Who Needs Factoring

Most business payment terms are net (meaning the full amount) paid 30 days from the date of invoice. However, this is rare in today’s economy with many impacts to timely payment. These include invoice errors, delays in receiving the invoice, holidays, inadequate accounting processes, late billing, personnel changes, a slow approval process, and many others. So, when payments stretch out to 60, 90, or even 120 days from the date of the invoice, serious financial impacts occur for even robust businesses – simply because of the downhill affect. All the suppliers and vendors that are counting on that invoice to be paid, so they can be paid timely are affected too! That’s where accounts receivable financing becomes a very good option. Factoring keeps the cash flow flowing to the companies and people doing the work so project schedules are met and profit margin is protected.

Access to better cash flow can be a complex business decision. TBS understands Factoring in general is more expensive to a business owner than a traditional bank credit line or other debt service that is secured by collateral and personal assets. These mechanisms are important and provide reliable credit that business owners need. But what about businesses that have no credit or have just started? That is where Factoring receivables can help fill a gap in the cash flow cycle. Factoring is also ideal for business owners who have poor credit scores (we don’t use credit scores), don’t have any assets or collateral, or simply do not want to execute a personal guarantee or pledge their home for a line of credit.

When a Factor purchases an invoice, none of those things matter. What matters is the likelihood of payment by the Debtor and that the invoice was approved. That’s it!

It’s simple. A contractor or subcontractor does not need factoring when it has adequate cash flow (Free Cash Flow or FCF) and sufficient cash reserves (Liquidity) to handle periods of late payment by project owners or GC/Prime Contractor. this means the business has enough cash on hand to pay all its bills, even to suppliers or subcontractors for work completed even though payment has not been received from the project owner or Prime Contractor.