The CFO'S Perspective

Invoice factoring, also known as accounts receivable financing, improves cash flow by selling your company's outstanding invoices to a factoring company for a fee. As with any financial strategy, it's crucial to understand these risks and weigh them against the potential benefits. Invoice factoring can be a powerful tool for improving cash flow, but it needs to be used wisely as part of a well-considered overall financial strategy.

In this article, we review and answer the following questions:
(Each links to your question/answer of interest.)

1. Factors to consider when deciding whether to use invoice factoring?
2. What are the risks when using invoice factoring?
3. What is the average cost of invoice factoring?
4. What types of businesses use invoice factoring?
5. When should a company use factoring?
6. Do factoring companies check credit?
7. How do you get your company approved for factoring?
8. Why is factoring so expensive?
9. How do I get out of a factoring company agreement?
10. Do you need a CFO to get invoice factoring?

These days business owners looking to get an injection of cash into their companies have an almost endless list of possible funding options. However, that does not mean that all business funding options are created equal. They will vary by approval requirements, rates, conditions, payback terms, and other criteria. As a result, knowing the difference between funding types is meaningless without understanding what you hope to gain from securing financing.

To grow in the new market environment, manufacturing companies require funding. To help you better understand the options, CAMPS hosted a panel to cover multiple funding options:

• Equity Funding - Shirish Pareek of AMG Partners
• Asset Based Funding - Nabil Istafanous of Celtic Capital
• Debt/Bank Funding - Jo VanDerSnick of Chase
• Knowing Your Numbers - Kevin Briscoe of CFO Selections

CFO Selections is a proud member of CAMPS and our own Kevin Briscoe recently participated in a panel discussion at a CAMPS event: "Funding your Manufacturing Business."

If your manufacturing company is growing, listen to the insights and options shared by the panel of financial specialists.

Financial projections are a critical component of a sound business plan. These projections (or “financial forecasts”) are used externally to obtain funding as well as internally to create a strategic growth roadmap with key milestones.

At the core of these projections are logical assumptions for revenue, COGS (cost of goods sold), SG&A (sales, general, and administrative) expenses, capital investments, and cash flow that serve as building blocks for the final figures that result. Because your financial projections rely on these pillars, it is crucial to find a balance with these inputs. Being too conservative or too aggressive with your assumptions will skew the resulting projections, damaging their overall credibility. The goal is to inspire confidence externally as well as internally while maintaining high ethical standards, which requires a balanced approach toward creating assumptions for financial projections.

Use existing financial information, even if it is limited by the newness of your business, to justify these assumptions and inform your financial forecasting process. Your resulting financial projections should include a P&L statement, cash flow statement, balance sheet, capitalization table, and strategic investment plan.

Lenders and investors will always ask for financial statements as part of the application process. When applying for funding, you will be required to provide both historical financial data and projected financial figures. Banks and investors will then analyze where the company has been and where it appears to be going to determine if its trajectory fits within acceptable risk parameters.