Cash Generated From Collection Of Accounts Receivalbles Cash Flow Statement Can Factoring Make You Money?

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Can Factoring Make You Money?

Simply put, factoring helps businesses meet their cash flow needs by providing immediate cash using accounts receivable.

Many people see factoring as a short-term patch to fill the working capital hole that inevitably occurs in almost any growing business. While factoring can often help a business refresh its working capital in the midst of cash crunch, it can actually be a very profitable long-term strategy. With adequate cash flow, a company can not only avoid stagnation in business, but also increase the number of customers and sales. Cash flow is the lifeblood of any business and without it, regardless of profitability, the business may cease to exist.

Also consider the fact that with factoring, the debt is not shown on your financial statements. This reflects strong numbers and if you have an opportunity to sell your business, it can be attractive.

Factoring is one of the few forms of financing that can support rapid business growth. As receivables increase, so does financing, as long as your customers are creditworthy. Therefore, it stands to reason that by reducing working capital requirements, a company can achieve its long-term growth plans more quickly. The net effect is increased sales, increased production and reduced stress.

Factoring is usually more expensive than traditional financing, but the cost of factoring is usually significantly less than the loss of net profit that would otherwise be generated by the significant growth it supports.

Ways to offset factoring costs as they apply to your industry are to take advantage of positive cash flow and take advantage of early payment discounts from your vendors and buy in bulk using volume discounts. You can deduct these savings from factoring costs if you don’t eliminate them entirely.

If you are turning down a deal due to a lack of capital, you should explore the benefits that factoring can provide. This is a form of commercial financing that is very powerful and should not be ignored.

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