Traditionally invoice factoring has been used in the clothing and garment industry due in part to the multiple components involved in making a particular article of clothing. With raw textiles coming from one overseas location, the finished product being manufactured in another and finally being sold in yet another, the entire process can take weeks or even months. With a hundred-year-old history, manufacturing factoring is so commonplace it remains the standard way of financing for the international textile and garment industry.
More Than Just Manufacturing Factoring
Yet in today’s slow-moving economy, more and more businesses are taking advantage of factoring accounts receivables services in order to get the cash they need right away to sustain and grow their business. Most any type of business can use invoice factoring services though there are a few that generally have not been able to benefit from it though this may be changing.
Those businesses with small dollar-amount invoices historically have not done well with factoring receivables and might be better suited to work with another alternative lending institution. This is because the process of receivable factoring involves a cash-strapped company selling their largest invoices to a factoring institute enabling them to get that cash right away (minus an agreed-upon percentage and fee). Invoice factoring companies counsel their clients to select their largest invoices for processing because this results in the smallest number of fees for the client. The fees and percentages an invoice factoring company collects for processing several small invoices may be cost prohibitive. In other words, it costs considerably less to process a few large invoices than to process several small ones.
New Sectors Are Entering the Factoring Receivables Field
For this reason retail, restaurant and the hospitality sectors generally have not been significant customers with factoring companies. Yet there appears to be some indications that this trend may be changing. According to RestaurantReport.com, more and more invoice factoring companies are recognizing the need for restaurant and hospitality factoring. Some of these companies are looking at creative and innovative ways to venture into this area, particularly in regard to financing restaurant equipment, staffing / payroll and construction factoring (expanding or renovating restaurant and hotel space).
So with the all-around growth of alternative lending models including account receivable factoring, your best bet is to talk to a factoring company about your specific situation to see if they are willing to work with you and negotiate more reasonable terms. This is especially the case if your business has many small invoices to process rather than two or three large ones.