Whether you’re a distributor or screen printer, adequate cash flow is the heartbeat of your business. Without it, the life-blood of an organization ceases circulating, and fatal cardiac arrest can ensue. Unfortunately, your required cash stream may, at some point, dilute to a trickle, or simply not be robust enough to help fuel the growth you desire. Sure, options exist: Bank loans, borrowing from family and securing private equity are all examples. Still, these traditional avenues may sometimes be inaccessible. Even if they are available, they may not provide the necessary green as quickly as your company needs it. 

Fortunately, there is an alternative. It is called invoice factoring, and its advantages include getting cash into your coffers expediently. Put simply, invoice factoring involves your business selling accounts receivables to a factoring company for cash. “With factoring, your receivables become real assets,” says Mike Bartels, vice president of Riviera Finance, a factoring provider.

In an invoice-factoring transaction, a factoring company pays you an advance of, typically, 75% to 80% of the value of the receivables. Then, the firm buying your invoices seeks to collect the full payment on the receivables from your customers. Once payment is obtained, the factoring company pays you the remaining percentage of the receivables you sold them, minus a fee that generally falls between 2% and 4% – and, as may be the case, interest on the cash advance.

Importantly, proponents of factoring note that this financing option can typically get working capital to companies quicker than bank loans. “We generally can help within a handful of days, usually within the week,” says Robert Cable, a Georgia-based principal with Liquid Capital, a factoring company. Beyond providing fast cash, factoring has other advantages that appeal to business owners. “It’s off the balance sheet,” says Cable. “There is no debt incurred.”

Factoring can potentially work for a range of companies. They include plucky start-ups that need cash to grow, successful established firms that have surpassed their bank line but need more capital to fuel greater revenue rises, and companies with a less-than-stellar financial history that may not be able to secure financing from a bank.

Within the imprinted apparel industry, factoring can have applications. Perhaps you’re a small distributorship with a few big clients on payment terms and the cash from those clients isn’t immediately forthcoming and you need money quickly. Factoring may be a viable option. Still, you don’t have to be in duress to factor. Perhaps you are a screen printer who wants to free up cash to invest in a new automatic press. Factoring can possibly help. “Sometimes,” says Bartels, “you just need the cash flow factoring provides to grow your business.”

Nonetheless, factoring experts point out that it’s pivotal to understand the difference between recourse factoring and non-recourse factoring. In the latter, the factoring company assumes the risk; if your customer doesn’t pay, the factoring firm eats the loss. In recourse factoring, you are responsible for buying back invoices that aren’t paid by your customers after a pre-determined period of time. So, while rates may be lower in recourse factoring, there is less of a risk with non-recourse.