By way of contrast to an earlier post entitled Recession & Factoring 20 March 2007, here’s an overview of how Factoring is just as relevant in a strong economy.
The obvious sign that the business is doing well, or that the economy is good, is that the business sells more product or services. Additional staff may be taken on and overheads such as rent and salaries are paid without the usual hand-wringing. Gross margins and profitability increase.
What is not so obvious is that inventories may be stretched and only just keeping up with customer demand. Just-in-time production may not be able to keep up with increased capacity as product demand soars. The ability and the need to have access to guaranteed quick capital is critical. It’s no accident that many businesses fail immediately after their biggest ever sales period.
In profitable times, a business will be eligible for bank loans, even though interest rates may be higher during these periods.
It is important to remember that Factoring remains relevant during a sustained economic upswing. Why? Factoring grows exponentially with the business – debt free. In other words, the greater the sales and the better the customers, the greater the amount of factoring funds potentially available. Traditional bank financing cannot offer this flexibility.
As mentioned previously in this blog, factoring companies offer credit checks on customers (because this is where the factoring risk lies). This is a Risk Management service to clients that banks do not offer.
© 2007 Sanjeev Aaron Williams & Cashwerks All Rights Reserved
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