When Johnson founded his over-the-road trucking company in 2001, he had a fleet of four trucks and a handful of clients. From the beginning, Johnson focused on growing his business. He used factoring to bridge the 30-day gap between long hauls and customer payments. Thirteen years later, Johnson operates 75 trucks between his trucking company and a new intermodal business he formed in 2014. Both companies today factor several hundred thousand dollars in invoices per month.
Johnson could approach a bank about a line of credit at this point. But factoring represents more than a capital source to him and his companies. His current factor not only purchases his receivables, it also handles his invoicing, collections, and credit reviews. These services provide Johnson’s companies with critical support for growth
One way factoring differs from a traditional bank loan is that there is no limit to the amount of funding that your company can receive through factoring. As your receivables grow, the financing from factoring grows with them. There is no hard borrowing limit as there is with a conventional loan.
Factoring is an effective financial tool for newly formed companies that lack a large reserve fund and a balance sheet. However, many companies stick with factoring well beyond the start-up phase because it can greatly accelerate their growth. Often, companies that began factoring a few thousand dollars just to get through the next month now factor millions of dollars. They have the financial stability to secure a bank loan but their management prefers the flexibility and ever-expanding potential of factoring.
Not every business owner has the vision, discipline and opportunism of someone like Johnson. A factoring company is not going to develop a marketing plan or sales strategy for its client. But it can provide the working capital and operational support to fuel that growth. As far as that goes, financing with an experienced, well-capitalized factoring company is nearly limitless.