To Factor or Not to Factor

If you’ve heard about invoice factoring and are considering it for your B to B company, be sure it fits your needs.  Factoring is a type of specialty lending that’s not meant to replace bank lines or other commercial loans, but to augment them when the need for cash flow is greater than a basic line of credit can provide.  Factoring is helpful for young, non-bankable companies with growth opportunities, and for companies that can benefit by outsourcing their credit and collections activity.  Full-service factoring companies will provide finance, credit services and guarantees, and accounts receivable management.

Here are the Top 10 reasons to consider and NOT to consider factoring for your business:
10.  Your B2B company needs a line of credit to support growth, but isn’t bankable yet.
9.  Your customers demand credit but your suppliers demand cash.
8.       Your customers love to keep you guessing.
7.      You just don’t have time to manage receivables.
6.      Your growth is outstripping your cash flow.
5.      Your customers worry when you make those desperate calls for payment.
4.      You worry every time you extend credit to a new customer.
3.      You’re passing up new business waiting for old bills to be paid.
2.      Your bank is getting out of the commercial finance business.
1.      You love the thought of outsourcing credit, collection and A/R management so you can concentrate on growing your business.
 10. Your company is growing, but your gross margin is under 10%.
 9. Your cash is shrinking because your business is shrinking.
 8. Bad management is eating up all your cash flow.
 7. You want to replace your bank line and get a lower interest rate.
 6. You want cheap money.
 5. You’re tired of using the IRS to finance your business.
 4. You want to sell some old, uncollectable receivables.
 3. You’re looking for a collection agency to strong-arm your delinquent customers.
 2. You need some quick cash to pay off your angry suppliers.
 1. You need some quick cash so you can close your business and leave town.
Tom Smith is Vice President, Marketing for Riviera Finance, a nationwide commercial finance company and sponsor of the ASBDC.  Prior to Riviera, he worked as an independent financial consultant and held various positions in finance and marketing for Xerox Corporation.  He is married with two sons, and resides in the Tampa Bay area.  Tom holds an MBA in Finance from The Wharton School, University of Pennsylvania.
With offices nationwide, Riviera Finance ( provides early-stage accounts receivable financing to small companies in need of cash flow. Riviera’s non-recourse factoring program includes full protection against bad debt, and complete receivables management services. Since 1969, Riviera Finance has funded over 20,000 small companies.