Dear US SBA, We thought you should know….
When factoring has been around helping businesses since the Middle Ages, how can there be no mention of it on the US Small Business Administration website? Many historical sources show that factoring was a fact of business life in England prior to 1400, and it came to America with the Pilgrims, around 1620.
We searched the US SBA website for “invoice factoring,” or “receivables factoring”, and “cash flow improvement” and came up with nada, nothing, zilch, zero! The closest the SBA came to uttering the word themselves was calling it “Specialty Lenders.” http://www.sba.gov/blogs/loans-business-owners-poor-credit-scores. Hard to believe the SBA’s massive online resource for small businesses, that describes all sorts of business finances, doesn’t offer a description on receivables factoring.
Within the SBA’s “Community” bulletin board for business to post and share with each other, one person does share a short description of factoring.
“Factoring is a financing option for under-capitalized businesses that have the profit margins to absorb the factor’s fee. Factoring is a loan which will give you working capital based on your invoices which are awaiting payment. Factoring is a widely used financial product that transacts over $70 billion of volume each year in the United States. I’ve seen companies use Factoring for orders that are yet to be fulfilled. There are often times a company will not bid on a project because of capital requirements, but this option gives the company the opportunity to engage in large projects and expand their business with no additional capital commitments. Let me know if you need additional info. Thanks, Keith Gilabert”
We totally appreciate that Keith tried to fill the gap. Still, it’s just not the same as having an article directly created by the US SBA. (Moreover, factoring is not a loan, it’s a sale. You’re selling your invoice to the factor. )
We were starting to worry that we don’t really exist as an important cash flow tool for small business. Then we found that Entrepreneur magazine knows exactly what we do and how it can be very valuable. http://www.entrepreneur.com/encyclopedia/factoring
“Definition: A financing method in which a business owner sells accounts receivable at a discount to a third-party funding source to raise capital.
“In a typical factoring arrangement, the client (you) makes a sale, delivers the product or service and generates an invoice. The factor (the funding source) buys the right to collect on that invoice by agreeing to pay you the invoice’s face value less a discount–typically 2 to 6 percent. The factor pays 75 percent to 80 percent of the face value immediately and forwards the remainder (less the discount) when your customer pays.”
Bravo ! Great description! (Our rates for the freight industry are much better than that!) Remember rates of reimbursement vary in the industry are not set by the client’s creditworthiness, but by their customer’s history of paying on time. So while your company might not have a long credit history or collateral, if you have credit worthy clients, you could improve your cash flow with factoring to help you reach your next company goal.
Let us know if you have any questions. And if you write for the US SBA, well, give us a call, or the International Factoring Association, or the American Factoring Association. Heck, you can even check Wikipedia!
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