Yes, when you compare the discount rate factors charge against the interest rate banks charge, factoring costs more. But if you can't qualify for a loan, it doesn't matter what the interest rate is. The idea that factoring is a last-ditch effort by companies about to go under is another misperception. Plant says you may be a candidate for factoring if your company regularly generates commercial invoices and you could benefit from reducing the time receivables are outstanding. Factoring may provide the cash you need to fund growth or to take advantage of early-payment discounts suppliers offer.
Plant says the factor's role is to help clients make the transition to traditional financing.
Factors are listed in the telephone directory and often advertise in industry trade publications. Your banker may be able to refer you to a factor. Shop around for someone who understands your industry, can customize a service package for you, and has the financial resources you need. Inc. All rights reserved.