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Has the bank declined you a business loan?
Are you growing but increasingly short of cash and need business financing or working capital?
Is your cash tied up in unpaid invoices and now you need cash flow funding?
Would your business benefit from an account receivable-based "credit line," needing no other collateral?
At some point small and medium size business usually faces a cash flow problem. In fact, research has shown that many growing businesses that fail do so because of inadequate working capital.
For most businesses, having account debtors is the only way that substantial sales revenue can be generated; however, account debtors can sometimes stress the cash flow of almost any business. For that reason many businesses establish lines-of-credit at banks using collateral to compensate for slow paying account debtors.
The aforemention scenario is typical of the way working capital is usually funded for a business. However, if their credit lines are tapped out, they may have to go through a lengthy process to find new financing. If this process takes too long, that business may go under.
How could a growing business -- that is actually profitable -- go under? On closer examination it is not so ironic or surprising. A large contract comes in that does not pay on time or a new market opens up and management ramps up production and related costs are just two examples.
But there is an alternative to going under. This alternative is called business receivable factoring or account receivable factoring. If your company has business receivables or outstanding invoices, you can get immediate cash for these receivables.
Business receivable factoring enables companies to finance growth by strengthen their financial position - their cash flow - by reducing the time it takes for them to get paid for selling goods and services.
COMPARISON CHART:
WITH AND WITHOUT BUSINESS RECEIVABLE FACTORING
|
Year 1 |
Year 2 |
|
Before Factoring |
With Factoring |
| Revenues |
1,000,000 |
2,000,000 |
| Cost of Goods |
600,000 (60%) |
1,200,000 (60%) |
| Gross Profit |
400,000 (40%) |
800,000 (40%) |
| Total Overhead |
380,000 (38%) |
480,000 (24%) |
| Cost of Factoring |
N/A |
40,000 |
| Net Profit |
20,000 (2%) |
280,000 (14%) |
Benefits of Business Receivable Factoring
- Business receivable factoring is fast and easy—much more so than any other type of business financing. It generally takes 5-10 days to set up your account and begin funding your existing receivables. After that, you'll receive funding within 24-48 hours of cutting each new invoice.
- Use your customer's good credit to obtain financing. Your company does not have to be profitable or in business for three years, or meet other bank or commercial lender requirements.
- Business receivable factoring is the only source of financing that grows with your sales. This means that the amount of your financing is limited only by your ability to increase your sales.
- Converting your business receivables to immediate working capital to meet operational expenses and grow your business will free you from collections and allow you to concentrate on marketing, sales, and growing your business.
- Finance your business without assuming additional debt or giving up equity (as required with venture capital). Business receivable factoring is not a loan. This keeps your balance sheet looking good and improves your credit.
- Offer credit terms to your customers without negatively impacting your own cash flow. Thus you can grow your business by making it easier for your customers to buy from you.
- Pay suppliers promptly. This will strengthen your credit. Early payment discounts you receive will significantly reduce the true cost of factoring.
- Stop offering early payment discounts to your customers. They will no longer be needed, and the savings will reduce your cost of business receivable factoring.
- Your invoices will generally be paid faster, because most of your customers are aware that the factoring company generally report payment histories to credit agencies.
- The factoring company will check and monitor the credit of your existing and future customers. This will enable you to make better credit decisions and make sure there is no diminution in their credit status.
For more infomation on business receivable factoring, click here or fill out this quick application.
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