How Public Factoring Companies Can Help Your Business Grow. A type of financing in which a business sells its accounts receivable which is invoices to a third party which is called a factor at a discount is called public factoring. The responsibility for collecting payments from customers is handed to the factor.
To get quick access to cash and improve your cash flow, public factoring can be a great way for your business. However it is important to look at both the benefits and also disadvantages of public factoring before deciding on going for a factor.
Benefits of Public Factoring
Public factoring has a lot of benefits, these benefits includes;
- Quick access to cash: businesses who are in need of quick cash to sort out expenses, make payroll, or invest in growth can be provided by public factoring.
- Increased Working Capital: there is a benefit of an increase in working capital when using public factoring, and this working capital is the money available that a business uses to cover its day to day operations.
- Improved cash flow: invoices can be paid sooner when using public factoring and thus in turn improves cash flows. This can assist businesses around late fees and penalties, it can also assist businesses free up cash that can be used for other purposes.
- Reduced risk of bad debt: the risk of bad debt is greatly reduced with public factoring. When a business sells its invoices to a factor, the factor assumes the risk of the customer not paying. This in turn will help businesses protect their cash flow and also avoid financial losses.
- Improved credit score: credit scores can be improved when using public factories. When a factor is used by businesses, it portrays to lenders that the business is able to manage its finances and pay its bills on time. This in turn improves the businesses credit score and makes it easier for businesses to get loans and other forms of financing in the future.
Disadvantages of Public Factoring.
Public factoring has some drawbacks and this drawbacks includes:
- High fees: with public factoring, a fee is charged for their services which can range from 1% to 5% of the face value of the invoices thereby making public factoring quite expensive.
- Loss of control over accounts receivable: control over the collection process is lost when a business sells its involves to a factor. This implies that the factor will be responsible for collecting payments from the customers and the business no longer has access to the customer’s information again.
- Potential for damage to your reputation: there is a potential that a company’s reputation could be damaged when they use a public factoring company. And the reason is that a business is seen as struggling financially when they use public factoring. However, it is important to note that public factoring can be a good option for businesses of all sizes, and it should not be seen as a sign of financial distress.
How to Choose a Public factoring Company
If a public factoring company is something you are considering, there are few things you should keep in mind:
- Get quotes from multiple companies: before making a decision, it is necessary to get quotes from multiple factors. This is important because it will help.you to compare fees and terms and find the best deal for your business.
- Read reviews from other businesses: by reading reviews from other companies, you will have an idea of a public factoring company that best suits your business and can also give you an idea of what other businesses have experienced with the factor and whether they would recommend them or not.
- Make sure the company is reputable: it is important to choose a reputable company when making a decision on the public factoring company you intend to use. You can check if the company is reputable by checking the company’s background and also reading online reviews.
Types of Public factoring
There are two main types of public factoring; recourse and non-recourse
- Recourse factoring: the factor retains the right to go back to the business if the customer does not pay the invoice in a recourse factoring. This implies that the business is still responsible for the debt, even though it has sold the invoice to the factor.
- Non-recourse factoring: the non-recourse factoring is a direct opposite of the recourse factoring in that the factor does not have the right to go to the business if the customer does not pay the invoice. This implies that the business is no longer responsible for the debt once it has sold the invoice to the factor.
Factors to Consider when Choosing a Public Factoring Company.
A few factors should be considered when choosing a public factoring company, these includes:
- Fees: it is necessary to compete fees from different factors before making a decision because public factoring can be expensive.
- Terms: different terms are offered by public factoring companies and this terms can be the amount of time it takes to get paid and the amount of fees charged. It is necessary to choose a fatote that offers terms that work for your business.
- Reputation: it is very important to choose a factor who is reputable. You can know a reputable company by checking online reviews or as for recommendations from other businesses.
- Experience: when choosing a public factor, choose a public factor that has experience in the industry. This will help ensure that the factor understands your business and can provide you with the best possible service.
- Customer service: it is necessary to choose a factor with a history of good customer service. This will help ensure that you have a positive experience if you ever need to contact the factor.
- Location: it is important to choose a factor that is located near you if you are looking for a factor that can provide you with quick turnaround times.
By following these tips, you can choose a public factoring company that is right for your business.
Here are some additional things to keep in mind when choosing a public factoring company:
- Industry: some factoring companies are specialists in certain industries, which includes construction or healthcare. It is important to choose a factor of experience in that industry if you are in a specific industry.
- Size: public factoring companies come in all sizes which ranges from small, local companies to large, national companies. The size of a company may not be a major factor for some businesses, but can be important to some companies who intend to factor large amounts of invoices.
Technology: some companies make use of the latest technologies to streamline the factoring process. This can make it easier for businesses to get paid faster.
Conclusively, small businesses looking to grow can find public factoring companies valuable. Public factoring companies provide access to quick and easy cash, covering unexpected expenses, expanding their operations, and taking on new projects. In addition, businesses that want to improve their cash flow and credit score, which makes it easier to obtain financing in the future can find factoring companies valuable.
It is important to do your research and compare different providers before deciding if you are considering using a public factoring company. Quite several factors for you to look out for include fees charged, the types of businesses that are accepted, and the level of customer service offered.