Financial Planning with Invoice Factoring

Invoice factoring became a common business practice very early in the history of the United States of America. By definition this involves is the sale of a company's receivables, otherwise known as its assets, or invoices, at a discount to a factoring company who pays the business a discounted amount off of the face value amount of these invoices. The factor will receive payment for the invoices from the company's customers.

The practice of invoice factoring has been around for more than 4,000 years since the inception of commerce. The first documented use of invoice factoring occurred in the U.S. sometime before the revolution, at a time when cotton, animal furs, cotton, and other materials including timber were shipped from the colonies over to to Europe. London's merchants advanced funds to the colonists so that the Americans could continue to harvest their new land. During the Industrial Revolution when factoring became more focused on credit when they assisted clients in determining the creditworthiness of their customers and setting credit limits. Factoring companies would then guarantee payments for customers that had been approved, which sped up the process dramatically.

Prior to the 1970's, financial services were identified by one metric: sales. Commissions and other types of incentives typically drove financial advice, and financial planners were accountants or insurance agents. Sometime early in the 1970's was the beginning of the financial planning revolution which re-focused the industry from product-driven sales to process-driven services. It was in 1970 when the International Association for Financial Planning (IAFP) was formed. Today, during these challenging economic times, invoice factoring is an especially beneficial tool for business owners worldwide because obtaining a loan from a traditional financial institution has become a challenging process.

Factoring companies provide short-term working capital to growing businesses who often find it difficult to get conventional funding.Keep in mind, invoice factoring isn't really a loan - it is the purchase of receivables otherwise known as financial assets, from a factoring company. Invoice factoring is not like a traditional bank loans because bank loans typically involve two parties, while factoring involves three. Credit decisions from banks is based on a company's credit worthiness. Factoring companies base their decision on the value of the receivables. There are no minimums, no maximums, no long-term commitments and no lengthy application processes when using an invoice factoring company.

The main reason eight of ten new businesses fail primarily because of the lack of good financial today is because they lack financial planning. Financial planning can actually have an effect upon how and on what terms you will be able to attract the funding required to establish, maintain, and grow your business. Financial planning also determines the materials and supplies you should get and the products you will be able to produce, as well as the services that will be rendered, including whether or not you will be able to market them.

There are many essential components of financial planning and one of them is factoring. Small business entrepreneurs may have a fighting chance of success in today's highly competitive business environment. Financial management is the use of financial statements that reflect the financial condition of a business to identify its relative strengths and weaknesses. It enables you to plan, using projections, future financial performance for capital, asset, and personnel requirements to maximize the return on shareholders' investment.

Well documented financial plans have established goals and include the use of budgets, pro forma statements and even the suggested use of factoring, can help ensure financial control, and will demonstrate not only that you know what you want to do, but how you plan to accomplish your goals. These tactics will essentially help you attract the capital required by your business from future investors.


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Kristin Gabriel is a writer for The Interface Financial Group (IFG), www.ifgnetwork.com, a company providing short-term financial resources including invoice factoring, serving clients in more than 30 industries in the United States, Canada, Australia and New Zealand. IFG operates on a local basis with expertise in accounting, finance, law, marketing and banking.