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By the numbers: A factoring example

Consider what an inadequately financed contract packager can do by factoring 50% of its eligible receivables. The company’s factoring cost is 4% of the sales invoice.

Let’s also add the following assumptions:

· Cost of goods sold is 70% of revenues.

· Line of credit from bank is $500ꯠ.

· 7% of the available line of credit.

· Current annual revenue is $2 million.

· Capital availability through factoring is $1 million.

· Percentage of sales factored is 50%.

· Annual percentage sales increase without using factoring is 5%.

· Annual percentage sales increase when using factoring is 25%.

The accompanying chart reflects how factoring can profitably replace bank funding for businesses that can achieve more sales when provided with virtually unlimited cash-flow financing from factoring.

See the main story that goes with this article: Factoring: Jet fuel for attracting packagers

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