Factoring Enables SMEs to Leverage Customer's Strengths

There has always been price wars in high profile categories such as poultry, milk or beer, placing much of the focus on the potential long-term damage to suppliers if these price reductions are funded by squeezing suppliers. Squeezing supplier prices is a challenge in countries like Australian where there tends to be few extremely large players in a small market.

Large retailers also sometimes use their bargaining power effectively via payment terms. We all know that supermarkets have excellent cash flow because their customers who pay cash for their groceries. On the other side of the fense, suppliers have to wait 30 or 60 or even 90 days to get paid. The grocery store chains can get cash for the products they sell to consumers, long before they have had to pay suppliers.

To even out the situation, smaller suppliers who typically, and painfully, have to wait 30-60-90 days to get paid from larger retail customers often rely on invoice factoring, a financial service that helps them meet the cash flow challenges from having the longer timeframes for payment. Ultimately, invoice factoring allows the supplier to use the invoices for goods sold to mid to large size retailers as the security. This is for a line of credit, which can be used to fund working capital to grow the business.

Large retailers are quite familiar with the factoring industry and will not be surprised or concerned that their suppliers are using an invoice discounting facility. After all, they are the ones who have set the payment terms and the factoring finance becomes a smart cash flow management strategy to ensure that the supplier can keep up with the retailer's orders.

Just as one example in Australia today, it has never been more difficult to be a retail supplier. With discretionary spending among consumers down, therefore the power of large retailers such as pharmacies, and groveries, in non-discretionary (i.e., grocery, pharmacy, etc.)categories has really never been this strong.

In the end, small business enterprise suppliers, or SME's, should at least use the strength of their large retailer customers to their advantage by establishing a factoring or invoice discounting facility that leverages their credit worthiness.

If you need to learn more about factoring companies simply go to Google and type in the word "factoring."


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Kristin Gabriel writes for The Interface Financial Group (IFG). The factoring company provides short-term financial resources serving clients in more than 30 industries. IFG offers expertise in invoce factoring, accounting, finance, law, marketing and banking. (http://www.ifgnetwork.com)