Quote:
Originally Posted by James Smith
Personally I wouldn't go into business using a factor out of choice, however it is spun these days it is very expensive, especially for smaller businesses, and really is the "lender of last resort". They tend to have rather fierce terms including forcing you to put all your sales through them - i.e. its very hard to break out of the cycle of using them when they are swiping most of your profit margins!
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I see James all over the internet world telling people that factoring is the "lender of last resort" and it really is a load of rubbish akin to me telling everyone, whatever their circumstances not to use an accountant as they invariably rip you off.
Factoring is an excellent financial tool for a growing company as the availability of working capital rises with sales whereas the more old fashioned forms of lending are only interested in the Balance Sheet and available security and every time sales increase and you need more money you have to go back to the bank cap in hand to ask for an increase in facilities.
Let's assume that a company is turning over £250,000 pa and making 15% net which equates to a profit of £37,500. If factoring generates enough cash to enable you to double your turnover the profit will rise to £75,000 before factoring costs and even allowing for James's ridiculously high cost of 5% it would still result in increased profits on the bottom line.
Having tried to set the record straight I regret to say that i don't think that it's suitable for your business as it's aimed at businesses who sell to other businesses on normal account terms whilst you appear to be predominately aiming at private individuals who will pay by credit card anyway.