# Benefits of Factoring by looking at an Example

## Here are some Benefits of Factoring by looking at an Example

Assumptions:

\$100,000 Invoice paid in 60 Days

Assuming it is paid in 60 Days

The business has a 7% annual Growth

The Present Value of this is \$98,844   (\$100,000/(1+2.25) .16

(.16= 2 month’s collection period)

Present value = Future value / (1+r)n

If you can get an 80% advance rate with 7% return to your business, you get \$80,000 Now, plus 7% return = \$5,600 Annual Return (\$933 for 2 months)

You pay 2.25% on the \$100,000= \$2250

And you still get \$17,750 in 60 days

So for paying \$2250 (which is tax deductible) , you get \$933 (\$5600/12 * 2 months)- Real cost of \$1317 -The effective interest you paid now is only 1.3% and you got use of the cash immediately.

The higher the rate of return on your business investment, the better this formula works in your favor!

Use the \$80,000 now to get:

• More Inventory
• Payroll
• New equipment
• Renovate the office
• Or for anything you like!

Most clients are struggling with Cash Flow as well and would be willing to pay a little bit more for products or services if you offer payment terms rather than cash on delivery. Taking the above example, if you charge 2% more — I.E. \$102,000, you have just covered that \$1317 cost and made \$683!! Your Profit Margin just increased .

For Manufacturing:

Pay your suppliers quicker and request a discount on the cost of your goods. So if your cost of goods was \$60,000, imagine reducing it by 1% or \$600, combined with the other changes, you now increased your profit to \$1283.

### Bob Alexander

Bob Alexander is President of Alexander Financial Solutions, LLC. He is an expert in obtaining Financing and Working Capital for Business Owners. AFS provides all Asset and Cash Flow Lending. Bob has global experience and proven Leadership skills in Risk Mitigation, Balance Sheet Management , Process Improvements, People Development, Infrastructure Builds and maximizing profitability.
Article Rating
Subscribe
Notify of

Inline Feedbacks

0