Almost every business struggles with cash flow at different times. A law firm is no different, especially when lawsuits drag on for months and even years. Instead of taking out a loan to increase your income, check out how law firm factoring could benefit your business.
What Is Factoring?
With factoring, your business sells outstanding invoices to a factor, the lending company. You receive a percentage of the invoice immediately, typically in just a few days. When the invoice comes due, the customer pays the factor. The factor takes their fee. If there is money left over once the factor is repaid, it is returned to you.
Benefits of Factoring
Factoring takes less time than a traditional bank loan. A bank loan can involve credit checks, not only of your business but of the principals involved. You may have to pay many fees in getting a loan, and present all of the records to your bank. In addition, a traditional loan often has encumbrances, and you can only use the funds for certain items.
With factoring, it’s all about the invoice. The factor may check out the credit score of your client, so if you are a new business without a credit rating you won’t have as much to worry about. You do not have to put up any collateral beyond the invoice. You can choose which invoices to factor. Pick one or two, or ten or twelve, it’s your choice. Money received from factoring can be used as you desire.
Choosing a Factor
Not all factors are the same. Always check out the experience of your factoring company, to make sure that they have professional customer service and will meet your expectations. You may hear the term recourse and non-recourse. Recourse factoring means that you are liable if the customer doesn’t pay. A non-recourse loan relieves you of the obligation.
When working with a factor, make sure that you understand how the client will be introduced to the factor. Otherwise, it could affect your own reputation. Reputable factors will present themselves as a partner with you, so that they do not undermine your business. Law firm factoring offers many benefits for your firm. Ask about the details.