CALCULATING THE BENEFITS OF FACTORING
Will the benefits of factoring outweigh the cost? This is the most critical consideration. The cost of capital should be viewed as an investment which will advance the business, just as is a new piece of equipment. You would not spend money on a piece of equipment unless you were convinced that it would increase sales and profit or reduce costs. The cost of acquiring cash through factoring should be weighed in the same way. The immediate and ongoing availability of cash must help to increase sales and profit.
The following exhibit summarizes the financial impact on an actual company that uses factoring to fund its sales growth. This company began with $1 million in total sales. By factoring, they were able to double sales to $2 million in the following year. They paid $40,000 in factoring costs, and increased their profit nine times, to $180,000.
The factoring cost is 4% and $1 million of receivables were factored in the second year.
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If we didn't have Prairie Business Credit, my customer would have needed to raise a lot more capital. Prairie Business Credit was very responsive and moved quickly to get the deal done.
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