Once you have made the decision to factor, and have chosen a factor that you are happy with, it is time to decide how much of your monthly sales to factor. One of the purposes of using a factoring company is to help you maintain a constant cash flow, even when business is slow. However, there is a fine line between factoring just enough and factoring too much. You don’t want to dig too far into your account receivables, because that is money taken from your company’s profits. At the same time, factoring too little can keep you from capitalizing on a time-sensitive opportunity. Ask yourself the following questions before deciding how much of your monthly invoice totals to factor:
What type of business do you have? If you are a sole proprietor with a basement workshop or a service-oriented business, your monthly expenses are probably low enough that you can safely factor up to thirty or forty percent of your invoices. If you own a Corporation, run a retail shop or have to pay employees, it will be hard to justify factoring over twenty-percent of your monthly invoices (at least until you’re confident that your cash cushion is large enough to cover a slow period).
Do you run a seasonal business? If so, invoice factoring can be a virtual lifesaver, since it can spread profit over your slower months. However, be careful not to over-estimate your in-season profits, because it is too easy to underestimate future costs. Visit http://www.capitalplus.com/invoice-factoring-services/invoice-factoring.html for information on invoice factoring services.
How long have you been in business? The first year of owning a business can be the most expensive. Under estimating the sheer cost of running a business (and failing to take into account Murphy’s Law) results in more first-year failures than anything else does. While factoring can help increase cash flow, it can also lead a fledgling company down a path of debt and disappointment. If your company is in its first year, don’t factor more than ten percent of your account receivables if you can avoid it. You will have plenty of opportunities to build a profit once you have made it past the first year.
One side note to this article. While the preceding advice is perfectly valid, you should not make important business decisions based strictly on one set of recommendations. There are exceptions to every rule and opportunities that validate extra risk. If you are unsure of what to do in your case, there are plenty of factoring consultants that you may go to for professional advice.
Visit http://www.capitalplus.com/invoice-factoring-services.html for more information on other factoring services.
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