Has anyone used a "factoring service'' for their business. It sounds like they just buy you're invioces or A/R. Just curious if this is good business?
Unless you need money for immediate cash flow i'd stay away from it.... You will loose at least 25% of your income.... but if your making money faster than a drunken sailor and don't mind sharing it with holder of your paper then I'd still proceed with extreme caution.
Thanks for your reply grandpa! That's what I thought but just was not sure. I do a small percentage of oilfield work and only for the ones I know will take care of me but , I would like to do more , I just refuse to wait 90- 150 days for my money. I darn sure dont want share my $$$ no more than i have too !
NOBODY is worth giving 150 days to pay, I don't care who they are. Or, just factor the 2.0% per month finance charge into your base pricing. More than one way to skin a cat.
I used a factoring company many many years ago when things got tough. To me at the time they were a necessary evil, but cheaper than a bank overdraft at that time, if I remember correctly.
Factoring is the last options as others stated. Only use factoring if you have bad cash flow or poor credit. Otherwise most lenders can lend up to 50% of your A/Rs.
Factoring is a great tool to finance a business in the right situation. Only factor if you are growing faster than your cash flow can support. Factoring the receivables of a declining business will only put you out of business faster. Also, factoring will not cost 25%. Rates are about 2-3% per month. Most invoices turn in 45-60 days = 4%-6%. YES, bank loans are cheaper but they will require all your business assets, your home and your first born son as collateral in addition to a Personal Gty. Most factoring companies only need the AR as collateral and can fund in days. Lastly, Bank loans are limited to what you qualify for. If your business lands a million dollar contract and you bank loan is only $50k, good luck getting them to raise your line. With factoring, your max line amount is based on the qualifying AR which could be limitless! My recommendation to businesses looking for financing is the following 1. Get set up with a good factor that specializes in your industry. 2. Get an SBA loan that will require your first born son, your home and a Personal GTY and request that the AR not to be included. First, draw on the SBA loan for at 4-6% annualized and when you need additional funding above and beyond the SBA, you draw against your AR on an as needed basis.
Avalon That sounds like good advise. Do you know of any reputable fatoring companies in the construction industry?
Bull. I have done literally millions of dollars of work for a big oil Company. They take 180 days to pay but they pay me about twice per hour than what I make anywhere else. I can wait to get my money. It comes in like clockwork and has for years, it is just slow.
2X....what he said ......double bull......I'm OK to wait for more than twice what the others are willing to pay hour....
Sounds to me like even if you are short on funds and have to use a factoring company or some other means of credit, six months at 2% is 12% off the total bill to get paid promptly at nearly double(minus the 12%) the going rate would be an easy decision.
Yair . . . I would be nervous, very nervous, about oil field work. Six months is way slow and it could get a lot slower the way the oil/gascos are bleeding at the moment. Cheers.
If you are working for Billy Bob's oil then you have a reason to be concerned. Chevron, Texaco, Shell, etc you are going to get paid it is just a matter of when.
Yair . . . bdog1234 Yeh mate, if you say so. I have seen this syndrome before and would never wear it in my business life, that is to say . . . big supposedly secure well run companies think they have the divine right to screw the little blokes and make them hang out for their money even in the good times. This blip in oil price has bit hard and even with prices starting to recover companies are hurting and it isn't over yet particularly in the shale. Cheers.
I do work in the oilfield and have been using our factoring company for about a year and a half. It costs us roughly 1.5% per month, and I believe that it's worth it for our small company. We can now bid larger 100k+ jobs that have tight profit margins from customers that routinely pay in 90+ days. In years past it was difficult for us to bid these jobs, because we needed our cash flow for the better paying jobs. We just couldn't tie up a large portion of our operating funds on those tight (but still solid profit) jobs. One of the other benefits is we don't have to bug our customers so much about when our check is being cut. Even though they are late on a payment, it still drives business away when you're calling them constantly asking for a check. I've been on both sides of that call, and I know it pushes business away. I'm sure in a perfect world you would not need factoring, but it has really helped our 30yr old family business.