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Factoring Example

Case Study: How can Factoring accelerate business growth?

The Widget Company (“TWC”), a startup company, currently generates $100,000 a month in sales. Its new line of widgets have generated considerable interest and they currently sell them to a customer base of notable Fortune 1000 names, with many more interested in purchasing its products. However, TWC is cashflow constrained; It currently cannot produce any more widgets because if its inability to pay for the additional widget parts and increase the worker payroll necessary to meet this incremental demand.

However, if it were able to access additional funds, they have the customer demand to double its monthly sale numbers. Banks, uncomfortable with the limited history of TWC, decline their requests for a bank loan. TWC, approaches a factor who recognizes TWC’s growth potential and solid customer base and promptly crafts a solution, where TWC factors its $100,000 worth of invoices at a 75% advance rate, which allows it to obtain the needed $75,000 to fund additional orders for a discount fee. As opposed to waiting for the invoice to pay, TWC obtains the much needed funding and is now able to meet their growing customer demand.

Monthly, without Factoring
Sales 100,000
Material Cost -50,000
Gross Profit 50,000 50%
Payroll -25,000
Fixed Costs -10,000
Overhead Costs -35,000 -35%
Factoring Fee 0
Total Expenses 0 -35%
Net Profit 15,000 15%
Monthly, with Factoring
Sales 200,000
Material Cost -100,000
Gross Profit 100,000 50%
Payroll -50,000
Fixed Costs -10,000
Overhead Costs -60,000 -30%
Factoring Fee -4,000 -4%
Total Expenses -64,000 -32%
Net Profit 36,000 18%

This case study simplies the real-world situations that many small businesses face, but Plus Funding is committed to exploring creative solutions to meet your unique needs. Contact us and let us help.