Getting Down to Business With Ready Cash

As I was browsing through NBC News, I found some significant news on the issues small businesses have been facing in the US. It’s indeed a long list ranging from tax burdens, strict federal policies, a poor lending market, political uncertainty and fiscal tiffs to shortage of skilled workers. The small business optimism index is stuck at a stalemate and is showing little signs of improvement. In this scenario, sustainability is in stake for these businesses where lack of capital has cropped up as a major crippling effect on growth. So, business owners need to find a way out to get over the cash crunch. Here, accounts receivable financing or factoring could be an effective solution.

If you are considering taking up an alternate funding option, then it is ideal for your business’ financial health to opt for financing that won’t put additional burden on it. To grow your business, it needs to be stable and have a consistent cash flow to pay the bills and invest in new projects. In this context, you can evaluate your business plan and analyze whether account receivable financing fits your needs. A note to remember is that the more recent your invoices are, the more financing you will get out of them.

So, factoring invoices with 15, 30 or 45 days will have variances in terms of the funding amount. You can get an advance amount, which will be the major portion of the total invoice amount (up to 90%). Usually there is a 2.5% to 7.0% discount fee payable for the factoring services. Factoring uses up your business assets (invoices) to get debt free financing.  Until your business is stabilized, A/R funding is a great way to increase your business’ line of credit. From thereon, you will never have to face the anxiety of paying off the expenses or turn a customer away because you don’t have the cash to fund it.

Selling Invoices to Generate Funds for Your Business

Today’s small businesses often run into financial turmoil, and some take the extreme decision of declaring bankruptcy without knowing the best solution that they could have undertaken. On the other hand, some businesses that are profitable face severe cash crunches due to the lack of cash, which is essential for survival and sustenance. It happens when a business grows, its customer base expands, and their payment terms get extended. In the business world, payment terms of 15, 30, 45, and 60 days are an accepted norm. Though, delayed payments from customers takes its toll on the cash flow of a business as meeting regular expenses become an uphill task. In order to have a permanent solution to this funding woe, small businesses can use invoice factoring services for alternate financing.

You need not take the risk of waiting 15-60 days for payment when you can have immediate access to working capital. Seeking services of a factoring company for instant funding may lead your business to a viable financial resource in the long run. Factoring can provide multiple benefits with consistent cash flow. For example, by quickly turning your invoices into a source of cash reserve, you will always have enough working capital to continue with production, update inventory, and incur the essential operational expenses. Eventually, your company’s efficiency and profitability will increase.

Receiving funds through invoice discounting can provide your organization unlimited opportunities to give your business endeavors the right direction. Your ability to control cash flow will provide you great flexibility to strategize your business’ progression the way you want. Also, by selling your invoices, you won’t be incurring any additional liability for your business. Even companies burdened with heavy tax liability can obtain invoice factoring and can clear up all of their tax obligations. So, unlike banks that only consider tangible assets such as property, inventory, machinery etc. for lending purposes, you can use your invoices as assets by selling them through a factoring service.  You can sell invoices at a discounted rate, which is typically between 2.5% and 7.0%. You will receive an advance amount between 40% and 90% of the invoice value and put it to immediate use for incurring your required expenses.

Unleashing Your Invoice’s Funding Ability

If you are a small business owner, then your company is consistently running up debt to fund its working capital requirements. Such debt may decrease your cash to debt ratio significantly until your business gains a profit by collecting on invoiced payments from customers. Current lending practices from banks have been declining continuously, making the situation tougher for micro businesses. To tide over this cash crunch situation, organizations can use factoring or invoice discounting services for immediate funding.

If your business is persistently facing the risk of low cash reserves, especially when you need to meet payroll and other expenses, then factoring would be an ideal option. This type of funding reduces dependability on banks, and provides instant working capital as and when needed. If more small businesses were aware of this alternative financing option, then they wouldn’t face the fate of closing their business doors due to a lack of financing.

Through invoice discounting, you can easily get funds ranging between $10,000 and $500,000 in 4 days, with an advance amount paid by the factoring company of up to 90% on an invoice. In addition to that, there are no set up fees or penalties except a discount fee (usually between 2.5% and 7.0%).

The list of the benefits for factoring does not end here. There are no long term contracts to bind you, and funding amounts are flexible as well as competitive.

Let’s see at a glance why invoice discounting could be an excellent funding option:

•    Consistent cash flow against a modest fee;
•    You need not follow up with your customers for payments;
•    You will get cash as an advance before your customers pay on invoice;
•    Your business won’t incur any debt for using factoring;
•    You will receive personalized services from the factoring company.

Factoring is increasingly turning into an alternate funding option for smaller organizations for its easy availability and uncomplicated processing. Regardless of your business’ financial condition and credit rating, invoice financing can help you to maintain a healthy cash flow by unlocking your invoices.

Resolving your Cash Needs for Fulfilling Orders

Businesses frequently receive large orders with high profit margin from their valued customers. Though, to fulfill these orders, they may not have sufficient working capital as the suppliers usually expect full or partial payment before they start production. Lack of funds will inevitably delay the order fulfillment process, and the company may lose a big order and an even bigger customer. Trying to get a loan may be futile since banks are not likely to increase the line of credit. During this kind of business contingency, getting into a purchase order financing agreement with a professional factoring company can beat the financial heat.

Following are some of the common business situations, where PO financing could prove to be handy:

• When a business receives large orders during peak season.

• A start-up business with low commercial line of credit.

• Small businesses that are trying to expand and aiming to become a mid-sized business, but don’t have enough working capital to meet the financial requirements.

When you receive a huge order, you need enough money to fulfill it. You need to hire workers, buy raw materials and meet operational expenses; and every passing moment may increase the possibility to miss out on the order. You can have a concrete solution to this serious problem. It’s rather simple and effective. After getting the purchase order (PO) from your customer, you can contact a good factoring company. Once the PO qualifies the due diligence, the factoring company issues a letter of credit to the supplier comprising a financial guarantee so that the supplier fulfills the manufacturing requirements. After the order is fulfilled, you can receive payment from your client, pay the charges for purchase order financing and keep the rest of the profit.

Purchase order financing agreement is a practical funding option that may help you grow your business by efficiently fulfilling larger orders. For the required working capital issue, the POs can be used immediately, and you will never have to face the risk of losing a big merchandise order.

Seeking New Avenues for your Funding Needs

As a business owner, you may find that getting a conventional bank loan isn’t easy. You may have a start-up business that requires a good amount of working capital to meet payroll and tax obligations, avail supplier discounts, upgrade technology, or provide generous payment terms to your customers. Small and medium sized businesses struggle to keep up with the working capital funding needed due to today’s indifferent lending markets. Though the scarcity of funds is a thing of the past, now businesses can take up alternate funding called factoring. Your local accounts receivable factoring companies can provide you with immediate cash to fulfill all your short term business obligations.

     
So, how will you choose the right factoring company for your business? A common determining factor while taking up such services is a low discount fee. Ideally it should not be the only major criteria, and other key attributes should also be considered. Other factors such as the company’s reputation, professional services, whether they are a principle fund provider or work as a third party application processor should be considered. One should also take into consideration turnaround time and which industries the factoring company provides services to etc.; these are all characteristics of a reliable factoring company. Furthermore, a reputed factoring company is keen to build long term business relations rather than providing just a one-time service.

Also, as a business owner, you may feel concerned about your customers’ reaction to the factoring process. Reputed accounts receivable factoring companies consider this important and request acknowledgement from their customers on the accuracy of invoices and their consent to pay the factoring firm directly. This process is known as notification or assignment. This notification further explains your decision to utilize factoring services to improve your business’ cash reserve so that you can serve your customers better.
During the entire factoring process, an executive will help you understand the end-to-end procedure and provide detailed information. Also, the factoring company should be knowledgeable about the relevant industry. For example, while funding a staffing and recruiting firm, a factoring company should be well versed with HR regulations, payroll requirements, relevant payroll software etc. Professional services like these provide assurance about the factoring company’s reliability and efficiency to manage any cash flow issues businesses may face.

Funding for Your Big Order

If you are running a wholesale, you may have often faced cash flow problems while trying to secure large orders. Competing for new business is difficult since clients continuously look out for the lowest price and quickest delivery. In addition to that, to complete these orders you have to use up your cash reserve to buy materials and start production. If you don’t have enough cash for this purpose, then you won’t be able to fulfill the big orders, and it will prevent your business from growing. In this situation, purchase order funding can help you tide over the financial difficulty. After receiving funds, you can afford to pay your supplier, and go ahead with the new projects.

How can purchase order financing be a viable financing option for a business? Think of this; when you are in a rut due to weak financial conditions, purchase order financing will enable you to capitalize on new business opportunities. Once the cash flow problem is solved, the large orders can be completed and delivered on time. It will enhance your company’s profitability as well as develop a reputation in the market. Furthermore, with the availability of PO financing, you will not incur additional debt, and your business’ financial liability will not increase. As it is a flexible funding, you can avail it as much as you need to cover expenses.

The basic methodology of PO financing is simple. A third party funding firm takes your purchase order and provides financing to the supplier. With this funding, the supplier will be able to complete the order and do the shipment. In this way, you can fulfill the order on time and receive payment from the client. Then you will pay a small percentage to the PO funding company, and keep the rest as profit. If your business is able to complete large orders consistently, its growth potential will increase significantly. In the future, when you receive large orders, your business will have the financial capability to complete them without any delay. Thus PO financing can be a practical solution to fuel your business with immediate cash that you need to deliver your orders and keep your business growing.

Filling in Cash Void of Your Business

Small businesses have long been fulfilling their financial requirement by taking out loans from banks. Through the economic slowdown, weak profit margins, poor cash to debt ratio, and stringent federal regulations have forced banks to take a more cautious approach while approving loans to businesses. The rejection rate of loan applications is rising steeply which is leaving business owners in a bind. In this situation, companies can benefit greatly from accounts receivable financing.

By using A/R financing, businesses get an opportunity to raise working capital without depending on a bank loan or other conventional sources of debt. Companies that bill their customers through receivables or invoices often wait 1-2 months before receiving payment. This can cause cash shortages to meet the ongoing operations expenses. If the cash flow problem becomes severe, business owners struggle to find a way to bring working capital into the business. This may lead to the company shutting down. To avoid taking such extreme steps, they could find a practical solution to their cash problems. A/R financing or invoice discounting is one such option.

When a company opts for account receivables financing or factoring, it is actually selling its outstanding invoices for instant cash flow. Instead of waiting for 15, 30, 45 or 60 days for their customers to pay on their invoices, they can generate cash flow in a few days (in 4 days). Factors are companies that buy receivables from a company looking for immediate funds. These invoices are purchased at a discounted rate, typically between 2.5% and 7.0%. The balance amount of the total fund is remitted after the factoring company collects the invoice amount from the customers.

A/R financing is quite useful for a business having a large volume of receivables. By working through a factoring company, it receives advances (usually from 40% to 90%) of an invoice. The factoring company assumes the responsibility for collecting invoice amounts from the business’s customers. From a broader perspective, A/R financing helps capitalizing on the growth potential of a business by providing a quick solution to the cash shortages.