Catching Up With Your Business Cash Flow Needs

Keeping up with ongoing business expenses can be strenuous sometimes. You may not be able to pay these expenses on time as you wait on payments coming from your customers. Waiting for payments is not an ideal way of handling your cash reserve. Rather this could result in losing business, thus putting your business plans in jeopardy. Hence, the best solution to this continuous waiting is to generate steady cash flow by factoring your invoices through accounts receivable financing.

Regardless of the size and nature of your business, if the invoices are continually outstanding, it will be difficult to move your business forward. Both start-up and established businesses need to be cash ready to ensure growth, and no business wants to dilute its equity or incur a debt. Having sufficient cash flow is important to stay competitive in the market. Instead of waiting for the customers’ payments, you can convert your invoices into quick cash. For that purpose, accounts receivable financing is an ideal option for short term payment obligations.

One way to stay competitive in the options you offer, while avoiding these payment delays is by using account receivables financing.  Account receivable financing is a form of asset-based lending which enables you to convert your accounts receivable into cash. Account receivable financing can be a great alternate financing option for your business to overcome cash crunches due to money tied up in outstanding invoices. This kind of financing not only helps the businesses to sustain itself, but also encourages that business owners develop and pursue new business strategies.

Usually it takes around four business days to sign up as a new client and receive funds, (and 24 hours for subsequent transactions) as an advance after verifying the invoices from the client’s customer (s). A factoring company can pay an advance amount up to 90% of the invoice value, and deducts a discount fee between 2.5% and 7.0%.

Following are the additional benefits that you can get through factoring:

• Can invest in buying equipment and hiring people.
• Spend on new marketing campaigns.
• Can provide more credit terms to your customers.
• Will be able to pay your suppliers on time.

Invoice discounting or factoring enables businesses to keep themselves current with operational obligations by reducing cash-strapped situations. It also improves the credit rating of the businesses.

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Get your Business Moving without Running into Debt

We all know that small businesses are key to the growth of the US economy.  Success and failure of small businesses create ripple effects which eventually make positive or negative impacts on the broader segments of the marketplace. In recent times, micro businesses are facing plenty of roadblocks on their path of growth due to unfavorable federal policies resulting in lending restrictions. Banks are no longer willing to approve loans to these businesses as they are over-sensitive to credit history and profit margins. Even your business’ convertible assets like invoices are not acceptable to banks. These disapproving banks can’t really impede on your business’ sustainability, as the same invoices can work as collaterals to get you hard cash through spot factoring.  

If you consider the current lending market, the conventional ways of getting loans seem to be over. Banks are not approving loan applications if you’ve been doing business for less than two years, or if your business has bad credit or no credit history. Companies that have experienced bankruptcy have lesser chances to qualify for conventional funding. However, through A/R financing or factoring, you can regulate your business’ cash flow if it is on the verge of drying up. Even start-up businesses with little or no credit history have been denied loans by banks, yet qualified for this service.

A/R factoring works like this — the factoring company buys outstanding invoices after deducting a discount fee (2.5% to 7%) and then advances up to 90% of the balance receivable from the customer. Getting funds through factoring accelerates the revenues that are due from slow paying receivables and gets your business quick working capital. Moreover, this fund will not create debt for your business. Soon after receiving an advance through factoring, you can put the cash immediately to work in the form of working capital. The balance amount will be remitted once the customer makes payment on the invoice.

Your business will get the following benefits from spot factoring:

•     Pay operating expenses.

•     Can grow without incurring debt.

•     Buy new state-of-the art machinery.

•     Take advantage of supplier discounts.

•     Can launch new marketing campaigns.

Now, you have found a method of regulating working capital and ensure constant cash flow that makes your business function seamlessly.

Blow Away The Blues of The Cash Crunch

Getting loans for businesses has become increasingly difficult in recent times, and it is anticipated to be even harder to get in the days to come. The volatile economy, slumping profit margins and a stiff credit market are making loans scarcer than before. Specifically, if you are a small business owner, you must be realizing how banks are showing indifference while approving loan requests. The latest Federal Reserve Policies are affecting the banks’ lending decisions, and giving out loans to small businesses is not profitable for the banks anymore. Due to this reason, these businesses are likely to bear an additional cash burden due to less availability of loans or lines of credit. To resolve this situation immediately, you can turn to the most viable option called accounts receivable factoring, through which you can easily meet the short term business obligations.

You need to keep in mind that the devaluation of currency, as well as vulnerability in the stock and credit markets will get worse, resulting in tighter credit standards, and non-availability of traditional loans. On the other hand, your customers may be asking for credit extensions beyond the usual 15, 30, 45 or 60 days credit terms. If you agree to their request, it will further delay payments against the invoices. In the interim, small business owners like you have to look for a steady funding option for a constant cash flow without taking on further debt. A/R factoring or invoice discounting can provide your business a much needed source of cash flow for regular business expenses or implementing an expansion plan.

A/R Financing is a great option for business owners to improve cash flow by financing their invoices less a discount fee. You can receive cash in advance of up to 90% of the invoice value that is due from your customers, and meet operational overhead. At a glance, you can get the following benefits from having this instant cash flow:

•Fulfill your working capital needs.
•Meet payroll expenses.
•Extend further credit to your customers.
•Fuel business growth by hiring new staff or implementing new business strategies.
•Clear tax burdens.

Considering the current stalemate in the lending market, you can’t actually rely on banks for financing. A/R factoring can boost working capital reserves to help your business grow continuously without facing any roadblocks. For invoice factoring, you don’t need to have a spotless credit history. Factoring companies approve funds on the basis of your customers’ creditworthiness, not on your business’ or personal credit. If you are still struggling to obtain the conventional forms of financing, then opt for factoring services and see how it can turn things around for you.

Creative Financing for your Burning Cash Flow Issue

Small businesses are said to be the backbone of the US economy. Though, the prevalent industrial and financial state in the country is giving a different picture. According to the reports of the National Small Business Association, one out of four businesses lacks the working capital that is essential to take their businesses forward. These organizations are struggling to get funding since banks have taken a more conservative approach while lending finances to small businesses. Even though the market is expanding and generating more opportunities, the growth process of small businesses has become limited. In this context, invoice factoring companies can easily replace banks for providing a practical and alternative financing option.

Though demand for small business financing is quite high, its availability is falling sharply. Statistics show that in December 2012, the percentage of loans approved for small businesses was below 15%**. Fortunately, there is an alternative option called factoring, which small business owners can avail to meet their immediate funding needs. The factoring process involves a factoring company buying a business’s account receivables or invoices. The company then pays an advance between 40% and 90%. Only around 3.0% percent of small business owners are aware of factoring as a financing option. Other companies that capitalize on factoring opportunities are sustaining and growing their businesses.

Let’s have an example on how factoring works. Assume your business has $200,000 as accounts receivables, and the invoices’ aging are for 15, 30, 45 days. It means you won’t receive payment from your customers before this timer. Rather, customers often request to increase payment terms, and that will delay the cash flow further. In between, you have to pay salaries to your staff, pay your suppliers and you may have to invest in new projects. So, to avoid a cash crunch, you decide to have services of an invoice factoring company. After verifying the invoice amount and aging schedule, the company approves 80% financing as an advance, less a discount fee of 3.5%. The calculations would be as follows:

Amount of Invoice Factored:                           $200,000

Advance Amount:                                            $160,000

(80% of $200,000)

Less: Discount Fee @3.5%:                            (-) $7,000

(3.5% of $200,000)

**********************************************

Net Advance Received by You:                         $153,000

Balance Amount to Receive:                             $40,000

(20% of $200,000)

**********************************************

As shown in the above example, the factoring company will pay the balance amount of $40,000 to you once it collects payment from your customers. This will then complete the factoring transaction.

How to Mobilize your Slow Paying Invoices

Are you feeling frustrated due to your company’s current financial health? Are you clueless about strategizing on a concrete solution to restore your business’ cash flow?  You have applied to several banks for loans. In response, banks have quickly turned down your loan applications. Persistent cash flow issues like this brings the curtains down for many businesses. Your business may not meet the same fate unless you are proactive enough to avail services of an invoice factoring company, and tide your company through the financial mess.

A factoring company can provide precious funds to your cash-strapped business with specifically designed flexible financing process. You may not be aware of the factoring concept, and feel confused, but the factoring company you choose will take you through the entire process step-by-step. Once you get detailed clarification on the process, you will find it quite simple and convenient. You will realize that your company is holding some valuable assets in the form of accounts receivables or invoices. Your customers are supposed to make payment against these invoices once the payment terms (15, 30, 45 days etc.) are completed.

In order to have financing in a quick and flexible way, it is important that you choose the right account receivables factoring company for your organization. There is a plethora of factoring companies in the US, and each of them has different processes, services, and flexibility to offer. You need to find a factoring company that fulfills your financial needs completely and provide efficient services throughout.

The common factors for choosing the right factoring company for your business are below:

  • Fees – Check how much they are charging as discount fee, and what variance does it have from the standard fees in the market.
  • Penalties – Get clarifications on whether the factoring company charges a penalty or not. You may lose precious money if you have to shell out more in an already cash-crunch situation.
  • Experience – Its always recommended to choose a professional and experienced factoring company that can provide both flexible and personalized services while funding your business.
  • Turnaround Time – As you need immediate cash for your business, check how quickly and efficiently the factoring firm can respond to you with its funding decision. Also, how soon will you get an advance amount?

Considering the above-mentioned points are important since they will ensure that the factoring financing will be a win-win situation for the both parties.

The Determining Factor for your Business

When your business is in a cash crunch, there are very few practical ways to get funds without incurring debt. Over the years, taking out a loan has been the only method preferred by business owners, since there were few alternatives available to them. Now things have changed, and the same old approach for commercial financing is no longer the option, specifically for small and medium businesses. With banks not lending money as readily, it has become quite difficult for businesses to get working capital for daily business expenses. This is frustrating for businesses as lack of funds causes them to struggle to meet their short term obligations. As a result, these companies can’t capitalize on growth opportunities and remain stagnant. Some even contemplate shutting down their businesses. Before taking such extreme steps, companies should look for secondary financing options to bring cash flow back into their businesses. One of the most feasible options in this context is accounts receivable financing.

If you own a small or medium size business and are able to deliver quality products and services and you have reputed clients and a good infrastructure, then accounts receivable financing could be of great help to you. Asking for a bank loan to increase the line of credit could well be a futile effort as most banks are turning down loan requests. Even if you qualify for a loan, it could only be a temporary solution since you will be borrowing money and will need to pay it back along with interest. In this situation, you can utilize your accounts receivables as collateral to get the working capital you need, without incurring debt. Furthermore, your company’s weak cash to debt ratio, credit history and profit margins won’t create an obstacle for receiving such funding. You will be selling your invoices to a factoring firm that will pay you an advance amount (40% to 90%) based on the invoice’s face value and aging.

The methodology of factoring is based on selling your assets (invoices) to a factoring company, at a discount. This is neither a loan nor a line of credit, rather it is an asset sold with the convenience of receiving money in 4 days. You may choose to factor one invoice, which is called spot factoring or you can sell multiple invoices. This way of funding can bring a great solution to your ongoing funding woes and will make your company’s balance sheet look healthy.

The X ‘Factoring’ for your business

You do not have to worry about the dwindling fund lending market for small businesses anymore. Due to slowing down of the economy, banks have become stricter with lending policy and approve less applications than they did before. You cannot be dependent on banks for needed cash flow to help your business get by. Also, the application process for taking loans from banks has become longer and more tedious. Wouldn’t it be great if you had a cash source that can fulfill your businesses’ immediate cash requirement? Even better, how about if it wasn’t a loan. Hence, there would not be any future liability to pay back. Sounds interesting? What we are talking about is called account receivable factoring. This process has never been simpler, with up to 90% of funds in advance, and completed in quick turnaround time.

What is factoring? The concept of ‘factoring’ is specifically designed for the small business owners like you who cannot wait for 15, 30, 45 days etc. for their customers to pay them. Rather, you can sell your invoices to a fund provider at a discount. The discount fees are typically based on one or more of the following, the percent of the invoice that is advanced, the duration period of the invoices, the value/size of the invoices to be purchased or any combination thereof.  For example, a company sells a product to a customer and generates a $50,000 invoice payable in 30 days. This is an accounts receivable and an asset to the company. The company however is in need of short term working capital to finance next weeks payroll, but cash from the sale is not expected until 30 days later. Unfortunately their bank says no to a request for short term working capital financing. The company can sell the invoice at a discount (fees 2.5% to 7.0% – 30 days) to a factoring company for immediate cash.  The factoring company will then collect the full amount of the invoice from your customer when the invoice is due in 30 days. The factoring company then deducts any fees plus what was previously advanced to the client and any balance gets rebated back to client. Advances on invoices can typically range from 40% to 90%.

Once your cash flow problem is resolved, you can now focus on the prosperity of your business. Another important benefit you will get out of this financing is that you need not carry the burden of paying back the funded amount. So, there is no waiting for the customers’ payments, anxious effort for seeking loans and drudging along for bank approval. So, you can make your small business grow big!