Cash hungry CEOs who find their credit lines severely tightened do have a way out — factoring.
Factoring involves companies that buy bills for money owed to a particular company. The factoring firms provide cash up front minus their charges which typically can be 5 to 6 percent. Or, the factoring firm might pay half of the bill in cash immediately and the rest when it is paid, minus, of course, their fee.
The good news is that companies can get cash faster based on bills for products already sold or services already provided. As the finanical crisis continues, customers are taking much longer to pay. That, in turn, hurts the firm as it seeks credit from banks which are stiffing even their best clients these days.
According to the Commercial Finance Association, which represents many factoring firms, 60 percent of their members saw more firms looking for credit and 40 percent say they’ve been writing more contracts recently.
The bad part about factoring is that it is more expensive than obtaining usual bank credit. But in tough times like the present, getting cash immediately can be manna from heaven.
