What is Factoring
We are different than all the other companies which you deal with. We have all our own money. We do not borrow from banks, hedge funds or other commercial finance companies. This is a very important fact to keep in mind. This means we have complete flexibility, we don’t have to comply with bank covenants, secondary market requirements or securitization rules. We make all the decisions in a three-person committee in our corporate headquarters in Rochester, NY. This means we will factor companies that have state or federal tax liens, we will factor companies that have a first position bank lender who refuses to subordinate, and we will provide the following:
How it Works
Is Factoring for You
Who is the right company to factor? A company with financially strong customers – these are known as account debtors or counter parties. This is really our credit analysis, not our customer. We have to make sure that the receivables that we buy are going to pay. For example, we have a small manufacturer making wooden spoons selling them to Wal-Mart, yet the manufacturer’s credit is not great, and no banks will lend him any money. Wal-Mart wants twice as many spoons this year as last year and begins to double the size of its orders. In cases like these, most people don’t even think of factoring.
Impact of Factoring on Profits
Impact of Factoring on Profits – on page 3 of the Outline you will see a spreadsheet which shows what happens when a company is able to factor its receivables. Profits increase from an actual dollar amount from $80,000 to $212,000. Importantly, percentage profits also increase from 13% to 18%. This is because the additional working capital allows the company to grow. Today most banks will not provide any new working capital for growth. You can use this model when you receive the objection that factoring is too expensive. For example: One order at 26% profit = $26,000, no orders = $0.
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