When Retail Companies Use Factoring
Factoring services is much easier to understand than it actually is. Factoring is essentially a short-term loan made to a company that is not getting its money from any external financing source.
When a retailer needs money, they can typically borrow against future sales that have yet to be made. The retailer asks a factor to guarantee the company a certain return on the funds that they use.
Factoring companies have historically been funded by banks for the most part, which is why business loans through these channels don’t come with this added expense.
Factoring services are generally preferred by retailers who need to obtain quick turnaround funds but do not have the funds to do so otherwise. Factors generally like to participate in the factoring services business because they can turn around funding in a short amount of time.
Factoring is for debtors and they can be outside companies, individuals, or individuals who have taken out a business loan. Factoring isn’t for just retailers because they may have some of the largest short-term cash flows of any business prospect. These cash flows can be used for other transactions, or they can be exchanged for cash.
Factors will charge a fee to perform this service and will be paid within 14 days of the loan being made. Like in any short-term loan, the lender will require collateral, but it is typically collateralized equipment or inventory for retailers, not money.
Pros and Cons of Retail Factoring
Retail funding encompasses several different factoring methods and is one of the more common methods business owners use to raise capital quickly for their business. The major advantage that retail funding has over other funding methods is its rapid pace. Through the use of a retail broker, you will be able to get short term loans from commercial banks or financial institutions. Most of the time, this short term funding will be in the form of a check that can be presented to your billing company. Raising money through retail funding can allow you to avoid dealing with bank or credit union loan underwriters.
In order to qualify for retail funding, your business must fit into a prespecified set of criteria, which can include having an up to date credit report from the credit bureaus and an established business reputation. In order to secure financing, you will also be required to sign a promissory note that you will have to make service payments on for the length of the loan.
How We Evaluated Retail Factoring Companies
As mentioned earlier, our research process consisted of significant freelance research, which included reviewing dozens of actual factoring contracts with the retail factoring companies. We also used our own online research to accumulate a good amount of information we can use to help you understand the retail factoring process.
The online review of retail factoring companies included visiting their websites. We went through the given information of the company and their services provided, as well as checked for updates. This was essential because a good factoring agency should provide the latest information of their company and the services they provide.
Whether we checked the websites or the forums, we were able to get quick responses from the retail factoring companies to answer any questions we had regarding their services. The factoring companies were also quick to "reply" to emails sent through their contact us feature or website.
The information collected from the factoring companies websites/forums/emails and from the actual retail factoring contracts that we have reviewed helped us conclude that there are few reputable retail factoring companies that you can trust. These are the ones we will be discussing in this article.
Below are the details of the 3 best retail factoring companies in the market today.
BlueVine: Best Overall
Bluevine is a leading factoring company in the US. Bluevine provides financing for a wide and diverse range of businesses across the United States and Canada.
They specialize in providing factoring services to small and medium-sized businesses that are not able to qualify for bank loans to cover the cost of inventory and receivables.
One difference between BlueVine and their competitors is that they specifically target smaller companies, usually the size of a startup or micro-business.
Bluevine has specific programs to accommodate startups and small businesses and to help them grow. They also offer very competitive rates, no-risk factoring, and flexible payment plans.
As a further attraction, BlueVine provides a line of credit in the form of a working capital loan. A working capital loan is a secured loan that provides business owners with the capital they need to purchase inventory and pay their bills as they come due.
Some of the business types that BlueVine specializes in are:
- __ E-commerce stores
- __ Technology companies
- __ Websites for specialty products, including furniture, baby products and toys
- __ Low or no inventory risks
- __ Existing loyal customers
- __ Pure play or multi/global online
- __ Low risk partner / supplier
- __ Pre-ICO, ICO, or equity based financing
- __ Number of employees *100%
- __ Rich client services
altLINE: Best for Short-term Invoice Factoring
TCI Business Capital: Best for Large Retail Factoring Contracts
Factoring Companies Reduce Invoice Processing Time
Factoring is an effective way to reduce the lead time between your invoices and the money reaching your company’s bank account.
Every single day, businesses all over the world are faced with cash flow problems. This is because owners, managers, and employees are burdened with the responsibility of finding new business, securing payment from existing customers, and handling the day-to-day operations of the place of business.
While many would like to hire an in-house cash flow manager, the major challenge in hiring a person is the high cost associated with them. Not only do you need to pay them handsomely, but they will then want you to provide all of the tools and equipment needed to manage the cash flow of your business. This is a significant expense that is avoidable with the help of a factoring company.
After all, the owners, managers, and employees still have to handle other administrative tasks of the business. At the same time, there are the operations of the company that have to be attended to.
So why is Factoring good for a business?
Factoring companies will work as a buffer to the business. For instance, they will work to clear the invoices of the business so that there is money in the account and the business can continue its operations.