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Does it make sense to use factoring long-term?

Recently a client who has been working with a particular spot factor for almost five years now, came to them to buy out his bank line. The factoring company asked, "Tom, why would you want to do that? You're paying three percent annually on that line. Why would you want to do that?"

He told the factor that the reason was that the bank constantly penalized him for things that he didn't understand. He could not get anybody to give him a call back. He couldn't get anybody to answer his questions. If he needed an increase, there was no one to talk to. Every single person would give him the answer, "I'll have to talk to someone and get back to you."

When you're a small business, you don't have time for people to tell you, "I'll have to talk to someone and get back to you." You want to talk to the decision makers. At this factoring company, only the highest underwriters will take over files, and they make decisions. They don't have to ask anyone else for permission. They don't have to get authorization. They make decisions for the small business right at that moment. They'll tell you exactly what they need in order to get you funded. 

The factoring company did buy out that bank line, paid it off. The client continues to do business with the factor regularly, with no issues whatsoever. The factor even worked out a program with him where he now builds the invoice discounting fee into his invoices. So whatever he bills to the customer, he already knows when his customer's going to pay. They have a 10 to 15 day turnaround time. He knows what to build into his invoice to make sure that he's not the one paying for that fee.

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