Factoring is like mini loans against invoices. Mike Semanco, President of Hennessey Capital, explains the ins and outs. Factoring is a higher cost source of capital used when lower cost loans are unavailable.
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As explained by Mike Semanco, president of Hennessey Capital, factoring can be thought of as mini loans against invoices. As such, factoring is another way to finance the day to day money you need to run your business, otherwise known as working capital.
When might you turn to factoring?
- You have a customer who pays in 60 days when all your others pay in 15. You want the money that customer owes you sooner.
- You have a few slow pay invoices that you need to collect on.
Factoring is a more expensive form of finance. The cost of financing decreases as the assets used to secure loans improve and as the company seeking the loan gains a better track record.
Additional links:
- Charlie Penner of the SBTDC explains the difference between debt and equity financing.
- This commercial hosted on YouTube gives another take on factoring.
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