a "tight money" economy, the wait can be much longer.
Why would a company use factoring, rather than borrowing from a bank?
·  Factoring appears to be more expensive than a bank loan, so most companies will try for bank financing first. However, many companies cannot qualify for bank loans for a variety of reasons. Their next choice could be factoring. ·  Second, even if bank funds are available, a bank loan typically is not good for a new or fast growing company. Most banks approve a fixed line of credit. A new or fast growing company usually utilizes these funds within a short time. Most banks will not consider increasing a new loan for 6 to 12 months. This can stifle the company's growth. ·  Third, a bank requires a full personal guaranty for the borrowed funds, and often requires a lien on the business owner's home. A factor does not require this. The factor looks to the credit strength of your customer for assuring collection, without your having personal liability (except for fraud and misrepresentations).
How expensive is factoring?
The cost of factoring typically is a function of the industry involved, as well as the credit risk associated with the company's customers. Factoring costs (including all administrative services) generally run between 2% to 5% of a company's invoices that are factored. This compares with a typical bank loan that costs 1.5% to 2% of a company's total sales, PLUS the company still has additional administrative costs that otherwise would be handled by the factor.
Won't this cost seriously cripple my business?
Although factoring appears to be expensive, it really is not. In most cases, a Monetrex client is able to increase its gross sales by 30% to 100% within 6 months of starting the factoring, because the funds are now available for growth, and "peace of mind." These extra sales, plus the administrative tasks no longer performed by the client's staff, usually translate into additional, bottom line profits. Taking all this into account, it is possible that the factoring has a net cost of zero, which is better than bank funds! In essence, the factoring funds are a "tool" by which the client can increase its profits.
Are my customers notified of the factoring arrangement?
Yes, but it done in a very professional manner in conjunction with suggested communications signed by the client to its customers.
Won't this hurt my business reputation?
Typically not. Most of your customers know what factoring is all about, and probably are working with other factored accounts right now. If anything, the presence of factoring suggests that you have financial and administrative strength behind your operation, and that you have used sound judgment for creating a strong customer base. With these credentials, you should be able to get more business out of the same customer base. We acknowledge, however, that there still are some "Neanderthals" out there who dismiss factoring as a legitimate funding vehicle. Our suggestion: tell them you have little choice but to put them on COD or you will need to start charging a fee for payments made beyond your stated terms.   A.John Richwine CCIM