Cost.
For invoices paid on normal commercial terms (about 50 days), we charge about 7% to 8% of the value of the invoice. For high volume, long-term arrangements with individual invoices in the six figure plus amounts, the cost could be as low as 5%.

Value.
The critical question here is what can the entrepreneur do by having in hand funds that can create value for their business? The financial impact calculator helps provides insight into the profitability of increasing a firm's sales.

The old saying "all that glitters is not gold" always applies when considering value and there will inevitably be drawbacks and advantages depending on the particular situation. One important consideration is that with cash in hand, the business will be able to focus on better use of their scarcest resource-time. This means that juggling cash flows, collections and credit granting is out sourced as it is with credit cards, and more effort can be put into production and sales.

The best appraisal of the trade off between value and cost comes from those who have used the factoring approach that is built into Sales Driven Financing©.

Rob Bennet of Municipal Software Corp. used factoring "quite successfully" in his effort to keep the business growing. By 1998 Municipal Software was expanding rapidly but the company's receivables were close to $500,000 and customers often took sixty days or more to pay. The banks became nervous and denied an increase in Bennet's line of credit. As Bennet put it, "there was gap there that banks just wouldn't fill for us."

According to Bennet, the value of his factoring agreement with a local merchant banker was that it "provided cash, it didn't involve our clients at all and it was very easy to administer." The financial cost-an annualized interest rate of ten percent-was not overwhelming since "we were dealing with very short periods."

In terms of potential value and cost, it is perhaps most important for your client to think very carefully before choosing a type of financing. In Bennet's words, "as long as all the terms and conditions make sense for your company and your customers . . . and you can find the right group to work with, factoring can definitely help you to build your business."

(Peer to Peer www.PROFITguide.com May 21, 2002 and Peter MacDonald, PROFITmagazine www.profitguide.com Dec/Jan 2003)