I know it’s surprising, but invoice factoring is actually a very old activity; some experts date it as early as the 13th century. It all started with trade financing, which was financed by factors, but the entire process was refined during the following centuries. In the early stages of factoring, the factor would simply buy (and often resell) goods, giving the producer a cash advance in exchange for them.
Factoring has grown fast in the U.S.A. during the last century, mostly due to the fact that the textile industry has developed extremely fast and the American banks were reluctant to lend their money to the business owners (not that this has changed since then). In fact, the textile industry continues to play a very important role when it comes to invoice factoring, but other industries such as trucking, manufacturing, etc have become more and more important during the last decades.
Today’s ideal candidates for factoring are the small companies who need quick funds because they are growing fast and / or have contracts with big corporations or the government, but lack the needed working capital.
The invoice factoring companies act as an interface between the small business owners and their customers most of the time. The factor will offer financing only if the customers have a good credit history; this will ensure the factor that it will be able to get its money back. On the other hand, the small business owner doesn’t need to have perfect credit records; the factor doesn’t take that into account.
In addition to its intrinsic value, invoice factoring helps the small business owners minimize the overall risk, because the factor will check the creditworthiness of their customers, and thus will practically eliminate the small business owners’ risk. And as an added bonus, many factoring companies will offer their clients free advice on how to repair their credit, cut their losses and maximize their profits.
So how do you prepare for the future? Make sure to choose an invoice factoring company that really cares about its customers, doesn’t make use of hidden fees and has highly trained personnel that is familiar with your industry. Compound Profit has a great team of Profit Advisors who offer customized factoring solutions for each customer. Contact us today for your complimentary consultation and you will discover why we set the standards when it comes to invoice factoring.
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