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Should I use Factoring in my business?

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That depends on the nature and financial needs of your business. A large business with an active accounts receivable department and ready access to cash isn�t likely to require the services of a factor. On the other hand, a small or mid-sized business that lacks the assets necessary for a loan (and frequently needs fast cash) might find a factor extremely useful. Some factors are willing to work with startup companies, but keep in mind that your business may not qualify for the services of a factor. Many factoring agents aren�t interested in accounts of less than $10,000.00, and you�ll need to demonstrate growth potential and stability within your business.

If in fact you find that your business needs added liquidity, or if you like the idea of outside ledger management, then a factor might suit your needs perfectly. However, as should be clear from the potential risks listed above, you should proceed carefully before hiring a factor. Among other considerations, ask yourself the following questions:

How important is it to the future of your business that your company deals directly with your customer base? If a strong possibility exists that the use of a factor will confuse or upset your customer base, you�ll only want to use a factor as a last resort.
Are you willing to face the possibility that a factor may be unable to collect an account for several months? If such is not the case, you might find the interest charges and administrative burden as bothersome as an unpaid account receivable.
Are you willing to give up control of certain accounts in exchange for quick cash? For many small businesses the answer to that question is probably an emphatic yes. However, factoring is likely not for you if you�re interested in personally managing every detail of your business.

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