Texas Financial Factoring

Written by Patricia Tunstall
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Financial factoring offers non-traditional financing to businesses that are ready to grow and live up to their potential. If the only hindrance is variable cash flow because of too many accounts receivable, factoring can deliver that cash. When the business idea is a winner, the owners are good business people, and the outlook for growth is excellent, factoring may be the solution.

Temporary Cash Flow Problems

Factoring is not intended to be a long-term answer to cash flow shortages, nor is it designed to bolster a faltering business that is poorly-run. Factoring banks are just as inquisitive about their clients and their businesses as are conventional banks about borrowers and loans. These banks are on the lookout for good businesses that are in need of cash to improve their profitability.

Any enterprise can hit a cash crunch that is a hurdle to growth and expansion. Let's say the business owner of a small electronics firm returns from a trade show in Los Angeles with lots of orders for the firm's products. The owner sees new clients developing and new orders spearheading increased sales. The future looks bright, and the business appears to be taking off.

The owner begins to think of the practical consequences of the successful trade show traffic: purchase of many more supplies, employees working overtime for a larger payroll, and shipping and handling costs escalating. The reality is, the owner does not have enough cash to take advantage of the apparent success, and a bank does not see the business as solid enough to approve a loan. This scenario illustrates the ideal circumstances for factoring. If the owner sells sufficient accounts receivable to a factor (company or bank), cash will be immediately advanced to the owner, and the orders from the trade show can be filled.

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