Factoring is used primarily to improve cash flow. But did you know that it can also indirectly increase profits and revenue? If a business owner can utilize the cash from a factoring advance to complete another sales transaction before the factored invoice is paid, revenue will grow exponentially. And if fixed costs such as rent, utilities, executive salary, and software subscriptions remain stable, your profits will increase too. This despite variable expenses such as labor, packaging, and factoring fees going up with the increased volume.
The sample income statement below assumes that with factoring you can double your revenue from $100,000 to $200,000 per month. The result is that your operating profit margin more than doubles, going from 5% to 14% and your EBIT (earnings before interest and taxes) jumps from $5,000 to $27,000! It would certainly seem that paying an extra $3,000 in factoring fees for the opportunity to earn an extra $22,000 is money well spent.
For 4 tips on how to boost sales with factoring click here.