I've had 11 businesses and still own four of them and in the event you 'd like to learn one of them has an Letter Of Intent to Buy in hand and got to profitability using INVOICE FACTORING ONLY and is totally - as in completely - debt free. Exactly why? They never needed to borrow.<br/><br/> Regarding having used or not used factoring: With three of them and soon to become a fourth I have made use of invoice discounting. Exactly why? You can capitalize the business without borrowing because invoice discounting is not borrowing. FYI: One of those businesses fulfilled orders it could only have imagined carrying out had it not used invoice factoring. It's the one with the LOI in hand in fact.<br/><br/><br/> Receivable Factoring, like it or not, is in fact a front end transaction that capitalizes a company without their having to borrow. It's not complicated and only dates back to the Eqyptians ... and still gets the job done. As to it not opening the flood gates? If you have a million dollars in invoices and can not borrow against them nor turn them to cash your business (my businesses were any way until I factored) are dead in the water until you get in some cash. If you have some alternative to that then tell us . An invoice is a non-performing asset unless you can convert it into cash but I am sure that I'll stand corrected.<br/><br/>QUESTION: If you as a business owner could employ a sales person and they would help you access sales you typically could not BUT you had to pay them a 2 % - 3 % - 5 % commission BUT they would grow your business 10 or 20 or 30 % would you hire that person? If you say yes to this then you are endorsing factoring. It's not different than a credit card transaction. The business owner is selling the transaction to a third party to receive the payment so how is factoring different from cc transactions?<br/><br/> About the cost of factoring? It looks as if that giving up 2 % on the front end of a credit card transaction is ok (on a daily basis and using your formulation in your reply by the way that computes annually to 760 % incidentally but we both know that this isn't true now don't we?). Why should a retailer accept cc processing? More business maybe? Larger sales? And what are they doing? They are selling the transaction to the credit card company. Yes? No? FYI: I offer that service too ... not rocket technology.<br/><br/> Invoice discounting should only be utilized by a company that is turning away sales and can not grow otherwise and note: The only time that they use factoring is when they want working capital to complete an order that they would otherwise lose. It's like the sales commission: The only time you pay the salesman is when he sells i.e. it's a sale you either didn't have with the salesman or it's a sale you can't fulfill because your money if locked up in your invoices and you can't get it out.<br/><br/>That said it's pretty simple equation when you can not access liquidity:.<br/>1.) Use a factoring company and surrender 3 % of the sale OR kiss off the sale and fail the customer and lose my profit margin ... 10 %? 20 %? 30 %?<br/>OR.<br/>2.) Use a factoring company and give up 3 % of the sale OR kiss off the sale and disappoint the customer and lose my profit margin ... 10 %? 20 %? 30 %?<br/>OR.<br/>3.) Use invoice factoring and surrender 3 % OR kiss off the sale and disappoint the customer and lose my profit margin ... 10 %? 20 %? 30 %?<br/><br/>What component of being in business to maximize a profit am I missing?<br/><br/> About the 24 % annually(or as above it would be 36 %) let's bear in mind that the owner of the business above got to complete transactions that he or she otherwise wouldn't have had the chance to. Not a lot different than the retailer that get's to close a sale with a customer comes in with their cc is it?<br/><br/>Also please explain this: A bank loans someone money ($100,000) at 9 % annually. A factor gives $100,000 a month at a 2 % discount and carries this out 12 times over the course of a year. Hmmmmnnn ... the bank provided $100K for 9 % BUT the invoice factoring company actually delivered $1,200,000 for 24 % so which is the far better deal? The bank? It owns you: Invoices, inventory, equipment, your house and your signature ... the factoring company has a right to your invoices: End. Which is better?<br/><br/>Also: What happens with the bank when you need $200,000 and you are only approved for $100K? If you have invoices the factor funds you and you make the sales and reap the profit ... the bank informs you, "Let's see how you do over the next year and come back" or the well known reply, "We don't like your collateral and your credit is weak" and the bottom line is http://www.businessinvoice.org/ that they don't have ability to take the risk or perform the work that a factoring business does.<br/><br/>REMEMBER: MONEY IS NOT LOANED IN A FACTORING TRANSACTION. If you can not accept or understand that then there is no sense in chatting any more on this ...<br/><br/>In closing: To correlate to the last statement that factoring at 2 % monthly in discounted interest costs 24 % in interest margins annually then I'll agree to that but only if it can be agreed that a company that sells product with a 30 % monthly margin hereby generates a 360 % annual profit to which you will yell back "They're not the same" and to that you 'd be right: Factoring and borrowing money from a bank ... Are certainly not the same thing.